Industrial Rehab Announced, Tenants Fall In

LOS ANGELES—Terreno Realty Corp. has announced plans of to perform an extensive renovation of a three-building industrial property it owns on South Main Street in Gardena, CA. The renovation will cost approximately $16.4 million. As a result, the owner has pre-leased 74% of the building. This illustrates the limited supply in the market for quality, renovated properties.

Located at 17120, 17110 and 17180 South Main Street in Gardena, the three-building property is 186,000 square feet with 34,000 square feet of office space. The property will be completely demolished and replaced with a 210,000-square-foot new front-load industrial distribution center. The development will be completed in 2Q of 2016.

Terreno Realty Corp. declined to comment on the project; however, we spoke to market experts Wesley Hunnicutt and Matthew Moore of Newmark Grubb Knight Frank, who are not affiliated but are familiar with this project. “This is an existing older industrial building, and you are seeing a lot of owners and developers going in an acquiring buildings and renovating them into high-cube warehouse buildings that are garnering north of $0.60 per square foot triple net,” Moore tells GlobeSt.com.

Hunnicutt and Moore recently completed a lease transaction on a similarly renovated property a few blocks from the site. That property has a 30-foot clear and ESFR system, and leased for $0.62 per square foot. They think Terreno will get at least that rental rate for their property. “I would say that Terreno is looking to get even more of a premium because they are going to scrap this property,” Hunnicutt tells GlobeSt.com. “For that location, I would assume that they are looking to get high $0.60s triple net. They are also eight months out, so they may even be looking at low $0.70s.”

Sares Regis is planning a similar renovation on its property at 660 West Artesia and 700 West Artesia in Compton. The two side-by-side buildings measure 227,000 square feet and 230,000 square feet. Uma Enterprises, the former tenant, relocated out of the property, and Sares is planning to demolish the two buildings and build a single 32-foot clear building with ESFR. Currently, the building only has a 24-foot clear.

The Terreno property's substantial pre-leasing is indicative of the tight market. Many of the buildings are older, and it hasn't been uncommon for developers to acquire and demolish older properties and redevelop facilities with 30-foot clear heights and ESFR systems. In Carson, there are currently only five buildings over 150,000 square feet with ESFR. Hunnicutt, however, notes that while it is common to see developers redevelop older buildings, those opportunities are rare.