The L.A. County industrial neighborhood of City Terrace has seen increased buyer and investor activity in the past few years. Not only have several properties sold in this up and coming area, but a new 200,000 square foot industrial building is under construction by a well known developer.
The heightened interest in this once sleepy area may be due to it’s proximity to the Arts District, Boyle Heights, and Lincoln Heights, and also between Cal State University L.A. and the USC Keck School of Medicine. Nearby a Biotech/Bioscience campus is being built with heavy interest from prospective tenants. These are exciting developments for one of the oldest industrial tracks in L.A.
A new opportunity is a 106,141 square foot land parcel with 40,000 square feet of old manufacturing buildings on it. This site is being offered for sale at land value. Allowed uses in this M2 zone are manufacturing, distribution, trucking, cannabis, and a variety of other industrial and commercial uses. One advantage of operating a business in unincorporated county lands is that there is no gross receipts revenue tax as there exists in the City of Los Angeles.
The City of Los Angeles is in the process of updating its land use plans. These plans are the way the City plans for the future. The Draft Boyle Heights Community Plan Update is the blueprint for guiding this change. For a PDF of the plan see Boyle Heights Zoning Plan Update. Note the industrial section known as The Flats, on the left side of the image, is being rezoned from Industrial to an Innovative zone. This may be a riff from the CASP multi-zoned ordinance passed for the area north of DTLA near LA State Park, the cornfield.
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
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 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 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…
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.
Flex buildings can be used for light manufacturing that do not require extensive physical plant and space requirements that heavy industrial buildings provide; such as light assembly.
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
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.
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.
The secondary market for commercial real estate is just beginning to show new life, with the first successful sale of a commercial mortgage-backed securities (CMBS) package in over a year and several new issues in the wings spurred by the strong investor interest on that initial offering. But the positives of renewed activity are tempered by more bad news on the performance of those commercial bond deals made before the freeze.
According to a new report from commercial research provider Trepp, delinquent loans in commercial mortgage securities jumped 85 basis points to 5.65 percent at the end of November. That figure is up from just 4.8 percent a month earlier.
The delinquency rate was highest in the hotel sector, where defaults skyrocketed from 8.67 percent in October to 14.09 percent in November. According to Trepp, the upsurge came from a single Extended Stay Hotel loan. Without it in the mix, the hotel delinquency rate would have increased only 64 basis points, to a little over 9 percent.
Based on Trepp’s analysis, delinquencies on multifamily CMBS loans rose to 8.78 percent in November, up from 7.66 percent the previous month. All other sector’s showed slighter increases. Retail edged up from 4.53 percent to 4.78 percent. Industrial increased from 3.18 percent to 3.33 percent. Office loan delinquencies crept up from 3.08 percent to 3.14 percent.
Trepp says there were $65.2 billion in CMBS loans in special servicing at the end of November, an increase of $8.2 billion, or 14 percent, compared to October. There are very few CMBS related distressed properties in the Los Angeles area. from dsnews.com. image from wsj
Of $25.7 billion in distressed assets, the Western U.S. takes $10 billion. However, the good news is that of all commercial property types in the U.S., Industrial has the lowest distressed amount of $700 million out of $25.7 billion, compared the higher amounts of Office, Retail, Apartment (multi-family), Hotel, and Development. Industrial includes warehouse and manufacturing buildings. According to Real Capital Analytics Troubled Asset Radar.
Some of the owners of the distressed or potentially distressed properties are taking preventative measures and seeking bridge loans prior to their primary loans expire. Many bridge loan terms max out at 18 months and have interest rates from 10-18%.