Week of January 13, 2021
There are more buyers looking for outside storage yards to purchase. Institutional capital sees leased land as an excellent investment. They are offering higher prices than normal because of investment grade returns. Offering prices are $70 per foot +. At $.45 Net rents monthly (annualized at $5.40), investors are underwriting to 7.5% returns. This is generous compared to building returns and often there are credit tenants in place. Some are calling “covered land”, a new asset class.
One thing to be wary of is new regulation affecting unincorporated areas of Los Angeles County and many individual cities. Collectively it’s called the Green Zones Program https://planning.lacounty.gov/greenzones). This new ordinance will limit the usability of land with operational and development restrictions. Hours of operation limits, time-consuming Conditional Use Permits, downzoning, costly improvements, and limitations on truck trips are just a few restrictions. Many industries are also being scrutinized. For example, metals, manufacturing, recycling, and port-related operations. Long-term landowners are angry because it impacts the rent they can collect and the way the property can be used.
Green Zones further exacerbate conflicting planning policies. On one hand, properties are limited to industrial uses with the additional designation of IP (Industrial Preservation). These properties can not be used for self-storage, commercial, residential or any other use other than industrial. On the other hand, preserving industrial uses became a whole lot more costly. Green Industrial is an oxymoron that lacks practicality for many of my industrial customers.
We will leave the question of tragic homelessness for another commentary but when you need to drive past broken RV’s parked in front of your property only to face a raft of new regulations to operate, I wonder home many businesses will exit California? Green can be good but not if the result is more joblessness and it is impossible to separate the two. Costs to green will completely fall on local business.
The recent surge of yard purchases by institutional investors will be positive for the area because they want to retain investment value. It will make it harder for owner/users to compete. Green policies and institutional capital will be the next phase of wresting control from family ownerships in the same way as buildings.