Infill Industrial Easier to Entitle

LOS ANGELES—“For us, infill in Southern California has been very easy to entitle,” Kirk Johnson, EVP and CIO at Watson Land Co. said on the Can America's Cities Accommodate Industrial Development? panel at NAIOP's I.CON conference last week. (NAIOP is a GlobeSt.com Thought Leader.) “Properties typically are already zoned industrial; the uses around it are compatible; the infrastructure is in, so we have had a very positive experience there.” Johnson spoke on the panel with Brett Dedeaux, principal at Dedeaux Properties; Bo Farkus, SVP at Sitex Group; and Jay Olshonsky, president at NAI Global.

Both Johnson and Farkus agreed that the Inland Empire communities can be much more difficult and resistant to new development projects. Farkus said that transportation was always a major issue for the communities, but often their traffic measurements are tantamount to “witchcraft.” Although the entitlement process is easier in an infill location, he also added, “Infill is a little more sophisticated in how to police you.” But, it isn't just the entitlement process that is better in the infill markets. Johnson also said that there is a better upside. “We think the risk is greater in the green field in the Inland Empire. We find infill returns to be greater.”

One of the issues of developing infill industrial space, however, is that many developers for other property types are looking to buy older product to covert it into what they see as a “higher better use.” This has been very true in Downtown Los Angeles, where Dedeaux says that multifamily developers can pay 20% to 30% more than industrial investors, even though the will have a lengthy rezoning process. Additionally, a lot of the available land sites in the infill markets face foundational issues that augment development costs significantly.

Still, despite competition from other developers, the panelists were unanimous in their affinity for infill product, explaining that there are more tenanting options with infill product. “People are obsessed with Fortune 500 companies, but there are a lot of companies making a lot of money, and in infill, you can take advantage of those options,” said Farkus.

In addition to developing on raw land, the companies also redevelop older properties in the infill markets. Watson Land Co. has one of the oldest infill industrial portfolios, and has frequently updated its portfolio to keep up with growing demands. In updating these properties, Johnson said the renovation process is extremely important. The company uses functionality as a guide and makes sure the renovation makes sense on paper before performing upgrades, rebranding the property, bringing in modern signage and updating the landscaping.

The conference also included a discussion on the global supply chain and a view from industrial's top players.