How to Get and Win the Big Industrial Deals

In Orange County, industrial tenants aren’t the only players struggling to find deals. With a 1.5% vacancy rate, according to CBRE, owners aren’t willing to let go of their properties, making it challenging for investors to break into the market. Pacific Industrial, however, has built a strong portfolio of industrial properties in Orange County, despite the tight market. The investor’s latest acquisition is a 157,204-square-foot, two-building property adjacent to John Wayne Airport in Costa Mesa, which was purchased for $33 million in an off-market deal. We sat down with Dan Floriani, co-founder of Pacific Industrial, and Trent Walker, an EVP at Voit Real Estate services and Pacific Industrial’s broker, to talk about how investors are finding opportunities, winning opportunities and where the industrial market in Orange County is heading.

GlobeSt.com: Why were you attracted to this investment opportunity?

Dan Floriani: Our company’s approach to ownership is always long-term, so the key to our investments is their irreplaceability. This property is exceptionally well located in a pocket of Orange County that attracts a very high caliber of companies and employees alike. We recognized immediately that there was an opportunity for true value creation and long-term growth, making this acquisition perfectly aligned with our ongoing strategy.

GlobeSt.com: How did you win the deal with such high competition for the asset? Tell me about the process and your strategy.

Trent Walker: The key to success in this acquisition was to keep it off-market. In the ever-tightening Orange County industrial market, the best brokerage firms have their ear to the ground at all times and are aware of which owners might be willing to sell. That was the case in this transaction. Our ongoing relationship with Pacific Industrial ensures that we understood the criteria they were seeking, and our local network allows us to then find opportunities like this one where we can get ahead of the competition by bringing an offer in first.

GlobeSt.com: Orange County is a tight industrial market. Is it unusual to see a property like this come to market?

Walker: In short, yes. The industrial vacancy rate in the Orange County airport market dropped to a meager 1.5% in Q1, and investor appetite is exceptionally strong. Further, the supply of truly well located and highly functional space is limited in the market. When we saw that Karma had vacated this property, we knew there was an opportunity for an experienced owner to step in and drive value, and we recognized that it was the right fit for Pacific Industrial.

Floriani: This is a rare property from a logistics standpoint. It has amazing freeway access to the 405, 55, and 73 freeway with direct visibility into the Orange County Airport and is surrounded by a very affluent population base. The building itself has an exceptionally high parking ratio (the property is parked at a ratio of 3 to 1) and comes with significant HVAC capacity, therefore it can fit a wide variety of users trying to service this market from a logistics standpoint or land their company headquarters, as you see next door with a great company like RipCurl. We expect to garner interest from a wide range of high-quality industrial users, from high-end automotive to last-mile e-commerce companies. We don’t have a preconceived notion of what success looks like with our eventual tenant. We just want to have a great building and match it with the right company.

GlobeSt.com: You have amassed a significant industrial portfolio in Southern California. What has your strategy been in Orange County, specifically, and do you have plans to acquire more in the market this year?

Floriani: Our firm is one of the most active privately held development firms in Southern California, with more than $800 million in closed transactions since 2012. With our roots in ground-up industrial, we realized fairly quickly that a long-term ownership strategy would enable us to build a portfolio of tremendous value, and we began acquiring and developing properties that fit our goals.

Orange County is not an easy market to get into. Not only is there limited available product, but often industrial sites are being purchased for conversion to office or multi-family. Our strategy in Orange County is to seek out pockets of opportunity where value creation is still possible. For example, just six months ago we acquired an 8.5-acre site in Anaheim between Angel Stadium and The Honda Center right on Katella Avenue and fifty yards from the 57 freeway. This irreplaceable location is a hub of activity and will allow for a variety of high density development options including industrial, but also possibly office, retail, hospitality and multifamily product types.

As we continue to invest in Orange County and other key markets throughout Southern California, we will hold fast to our proven strategy to seek out well located sites that are hard to replicate.

GlobeSt.com: What is your overall outlook for the Orange County industrial market this year?

Walker: With sub-2% vacancy rates and ongoing positive absorption, we expect industrial rents in Orange County to continue to increase, offering owners and investors strong growth opportunities in the near and long term.