Infill development is an integral and unavoidable part of the commercial real estate landscape in Southern California, where land is both scarce and expensive. At I.CON: Trends and Forecasts in Long Beach, California, a panel of experts explored three types of redevelopment: ground up, value-add and brownfield. The panel, led by moderator Jay Todisco, AIA, LEED AP, executive vice president, board of directors, Ware Malcomb, also discussed multistory industrial buildings.
Ground Up Redevelopment: CHEVRON | La Mirada, California
Jake Smith, vice president of leasing and development with Duke Realty, discussed the case study for La Mirada, a redevelopment project on the site of a former Chevron station from 1920. This was a highly competitive site, with a prime L.A./Mid-Counties location, close to one percent vacancy and a nearly 110 million square foot submarket. However, the soil was highly contaminated and required more than $30 million in remediation. An above-ground oil tank had to be removed and oil pipelines were relocated. Going through the comps, the property was trading north of $40 per foot, but the company saw double-digit rent growth within two years and inked a 10-year lease deal with UPS in October of 2016.
Value-add Redevelopment: RADIUS | Tustin, California
For Caprock Partners’ president and cofounder Jon Pharris, an 110,000-square-foot manufacturing building built in 1977 proved to be a successful value-add project. The 7.4-acre site is in a prime location just minutes from major freeways, two major shopping centers and John Wayne Airport. CapRock purchased the property with a tenant in tow for 40,000 square feet and then completed a $2 million renovation to convert the vacant space into creative office with outdoor barbecues, a putting green, grass sport court, bocce ball, fire pit and outdoor work areas. Pre-development industrial triple net lease rates were $0.75-$0.85, and post-conversion office triple net lease rates surpassed $2.
Brownfield Redevelopment | Vernon, California
“Brownfield is a lot of what we do in Southern California,” said Damon Austin, senior vice president, capital deployment, west region, Prologis, Inc. The company purchased the heavily industrial brownfield site in Vernon, California, in 2010 for just $13 per square foot after it had already passed through the hands of several other developers and the owner grew increasingly desperate. Significant environmental remediation and capital was required during demolition and redevelopment, along with extensive work with the Environmental Protection Agency, Department of Toxic Substances Control and State Water Resources Control Board to finalize the voluntary remediation plan. Vertical construction is planned for year-end 2017 or early 2018. Given the scarcity of land and the one percent overall vacancy rate, Prologis, Inc. feels that the long wait was worth it; the company has seen north of 10 percent yield on cost to date.
Todisco closed the session with a discussion on opportunities for multistory industrial facilities. Ware Malcomb is working to find ways to help their clients maximize value in land-constrained areas, and Todisco shared a design prototype for a multilevel metro fulfillment center. The first level functions as a lower-level truck yard, next is an intermediate parking level, and then an upper-level truck yard. The level one warehouse would have 32-foot clear heights; the level two warehouse would have 28-foot clear heights.
Todisco asked the panel about their reaction to the prototype. Among the challenges mentioned: It’s hard to build true class A industrial buildings stacked without making compromises with trucking, ramp heights, etc.; financing a project like this that’s never been done before comes with increased risk; and would rent for these buildings run at a premium – or a discount? That remains to be seen.