Industrial Insight – July 2022

Market Reports

The Big Reprice

The fallout from the Fed Open Markets Committee (FOMC) June 14-15th meeting that led to the increase in interest rates has sent ripples throughout the entire real estate industry, industrial real estate included. The three main flavors were:

1) Deals close to closing that stayed on track and made it over the finish line.
2) Deals being repriced (a nice name for retrading based on forces outside your control, i.e., price reduction).
3) Buyers walking away from deals and some from the market entirely.

Several high-profile institutional investors have taken the attitude of let’s wait out the summer, and the next FOMC meeting on July 26-27th, before assessing how to address market opportunities. This has been even tougher for developers who are dealing with higher land, construction pricing, and now larger carrying costs. The big question is, how will demand hold up? So far, the demand continues unabated.

Tenants and Users

We handle a portfolio of real estate for a company in Orange County that has locations across the country. We have been fortunate to help them this quarter in several markets:

  • Completed a renewal of 55,400 SF in Tampa, FL, with Prologis.
  • Leased a new building for 32,555 SF in Denver, CO, from Westcore.
  • Lease is being prepared for 91,000 SF in Fullerton, CA, with a private landlord.
  • Lease is being prepared to relocate to 48,500 in San Antonio, TX, in new construction.

Each market has its own unique dynamic, trends, customs, taxes, development pipeline, office build-out, timelines, and city permitting processes. We are grateful to have worked for clients in most states and major markets now and are happy to connect with you where you need us.

Locally, we handle a dozen client renewals in industrial and office properties each month, from 1,972 SF of industrial in Huntington Beach to 1,000 SF of Class B office in Newport Beach, 1,480 SF of flex space in Irvine, and 2,000 SF of flex space in Irvine, etc.

Landlord Leasing

This quarter we handled several landlord leasing assignments as usual however our inventory is low as most space continues to lease at a brisk pace.

  • We completed a new 5-year lease on 47,286 SF of industrial in Fontana, CA, for our institutional investor client, who bought a portfolio of 7 buildings from us last year.
  • Renewed the tenant for the third time in 6,866 SF in Chino.

Investment Sales

Two more 1031 exchanges closed for a high net worth family, these ones in CA and TX. They are single-tenant, triple net, with 15-year leases at a 6% cap rate, with fixed 10% rental increases every five years. We sourced them, connected the financing, brought an excellent attorney to help, provided the inspectors and surveyors, and helped facilitate the tour and closing. Lots of work for a favorite client and happy with the outcome.

  • Guidepost Montessori – Rancho Santa Margarita, CA, which is 8,309 SF and traded for $8,104,000.
  • Kitchen United – Frisco, TX, which is 6,569 SF and traded for $8,266,267.

We represented a different family, for the first time, in greatly expanding their estate’s value by purchasing the retail property neighboring their multi-tenant industrial business park in Santa Ana, CA. This turned an odd-shaped land parcel into a perfect rectangle that is suitable for a three-story mixed-use development that will be a monster project once it is approved. Big win for this family here.

  • 200 S Harbor Blvd, Santa Ana, CA, which is 5,000 SF and traded for $4,000,000.

Personal Investments

I’m always on the lookout for “small bay” multi-tenant industrial business parks to purchase personally and with clients. I found a portfolio of 7 multi-tenant industrial properties in Dallas and another one in Houston this month. 5.5-6.0% going in cap rates with room to grow the rents.

Since I already own similar buildings in this market, we can expedite the underwriting of market rents. The reason I like these is that you usually will close on a building that has 50% of the leases expiring within the first 24 months. You are then able to work on 90% of the tenants renewing at market rates for 36 months to stabilize the assets. The 10% of tenants that move on to other buildings will then give you the opportunity to clean up the space and raise the bar of the project going forward.

If you see or hear of any opportunities, please let me know. We can underwrite and offer same day in many instances. If you would like to invest in any alongside me, please let me know as well.

Market Reports

Media

  • Book #1 – Industrial Intelligence, The Executive’s Guide for Making Informed Commercial Real Estate Decisions
  • Book #2 – Industrial Investments
    • I’m 100% through the first draft of my second book (excited!), all on industrial investments. Now comes the fun part of editing! In addition, I’ve interviewed over a dozen executives of major investment firms and developers on high-level strategies and tactics they use to be successful in the arena. If you know of anyone that you think would be a great collaborator in this endeavor, please let me know.
  • Podcast – We continue to bring top-notch talent to the platform to explore different aspects of the industrial real estate marketplace.
    • Supply Chain M&A with Benjamin Gordon, Jay Tanjuan & Larry Genet
    • Taking Tenant Assignments Digital with Chris Skyles
    • Subscribe to the show or listen to individual episodes here.

We’d love to catch up with you and brainstorm how we can make your goals come to life. You can book time with me at your convenience: https://calendly.com/industrialsmith/. Thank you!

Best Regards,

Justin Smith, SIOR              Grant LaBounty
jbsmith@leeirvine.com         glabounty@leeirvine.com

Jeannette Plumeda              Chris Vassilian
jplumeda@leeirvine.com      cvassilian@leeirvine.com