Category Archives: Note

A brief writing. Industrial real estate related.

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Business Improvement Districts aka BIDs

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A Business Improvement District (BID) is a formally recognized non-profit organization dedicated to improving the quality of life in a defined region. BIDs vary in the supplemental services they provide, such as public safety, maintenance, marketing, and capital improvements. The efforts are funded by a special assessment paid by the property owners in the district. A BID is a public/private partnership, which allows governing bodies and property/business owners to unite in a collective effort for the maintenance, development, and promotion of their commercial district. They can help to manage vagrants and homeless encampments and all the filth and trash that they produce on city streets and sidewalks.

Map of Los Angeles Business Improvement Districts

BIDs in Central Los Angeles

The Downtown LA Industrial District BID extends from San Pedro to Alameda Streets and from 3rd Street to Olympic Boulevard— a nearly 50-block area in the heart of Downtown Los Angeles. This area is the historic home of seafood, produce, flowers and a variety of products shipped in and out of Los Angeles by air, rail and sea. It’s also home to wholesalers, restaurants, cafes, and in more recent years startups and mixed-use retail/office centers.

The South Los Angeles Industrial Tract Business Improvement District was established in 2007 and has had a tremendous impact in improving the area. SLAIT, aka the Goodyear Tract, has a long history as a vibrant industrial district and looks forward to a promising future. It is one of the more active business districts in the City, with approximately $1.4 billion in sales, over 200 companies, and approximately 4,000 employees. The South LA Industrial Tract BID is a self-imposed, annually assessed, Business Improvement District (BID) comprised of 152 commercial property owners representing over 400 parcels. The BID was formed with the sole purpose of enhancing the industrial area primarily through safety and maintenance programs and is approximately 22 blocks; an area bounded roughly by Slauson Avenue on the North, Florence on the South, Central Avenue on the East and Avalon Avenue on the West.

The Arts District is a fiercely original, urban neighborhood, situated on the eastside of Downtown, boarded by the Los Angeles River and walking distance to Union Station and City Hall. The district is home to galleries, restaurants, creative office space, live/work lofts and upscale condos with a hip urban vibe. The streets are rich in character as local street artists have turned building walls into canvases showcasing their artwork. Many of the neighborhood’s business establishments are tucked into early 20th century warehouses and former factories. Institutions like the Hauser and Wirth Gallery, the Southern California Institute of Architecture and the Los Angeles Clean Technology Incubator help give the Arts District its distinct character.

The LA Fashion District Business Improvement District (BID) serves a 107-block area generally between 7th Street to the north and the Santa Monica 10 Freeway to the south, and from Broadway to the west and Paloma Street to the east.

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4 Ways a Rental Property Can Benefit You

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The benefit of real estate investing boils down to the following four ways investors typically plan to make money on their real estate investment.

1. Cash flow
The primary purpose of those who purchase rental income-producing property is to rent out space in their asset in order to collect rental income. And cash flow is generated after the property’s operating expenses and debt service (i.e., mortgage payment) are deducted from that rental income. Thus, when more cash comes in than goes out, the result is a “positive cash flow” that becomes periodically available to the investor on a regular basis.

2. Tax Shelter
One of the primary benefits of owning rental income property is being able to legally reduce your annual or ultimate Federal income taxes with the following four tax deductions:

  1. Acquisition costs – Most costs incurred at the time of purchase are deductible in the year of purchase.
  2. Property expenses – All expenses incurred in the operation of the property are deductible.
  3. Mortgage interest – The interest paid on the mortgage is deductible.
  4. Depreciation – The IRS also assumes that your buildings are wearing out and becoming less valuable over time and therefore allows you take a deduction for that presumed decline in what the tax code calls cost recovery (i.e., depreciation).

Of course there are nuances and exceptions in all tax matters that every investor should always discuss with a tax expert. But you get the idea.

3. Loan Amortization
Loan amortization signifies a periodic reduction of the loan over time. In other words, with a fully-amortized loan (i.e., not interest-only), each payment made reduces some amount of principal. As stated, home buyers enjoy loan amortization, too. But here’s the difference: with a rental income property, the tenants are virtually paying down the debt—and therefore helping the investor to buy the property—each time they pay their rent.

4. Appreciation
Appreciation is also not exclusive to rental income property because any real estate sold for more than its original purchase price would benefit from appreciation, whether it be a personal residence or office complex. With investment real estate, however, the owner doesn’t necessarily have to leave appreciation to chance the way a typical home owner would. The truth about real estate investing is that investors buy the income stream of a rental property. And as a result, the more income stream a landlord can generate (perhaps by lowering vacancies or reducing wasteful expenditures) the more they can expect their property to be worth; and the sooner they can impose these changes, the sooner their rental property is likely to appreciate.

Contact us with questions.

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Curling in a Vernon Warehouse

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Curling stones for points on ice

In 2020 this 42,000 square foot concrete tilt-up warehouse was leased to Southern California Curling Center. It was built in 1997 with 24 foot ceiling height with a total lot size of 75,000 SF in the industrial enclave of the City of Vernon.

The Hollywood Curling Club, a nonprofit for 13 years, is based in the Southern California Curling Center, which is quickly becoming the Western hub for the sport. Opened in August 2021, the center is a 42,000-square-foot converted warehouse featuring six “sheets” of “dedicated ice.”

Curling aficionados say the center is the biggest facility in the Western United States that features dedicated ice and sheets built and maintained exclusively for curling. The center provides the stones and hosts leagues, tournaments and corporate events, along with learn-to-curl training sessions.

2022-02-09 LA Times article

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Container Jam at L.A. Port

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There appears to be no sailing around the breathtaking backup of container ships off the jammed ports of Los Angeles and Long Beach.

Newly arriving vessels are adding to a record-breaking flotilla waiting to unload cargo that on Sunday reached 73 ships, according to the Marine Exchange of Southern California, nearly double the number a month ago and expanding a fleet that has become a stark sign of the disruptions and delays roiling global supply chains. 

Cargo Ship Logjam in Los Angeles Highlights Pandemic Supply-Chain Issues
An average of 30 container ships a day have been stuck outside the Ports of Los Angeles and Long Beach just waiting to deliver their goods. The backlog is part of a global supply-chain mess spurred by the pandemic that means consumers could see delivery delays for weeks. Photo Composite: Adam Falk/The Wall Street Journal

Before the pandemic, it was unusual for more than one ship to wait for a berth.

Big vessels are continuing to join the bottleneck, experts say, because shipping lines and their cargo customers have few options for resetting countless supply chains moving goods into the U.S. that have been constructed over decades around the critical San Pedro Bay gateway now staggered by the overflowing demand for imports.

Although some ships have headed to other import gateways, and a handful of shippers have chartered smaller vessels to move goods through other ports, the diversion is minor compared with the hundreds of thousands of containers idled in the waters off Southern California.

“Everything is aligned to L.A.,” said Nathan Strang, senior trade lane manager for ocean operations at Flexport Inc., a San Francisco-based freight forwarder.

The congestion this year has been caused by a surge in imports as consumer demand in the U.S. has shifted away from services to goods and home improvements and retailers have rushed to restock inventories that were depleted last year in the early months of the pandemic.

The neighboring California ports are the principal seaborne gateway to the U.S. thanks to the growth of containerization over the past 60 years and an explosion in goods trade, particularly U.S. trade with China. Last year, the two ports handled the equivalent of 8.8 million loaded import containers, more than double the 3.9 million loaded boxes that arrived at the nation’s next busiest port at New York and New Jersey.

The California ports are in easy range of China and the factories that churn out big volumes of electronics, apparel and an array of other consumer goods. They have enough land to house dozens of cranes capable of emptying large ships as well as sprawling terminals to store boxes.

Container ships outside the Port of Oakland. Smaller ports like Oakland and Seattle can handle just a fraction of the containers processed at the ports of Los Angeles and Long Beach.Photo: Justin Sullivan/Getty Images

For the retailers that are among the major importers at Los Angeles and Long Beach, the ports offer quick reach to one of the largest population centers in the country. That means they can split arriving goods between a large local consumer base and rail links that offer steady, direct transport to the rest of the U.S. through inland hubs, with most of the boxes heading through Chicago.

Despite some shortages, the availability of trucking equipment, warehouse space and labor is also far greater than at other ports.

Shipping executives say other West Coast ports, like Oakland or Seattle, simply aren’t large enough to handle the hundreds of thousands of containers that Los Angeles and Long Beach unload, store and move by truck or rail each week.

“It would just take a very small portion of  L.A./Long Beach to overwhelm those ports,” said Craig Grossgart, senior vice president of global ocean for Seko Logistics, an Itasca, Ill.-based freight forwarder.

Above text excerpted from WSJ article.

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Best SoCal Industrial MLS

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The AIR CRE is the premier multiple listing service for industrial real estate such as warehouses and manufacturing buildings in Southern California. Whether you are a buyer or tenant or landlord or seller, this MLS is the service that all the top-tier brokers primarily use. It services industrial, office, retail, and other commercial real estate listings.

There are over 33,000 listings in the system for SoCal. And there are over 1,600 members in SoCal. So if you seek to search or list for sale or lease a warehouse or other commercial property in Los Angeles, Orange, San Bernardino, Riverside or Ventura counties, contact us as we are members of this MLS.

LoopNet, which is owned by Costar, is a second-tier MLS that we also use but it’s data pales in comparison to the AIR CRE and top firms mainly use it as a secondary marketing tool but don’t always put their listings there. The most active and major Los Angeles commercial real estate brokers use the AIR CRE, which is member owned and created in 1960.

AIR CRE
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Sixth Street Bridge Replacement With New Design in DTLA

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6th Street bridge over the Arts District East

The City of Los Angeles Bureau of Engineering is leading the construction of the new, $588 million Sixth Street Viaduct Replacement Project, the largest bridge project in the history of Los Angeles. The completed structure will be a 3,500-foot long viaduct connecting Boyle Heights and the Arts District across the Los Angeles River. The original viaduct was built in 1932, but had significantly deteriorated due to “concrete cancer”; it was demolished in 2016. The new viaduct will have ten pairs of lit arches, bike lanes and wider sidewalks, along with stairway access and bike ramps connecting to 12 acres of recreational and open space under the bridge, including the Len Hill Plaza. The bridge is funded primarily through the Federal Highway Administration, with additional City support. The viaduct will be completed in Summer 2022

Constructed in 1932, the original Sixth Street Viaduct (also known as the Sixth Street Bridge), was an important engineering landmark in the City of Los Angeles. It was one of a set of fourteen historic structures crossing the Los Angeles River, and the longest of these structures.

Due to its large size, the original Sixth Street Viaduct was constructed using an onsite concrete mixing plant. Unfortunately, the aggregate used in the concrete caused a chemical reaction known as Alkali Silica Reaction, which caused deterioration of the concrete structure within 20 years of its completion. The total project replacement cost is $488 million, making it the largest bridge project in the history of Los Angeles.

Located in a highly urbanized area just east of downtown Los Angeles, the original bridge acted as a critical transportation link between the neighborhoods of the Arts District on the west side and Boyle Heights on the east side. 

The original viaduct was demolished in 2016. The new viaduct is scheduled for completion in 2022.

The 6th Street PARC is scheduled for completion in 2024 where there will be 12-acres of open and recreational space under the viaduct, including access to the LA River, an arts plaza, public art and numerous community amenities.

Amid exclamations like “I am going to be so happy to see the bridge completed!”, the most common questions on social media were about pedestrian and bike lanes and general accessibility. The wide and separate sidewalks and bicycle lanes planned for both sides of the bridge met with high praise. https://www.sixthstreetviaduct.org

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Types Of Industrial Properties Explained

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Industrial is 1 of 4 commercial property types (Industrial, Retail, Office and Multi-family) and is a broad category encompassing many different types of buildings with the most common being warehousing and distribution or manufacturing. Below are brief descriptions of 8 industrial property types.

Warehouse / Distribution

Industrial warehouse and distribution building for Amazon.

Warehousing & Distribution buildings are very large, single-story structures used primarily for warehousing and the distribution of business inventory. These buildings range from 5,000 to hundreds of thousands of square feet under roof and have up to 60-foot ceiling heights to accommodate extensive racking and storage systems. These buildings may have a small amount of office space as numerous loading docks, truck doors and large surface parking lots to semi-trailers. Some buildings may be served by rail cars.

Manufacturing

Industrial food manufacturing building producing meals for delivery in Downtown Los Angeles

Manufacturing facilities (also called heavy industrial buildings) are designed to house specialized equipment used to produce goods or materials. In addition to providing three-phase high capacity, electric power, these industrial properties may include heavy ductwork, pressurized air or water lines, buss ducts, high capacity ventilation and exhaust systems, floor drains, storage tanks and cranes. A subset of this is food manufacturing which often includes refrigeration, clarifiers, boilers, sloped floors for drainage, and other specialized food facility equipment.

Refrigeration/Cold Storage

Lineage Cold Storage, Vernon, CA

Refrigeration/Cold Storage are specialized industrial buildings that offer large capacity cold storage such as cooler (34 deg F) and freezer (-10 to 0 deg F) rooms. They are often used as a distribution center for food products such as meat, produce, prepared meals, dairy, etc…

Flex

Media Centre Dr
Media Centre Drive

This versatile building type (short for “Flexible”) covers a broad range of uses and often is used to combine one or more uses in a single facility, including office space, research and development, showroom retail sales, light manufacturing research and development (R&D) and even small warehouse and distribution uses. Because of this versatility, flex buildings are sometimes listed as separate category. Flex buildings typically have ceiling heights under 18 feet and have a higher percentage of office space than larger industrial buildings.

Showroom

Similar to flex/office buildings in basic construction and layout, showroom buildings combine retail display space with extensive onsite storage and distribution. Typically up to 50% of the interior space in showroom buildings is dedicated to sales.

Telecom / Data Hosting Centers

CoreSite Data Center in DTLA

These are highly specialized industrial buildings located in close proximity to major communications trunk lines with access to an extremely large and redundant power supply capable of powering extensive computer servers and telecom switching equipment. These buildings have reinforced floor slabs capable of supporting the weight of the electrical and computer equipment as well as backup generators, and specialized HVAC. They may also include raised flooring to handle cooling and extensive cabling. These buildings may also be called Switching Centers, Cyber Centers, Web Hosting Facilities and Telecom Centers.

R&D

Flex buildings are popular in high technology industries such as computers, electronics and biotechnology because they effective support a hybrid of office, manufacturing and warehouse space housed in a single location. Often these types of space users prefer locating in campus-like business parks featuring extensive landscaping, shared architecture design, and lots of surface parking and open space.

Biotech (Wet Lab)

Biotech buildings are highly specialized flex buildings that support a range of laboratory space where chemicals, drugs or other material or biological matter are tested and analyzed. This type of building requires extensive plumbing and water distribution, direct ventilation and specialized piped utilities. In addition, some may offer accurate temperature and humidity controls, dust control, and heavy power. Often these types of buildings are located together in campus-like fashion with extensive landscaping, extensive surface parking and open space.

Soundstages – Film & TV Production

Soundstages are sometimes built new for film and TV production and other times developers retrofit industrial buildings. These facilities typically have ceiling heights over 30 feet with concrete tilt up walls along with ancillary offices and a commissary for film crews to eat.

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Brief History of The Citadel, City of Commerce

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In 1929, architects Morgan Walls and Clements (Mayan Theater) built Commerce’s most recognizable landmark, the Assyrian-themed Samson Tire and Rubber Co. factory before being shut down in 1978. The city bought the Samson site for $14 million in 1983. Seven years later, Trammell Crow Co. was brought in to oversee the $118 million redevelopment of the site into an outlet center, as well as the construction of a 201-room Wyndham Garden Hotel next door.

When the partnership defaulted on its ground lease with the city in 1998, Commerce officials took back the center and began marketing it to firms that would double its retail size and make it competitive with newer outlet malls in Southern California.

Craig Realty bought the Citadel Factory Stores from the City of Commerce for $50 million in July 2002, with the condition that his firm would double the size of the retail center of outlet shopping stores.  Craig Realty owns factory outlet centers in Cabazon, just outside Palm Springs, and Carlsbad. It also helped develop Camarillo Premium Outlets.

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1031 Tax-Deferred Exchange Options

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There is a common misconception that all tax-deferred exchanges are complicated and require all properties, relinquished and replacement, to close concurrently. Fortunately, the most common exchange variation, the delayed exchange (also referred to as a deferred or “Starker” exchange, Starker v. U.S., 602 F.2d 1341), provides Exchangers with more flexibility and options in acquiring the replacement property than the simultaneous exchange. The delayed exchange begins when the Exchanger’s first relinquished property is sold and is completed when the last replacement property is acquired within the prescribed exchange period. To provide the required notice to the relinquished property buyer(s) and the replacement property seller(s) the Purchase and Sale Contract for each property should include an “exchange cooperation”.

The standard industrial / commercial real estate purchase agreement that we use in our sale transactions in Los Angeles County has standard 1031 Exchange language. This would apply to all commercial real estate types such as retail, office, industrial, or multi-family apartment buildings.

The use of a Qualified Intermediary (also known as an “Accommodator” or “Facilitator”) is the most common method used to complete a valid delayed exchange quickly and easily. The Qualified Intermediary is an independent party to the exchange transaction, who performs the function of creating the reciprocal trade of properties for the exchange, holds the exchange funds and supplies the necessary exchange documents, such as the Exchange Agreement, Assignments and Closing Instructions. The Exchanger assigns the rights in the Sale Contract for the relinquished property and in the Purchase Contract for the replacement property to the Qualified Intermediary, who essentially becomes the “seller” of the relinquished property and the “buyer” of the replacement property. To avoid actual or constructive receipt of the exchange funds by the Exchanger the proceeds from the sale of the relinquished property are held by the Qualified Intermediary until they are needed for the acquisition of the replacement property. In both simultaneous and delayed exchanges in which a Qualified Intermediary is used to create the reciprocal exchange of properties the IRS allows “direct deeding” of the relinquished property from the Exchanger to the buyer and of the replacement property from the seller to the Exchanger, thereby avoiding the necessity of the Qualified Intermediary holding title to any property. Revenue Procedure 90-34, 1990-1 C.B. 552. Direct deeding avoids the assessment of double state, county, or local documentary transfer taxes and any liability on the part of the Qualified Intermediary for environmental hazards that may exist on the property.

The Treasury Department issued Regulations in 1991 that clarified the acceptable methods to properly identify replacement property. See Treas. Regs. §1.1031(k)-1(b)-(e). First, the Exchanger must receive all replacement property within the earlier of 180 days after the date on which the Exchanger transferred the first relinquished property, or the due date (including extensions) for the Exchanger’s tax return for the tax year in which the transfer of the first relinquished property occurs. Second, the Exchanger must identify the replacement property to be acquired by the end of the Exchange Period within 45 days of the transfer of the first relinquished property. These time periods are very strict and cannot be extended even if the 45th day or 180th day falls on a Saturday, Sunday or legal holiday. The proper identification of replacement property is critical and if not made in a timely manner the exchange fails and the entire transaction is taxable. The rules are as follows: (a) the replacement property identification must be in writing and signed by the Exchanger, (b) it must be delivered by mail, fax or hand delivery to a party to the exchange transaction (usually the Qualified Intermediary) by midnight of the 45th day, (c) the replacement properties must be unambiguously described, such as by a street address, tax lot number, legal description or the like, and (d) the Exchanger may list up to three properties of unlimited value, but if more than three properties are listed, their total aggregate fair market value may not exceed 200% of the aggregate fair market value of the relinquished property. It is essential in a delayed exchange to adhere to these rules and deadlines established for identifying and acquiring the replacement property. Failure to comply with these rules may result in a failed exchange.