OC Among Top Industrial Markets in the Nation

America Realty Advisors has honed in on Orange County as one of its top target markets for industrial investment because the Southern California hub has historically outperformed national averages. The firm is particularly focused on last-mile, distribution centers—following the ecommerce trend—and stabilized properties with long-term leases. We sat down with Austin Maddux, EVP and deputy portfolio manager at American Realty Advisors, to talk about the firm’s Orange County strategy and how they are curbing competition in the hot market.

Globest.com: Why were you attracted to this market?

Austin Maddux: Orange County industrial has historically outperformed national averages and is considered by many to be among the top five industrial markets in the nation.  When you break this down further and look at buildings that meet the current market standard of 32’+ clear heights with ESFR, you discover that these buildings represent less than 4% of the greater Orange County industrial inventory. Specifically, the Anaheim submarket exhibits an even stronger vacancy profile at approximately 1.8%. This manifests itself in a vacancy rate that drops from 2.5% at the market level to 0% when adjusted for the aforementioned submarket, clear height, and ESFR attributes.

GlobeSt.com: Can you tell me a little bit about your industrial strategy and focus on long-term leased assets?

Maddux: Historically ARA has actively invested in industrial real estate and currently we are including a larger allocation of industrial compared to other diversified private commercial real estate funds. For core or lower risk industrial investing, we are focused on class A facilities that are well located within top markets and submarkets, and leased to creditworthy tenants on longer lease terms with contractual rental rate escalations built into the leases. We believe that as this economic cycle continues to mature, this investment profile for core industrial will generate the best investment performance for our clients. As it relates to value-add or development investments, we are targeting opportunities that will fit the previously described core industrial profile once the property is built and leased with a particular emphasis towards quick timeline business plans and risk controls such as cost and land approval protections consistent with ARA’s risk-management corporate focus.

GlobeSt.com: What is ARA’s response to increased competition in the area?

Maddux: Investing in properties that generate attractive risk-adjusted returns is difficult at any point in an economic cycle. At this time, there are abundant investment opportunities as valuations are at levels that compel willing sellers to sell; however, the primary current challenge is selecting the right investment at the right price having the correct expectations of future performance. ARA continues to exhibit our investing discipline even within today’s competitive capital markets environment for quality industrial product. Our response to the current level of competition is to focus only on those investments that fit our strategic criteria and discard everything else quickly in order to efficiently manage our resources. We have to be prudent investors for our clients while also being a great buyer for sellers and brokers to work and do business with. Protecting our clients’ interest while acting in a professional and collaborative manner is something ARA values and excels at.

GlobeSt.com: What are you seeing in the industrial sector as a whole? ‘Last mile’ delivery hubs has become the newest buzzword in industrial, are you seeing increasing demand for these types of properties?

Maddux: We believe in U.S. industrial real estate and specifically we believe that outsized performance will come from those properties that are near large population centers. In many respects, our recent acquisition of 1730 S. Anaheim in Anaheim, CA represents this trend. Not only does it offer convenient access to Interstate 5 with major on-and-off ramps feeding directly into the property, but the building also provides excellent visibility and signage to the over 275k cars that pass by each day. We also believe proximity to the economic engines of Disneyland, the Honda Center, and Angel’s Stadium, as well as to the increasing residential density within the Platinum Triangle, will help diversify demand for the asset from a business servicing and “last-mile” perspective.

While we agree that “last mile” is now an over-used buzzword, the concept of locating distribution centers near major population centers is one we believe in. Industrial users are increasingly demanding to locate near their customers to reduce delivery times of their goods, and strategically locating closer to these areas enable them to efficiently staff warehouses with quality labor and to be near major infrastructure that facilitates the transfer of their goods.