Balance of Tenants Helps SFV Industrial

SAN FERNANDO VALLEY, CA-If you have been in the commercial real estate brokerage or ownership game since 2007 or prior, you've seen times of plenty and times of lack. This year is proving to be where business owners are increasing their engagement and looking for new ways to lower overhead costs by buying properties they occupy or recapitalizing their existing location. This type of activity is evident in the San Fernando Valley.

The SFV, home to several film and television studios like DreamWorks, Warner Bros, CBS, Disney, and NBC/Universal, provides a stable feeder for industrial/warehouse demand of this 160 million-square-foot market. If you wish to include the Santa Clarita Valley, add 20 million more square feet. There is, however, no particularly dominant user of industrial/warehouse space. This provides a balance of tenants across all industries from service companies to manufacturers. Most recently, an 85,000-square-foot class C warehouse building sold for $9.7 million (about $63 per square foot) in Sun Valley. The property is home to PRG, a live entertainment production company.

According to George Stavaris, a principal at Triniti Partners, a commercial real estate brokerage that specializes in industrial property in the San Fernando Valley, vacancy is back to the single digits and most of the transactions that used to take six to eight months for leasing, are now getting done in two. Flex space vacancy is at 5.8% and traditional industrial is at 4.3%. Owner-user off-market sales dominate the market.

“If you're an industrial property owner, your property is appreciating on a daily a basis. There's no room for development out here, so tenants need stay engaged to lock-in numbers quickly otherwise, they're out of luck,” says Stavaris, a 15-year veteran in the industry.

Lease rates are hovering in the $0.62 per square foot range for traditional industrial and $0.91 for flex space.

Financing for industrial is available especially since owner-users are the top buyers. The SBA continues to finance high leverage transactions while providing competitive rates in the mid 4% range. The paper trail can be burdensome and credit committees are as tough as nails, but deals are closing. While there have been concerns about rates rising, compared to the 2007/2008 market rates, pricing is still 2% to 2.50% lower today even with rates rising 0.25% recently by many regional and community banks. Loan dollars are still very much a bargain and will help to keep SV occupancy at its highest rates since 2007.

Marcelo Bermúdez is president of Figueroa Capital Group, a subsidiary of Charles Dunn Co. The views expressed in this column are the author's own.