The real property tax rate in Los Angeles, California is among the lowest rates in the United States. See illustration below. The low property tax rate does factor into the high demand for property and real estate development.
Forever 21 Purchases Two Large Buildings
Forever 21, the large garment manufacturer of young women’s clothing, has acquired two large buildings in the past year. The first building is the 370,000 square foot Overland Terminal facility at the intersection of Alameda St and Olympic Blvd in Downtown Los Angeles with a price of $20 M. This multistory building has parking and dock high loading. The second purchase was in the City of Vernon on Sierra Pine Ave. This collection of several Class B buildings totals near 130,000 square feet. Forever 21 was the tenant in the buildings and the sale price was approximately $6.5 M.
The company is based in Downtown Los Angeles and occupies several hundred thousand square feet of buildings at Alameda St and 20th St.
CMBS Defaults Coming, Haven’t Yet Arrived En Masse
2010, 2011 and 2012 will be difficult years with a significant number of commercial mortgages reaching the end of their five-year lifespans, but another set is coming due in 2015, 2016 and 2017.
About $185 billion of the $600 billion in commercial mortgage-backed loans issued between 2005 and 2007 are scheduled to mature between 2010 and 2012. It’s not only CMBS that market watchers should be worried about, because $1 trillion worth of commercial mortgage maturities will occur by 2012, including CMBS, bank loans and insurance company loans.
There are many hungry buyers sitting on the sidelines with cash ready to pounce. A limited number of them have been able to find bargains, but most of coming commercial real estate defaults will occur in Office and Retail, with Industrial markets holding better ground. The Central Los Angeles Industrial market has witnessed very few CMBS defaults at this time.
Flat Los Angeles CPI for April
The Los Angeles MSA (LA-Riverside-OC) Consumer Price Index inched up by +0.1% in April following no change in overall prices in March. Over the past year, prices in the region have declined by -1.3%. The chief culprit was falling transportation prices which were primarily driven by plunging energy prices, down by -32.1% since April of last year. On the other hand, core CPI (less food and energy) prices increased by +1.5% during the same period. [Note: local consumer price index data are not seasonally adjusted]
The above data is used to calculate the annual rent increases on a typical lease. Many rent adjustment clauses allow for annual increases to fall within a range, such as 3-6% per annum. Right now, the annual rate of change is zero according to the above data.
Commerce Boardwalk – Replacing Industrial With Retail
Over the past several years, the City of Commerce has been pushing forward with plans to raze a strip of industrial buildings between The Citadel shopping center and The Commerce Casino. The city’s goal is to replace these warehouse and manufacturing properties with retail development.
Parties that have been involved or have an interest are the following: Costco Wholesale Inc; Nederlander Organization; Majestic Realty; Commerce Hyundai; J.H. Snyder Company; Golden Boy Productions; and Craig Realty. Costco is currently constructing a new 126.432 square foot retail building on a 12 acre site at 6333 Telgraph Road; the 126,432 square foot store will be a business-to-business prototype, serving the needsof community and business residents. The store will feature business supplies, a food court, and a 4-bay gasoline station. This corner location at Telegraph and Washington is the site of the former Firestone building. Here is a preliminary site plan for the project.
