Industrial Building Sales

Industrial Building Sales

The Los Angeles industrial real estate market is financialized. That means pricing reflects accepted investment principles. Investment buyers, flush with private capital, are searching for smaller and older buildings than what you would normally expect from fund level buyers. Assets owned by individuals, corporations, families, and partnerships are being sold to large investment groups, funds, and REITS. It started with “Class A” buildings but escalated for almost all industrial buildings with low interest rates after the Great Financial Crisis. Activity surged during Covid, levelled off during the recent period of higher interest rates, and is regaining strength with more capital allocations hitting almost all industrial properties that generate long-lasting income.

In our experience, some building owners prefer comprehensive marketing and others want discretion. We developed our resources to do both:

Conventional Listing Private Listing
Exclusive Non-Exclusive
Market Rate Broker Fee Lower Broker Fee
Generally, No Dual Agency Dual-Agency
Common with Owner/Users Common with Investor/Developer Sales
No Immediate Hurry Deadline
Public – Wider Distribution Confidential and Discrete
Dedicated effort and resources Flexibility – Can sell yourself
Posted online and through Industrial Multiple Distributed to professional buyers

The Sweet Spot in Industrial Buildings

The Sweet Spot in Industrial Buildings

For most tenants, better values are found in second or third generation buildings. This means buildings that are roughly 15 to 20 years old having already been occupied by previous tenants. They are still modern warehouses with good ceiling heights (24’-30’), loading, power, and efficient layouts. Most of these second generation buildings are well away from residential areas which have become a greater concern for industrial users. Many are LEED certified.

Newer buildings are even more functional because of higher ceilings (32’-40’) and better design. They are more costly because of higher land prices, construction costs, and property taxes. Most are unpriced and appear on the bottom of the graph. In reality, they should be on the top scale because they are the most expensive. Older buildings (pre-2000) can require upgrades to overhead sprinklers, seismic, offices, and have design flaws that can inhibit efficient operations.

The number of offerings in the current cycle will give you a wide selection of choices in almost all Southern California markets.

Current Rent-(Gross)
75,000 SF – 150,000 SF
All South Bay

By Year Built

Location Map

Please Contact: Jim Klein, SIOR – 310-451-8121 – jimklein@kleincom.com
1204 W. Gardena Blvd, #A, Gardena, CA 90248

Making More Industrial Real Estate Deals with AI – SIOR Hollywood – October 15-17, 2024

Making More Industrial Real Estate Deals with AI – SIOR Hollywood – October 15-17, 2024

  • Using AI to support your business.
  • Building applications for representation and to locate deals.
  • Web Scraping.
  • You will generally need support in areas of AI, Cloud, Database, Web, data processing and coding languages like Python.
  • You can find very good tech support at local community colleges and data science degree programs.
  • AI takes time and investment.
  • Good Sources include Ethan Mollick for a comprehensive overview and Topher Stephenson for CRE specific.

EXAMPLE:

We use Google Alerts to find leads:

ChatGPT Response:

The Jim Henson Company Lot, where the Jim Henson Studios are located, is at:
1416 N La Brea Ave, Hollywood, CA 90028, USA
This historic lot has been home to the studios since 2000, when The Jim Henson Company purchased the site.

ChatGPT Response:

The area around 1416 N La Brea Ave in Hollywood, CA, is a bustling section of Los Angeles with numerous property developers and owners involved in both commercial and residential real estate. Some of the largest and most prominent property developers and real estate owners in the Hollywood area include:

1. **Hudson Pacific Properties**: Known for its significant presence in Hollywood, especially with properties like the Sunset Bronson Studios and other office developments.

2. **Kilroy Realty Corporation**: Has been involved in several development projects, including office and mixed-use spaces in the Hollywood area.

3. **CIM Group**: A major player in urban development, CIM has several properties in Hollywood and throughout Los Angeles, known for developing mixed-use residential and commercial spaces.

4. **Crescent Heights**: A prominent developer known for high-end residential and mixed-use projects, including some developments in the Hollywood vicinity.

5. **Related Companies**: A leading real estate firm with projects across Los Angeles,

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Developing our own tool for using both internet and our own private data. It’s connected to several of our own data sources and ChatGPT. If we see something interesting, we can search for information, find ownership data for the property, and bring up a parcel map.

EXAMPLE:

Finds Owners:

 

 

 

 

 

 

EXAMPLE:

Internal Data. Who owns the most properties in Gardena?

We uploaded our parcel data to ChatGPT for answers: (Actual Owner name removed for privacy)


EXAMPLE:

Proximity
Using Lat and Long, what are the 3 closest available properties to the corner Broadway and Rosecrans in Los Angeles? In this case it could not read the spreadsheet but it did read the data when we pasted it into the program. It returned the following:
ChatGPT Response:
Here are the approximate distances from the intersection of Broadway and Rosecrans in Gardena, CA to the three specified properties, converted to miles:

  1. 159 E Rosecrans Ave, Gardena, CA 90248, USA
    • Distance: Approximately 0.43 miles east of the intersection.
  2. 312 E Rosecrans Ave, Gardena, CA 90248, USA
    • Distance: Approximately 0.53 miles east of the intersection.
  3. 332 E Rosecrans Ave, Gardena, CA 90248, USA
    • Distance: Approximately 0.56 miles east of the intersection

EXAMPLE:


I need addresses for all Independent industrial SIORS so I can send my postcards but all I had was their name, email, company name, and city – No mailing address. I submitted my list through out Chat GPT App, and it returned all mailing addresses.

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METHODOLOGY:

ANALYTICS:

MAPPING:

PARCEL MAPPING:

Los Angeles Industrial Real Estate Report (with a focus on Gardena)

Los Angeles Industrial Real Estate Report (with a focus on Gardena)

Building Sale Trends

Leasing conditions throughout Los Angeles have moderated from the rent surges of the Covid period. Nowhere felt the impact from the Supply Chain Crisis more acutely than San Pedro Bay. There were severe space shortages and warehouse rents were increasing daily. The frenzy was magnified by extremely low interest rates that brought a host of investors to purchase sub-institutional grade property and land developments.

Industrial Rental Sales

A mix of price moderation and higher interest rates rate starting in early 2023 brought a cooling to market conditions and we are now in a normally functioning market that favors the tenant. While rents are down from the peak, they are steady on a long-term basis. There is good supply in the South Bay area. You can find reasonable space at $1.50 per foot Gross (including taxes and property insurance). Newer buildings are priced in the range of $2.50 per foot (all-in).Property taxes, due to Prop 13, have an outsized effect on the rent.

Not only has the market normalized, meaning rents have come down, but development activity created a bifurcation between two tiers of space. One is the older tier, with lower rents, smaller footprints, partial obsolescence, and suitable for local tenants. The new tier is “development space” recently completed with superior attributes, large footprints, built for regional sized companies or national freight distributors. The pricing difference between the two tiers is 60%, coincidentally, the same difference between 32’ high and 20’ high. Development spaces, while located in Gardena, are not necessarily intended for organically growing Gardena companies but for larger companies comparing the entire L.A. Basin.

New Development

While current supply is plentiful, the rift between residents and industrial uses will result in a long-term restriction of industrial buildings. Local moratoriums, zoning prohibitions, and statewide measures like California Assembly Bill 98, (Planning and zoning: logistics use: truck routes), enshrines a 500’ and in other cases, a 900’ buffer from “sensitive receptors”. Inother words, intensive industrial need to be away from schools, residences, churches,medical facilities and other places with a high concentration of people.

While Green Zone ordinances in LA County are meant to satisfy residents, it doesn’t address the underlying issues of crime, unsanitary conditions, trash, and homelessness. If the County were to listen to businesses, they would attract better companies and property owners wouldn’t have to solely rely on truckers and warehousers to lease their properties. Green zones and similar restrictions are the result of neglect by County leaders desperate to appease residents without having to do the hard work of making these neighborhoods safe and livable.
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The opportunity in Los Angeles industrial real estate is as great now as ever because activity is constant.
Los Angeles a premier industrial market in the United States. While interest rates, trade flows, taxes and governmental policies will alter your tactics, there are three consistent dynamics which keep deals flowing.

1. Real estate is local. This principle of the property business states the most interested buyers and tenants are closest to the property in ever widening circles. Social Scientists and Urban Geographers call it agglomeration and Los Angeles has a very high ratio of local commercial interaction. When businesses grow, they want to maintain proximity to markets, customers, and employees and will often decide to stay close.

Available Property

2. It’s possible to anticipate where companies are moving from based on historical trends. Companies generally move for more space, less rent and to improve their business.Companies in L. A. County generally follow the same movement patterns, mostly based on the freeway network. As an example, West L.A. companies will move south down the 405 Freeway. South Bay Companies will move to Mid Counties (91 Freeway). Mid Counties will move to the Inland Empire (10 , 60 and 91). There are many other patterns in Southern California that keeps company movement local and predictable. Anticipating where tenants come from keep buildings leased.

4. Aside from geography, there is always robust transactional activity among investors. Except in rare instances of turbulence, properties flow from private hands to investor control. It’s a steady force as new capital follows an old business plan of finding buildings that will provide a reasonable return to their investors. Los Angeles is a crossroads destination with a lot of property still residing in private hands. In addition, Owner/Users will buy when the mortgage payment is equivalent to rent. It’s a positive time to purchase.
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What makes Southern California an industrial powerhouse? Within a 60-minute drive of Downtown Los Angeles, there is approximately 2 Billion square feet of industrial space worth $500 Billion dollars and is almost 15% of the entire industrial space in the U.S.

Most people arrive at LAX which is the largest employment center of aerospace and defense employment in the U.S. SpaceX, TRW, Lockheed Martin, Northrop, BAE, and Raytheon have major facilities along with their suppliers and subcontractors. As a derivative of its engineering and technical resources , El Segundo has a burgeoning “Hard Tech” industry that combines digital technology and physical manufacturing.

Thirty minutes south on the 405 Freeway are the Ports of Long Beach and Los Angeles. Each by themselves has more container volume than any other US port and when combined creates a shipping colossus that supports local warehouses and trade from the South Bay, to Downtown, Mid Counties, Inland Empire and as far as Phoenix and Las Vegas. Approximately 4 million rail cars head to other parts of the U.S. from the six intermodal railyards in the region.

Heading north on the Long Beach Freeway (710), in thirty minutes, you reach Downtown Los Angeles, particularly Commerce and Vernon. These cities were the manufacturing center of the West with large production plants that built cars, tires, glass, food, plastics, furniture and clothing. While many of the largest plants are gone, it left a robust industrial infrastructure with approximately 4,000 companies and 100,000 employees. Today, food, apparel, furniture, metals, machinery and the second largest U.S. wholesale market are major businesses.

Another 20 minutes northeast on the 101 Freeway, you reach Hollywood, home to the international capital of film, television, recording, pre-and-post production employing 200,000 (down from 250,000 at its peak in 2017).

Heading east is the San Gabriel Valley and Inland Empire with 1 Billion square feet of industrial buildings. To the Southeast towards Orange County is Mid Counties. And north is the San Fernando Valley. Each of these submarkets have more industrial space by themselves than most U.S. metros.

Industrial Zones

Klein Commercial Real Estate has been locally headquartered in Gardena for 45 years. Our specialty is selling industrial buildings and representing corporations in their real estate moves.

How to Find the Best Industrial Building Today

How to Find the Best Industrial Building Today

How to Find the Best Industrial Building Today

Map of Where Industrial Occupiers Move
Where Industrial Occupiers Move

In less than 18 months, the industrial building market has shifted from low vacancy to abundancy. There are now 215 industrial spaces, greater than 50,000 square feet, available in the Greater Los Angeles Basin. This does not include Orange County, Inland Empire, or San Fernando Valley. Only the areas you see on the map (below). About 20% is sublease space.

The best value for most tenants is second and third generation spaces. Many of these buildings built since the year 2000 have the same characteristics as brand-new buildings except for ceiling heights, although many of these 2nd Gen buildings still go to 30’.

  • 36’ high buildings came in around 2023
  • 30’ – 32’ Clear was the norm starting in 2000
  • 24’ Clear started as far back as 1975

Older buildings are equally functional as new buildings for less rent, especially if they have a low tax basis. One exception is if the tenant plans to install interior warehouse installations like mezzanines or specialty racking and automation. In these cases, latest generation buildings have an economic advantage because of height.

Some of the calculations we perform to determine functionality include:

  • Location and Distance
  • Docks per 10,000 SF
  • Building to land ratio
  • Cubic Capacity and Cost per Cube
  • Property Taxes/Expenses
  • Ceiling height
  • Sublease

To identify the better buildings, we subject all available properties through a macro analysis. This is the best way to identify differences in functionality and cost when there are a lot of choices.

Here is an example:

Let’s say you are in 100,000 square feet in the South Bay and you want to double in size. Some tenants will move completely to put everything under one roof. Other tenants will look for a satellite building as an interim step. Most South Bay companies will look locally and as far as Santa Fe Springs and Mid Counties. Some will want to go as far as IE West. What will you find?

Streamlit Demo View
Streamlit Demo View

We model the entire market on the Kleincom Industrial Building Analysis we developed on Streamlit. For this report (100,000 SF to 250,000 SF), we identify 55 choices of which 14 are subleases with terms of at least 3 years (some up to 5). For demonstration purposes, we will leave aside, the additional 80 or so buildings in Inland Empire West (Rancho Cucomonga, Ontario, Chino, and Fontana) that meet the size requirement.

Using Ceiling Height with 24’ as the minimum, we establish the following distribution. For most tenants, 30’ to 32’ is the sweet spot.

All Buildings 100K to 250K
All Buildings 100K to 250K

Buildings are dispersed over the entire Los Angeles Region.

Buildings 100k to 250K L.A. Basin
Buildings 100k to 250K L.A. Basin

The second factor to sort the choices is the Loading Dock Ratio measuring docks per 10,000 square feet to determine loading efficiency. Any dock ratio greater than 1.5 doors/10,000 square feet is considered highly efficient and closer to 2 docks/10,000 SF is superior.

Docks Per 10k SF
Docks Per 10k SF

Looking at the top results, it’s not always the newest buildings that are the best choices. You can lease 2nd or 3rd generation buildings for $1.75 to $1.95 per foot (all-in). About half of the buildings are 30’ or greater.

Results Table
Market Area Size Rate Month Clr Year Cubic Ft Dock Ratio B:L
Gardena/ Compton 300000 1.6 $480,000 26 1987 7800000 3.33 40%
Carson/Compton 300000 1.53 $459,000 25 1970 7500000 1.84 52%
Carson/Compton 285000 2.2 $627,000 32 2006 9120000 2.24 41%
Carson/Compton 250000 1.51 $377,500 25 1972 6250000 2.17 60%
MidCounties 250000 1.8 $450,000 32 2002 8000000 2.05 59%
Carson/Compton 150000 2.1 $315,000 36 2024 5400000 2.84 60%
Commerce/Vernon 150000 2.6 $390,000 36 2024 5400000 2.11 55%

For some tenant’s subleases may be the right answer because the terms are relatively short, and the financial commitment will be less. Ecommerce tenants and larger Amazon/Temu Sellers are drawn to subleases. The top subleases have exceptional loading and low property taxes. In most cases, landlords will renew when the lease expires.

Best Subleases
City SF Yr Blt HGT DH Dock Ratio Years Remaining
Carson 300000 1973 22 40 1.33 3.69
Industry 225000 1996 30 25 1.11 5.58
Torrance 200000 2000 30 30 1.50 2.69
Torrance 135000 2001 30 25 1.85 3.44
Commerce 125000 1957 22 55 4.40 5.28
Santa Fe Springs 120000 2003 30 30 2.50 3.78
La Mirada 100000 1997 30 20 2.00 2.44
Compton 100000 1981 24 15 1.50 3.02

Experienced tenants will use site plans to decide. There is a preference for a more rectangular building than a square so you can load more trucks simultaneously and divided to sub-customers if necessary. Here’s an example of two buildings of approximately the same size and asking rent. Most tenants would prefer the first building because loading exceeds 2 docks per 10,000 square feet, it has additional trailer parking, and the warehouse can be easily divided into sections while maintaining optimum functionality.

The second site plan is reasonably functional but only has 1 dock per 10,000 square feet, can only be divided in half and is less functional than the first example. For the same cost, most tenants will choose the first building.

With the high cost of land and construction costs, developers need to maximize building coverage to compete and make a profit. In other words, developers are often forced to build the largest possible building on the site while doing their best to keep the building functional. As you can see, some buildings are more functional than others.

Every tenant has different priorities, but most revolve around the same criteria of location and function. At Klein Commercial, we have 40 years of corporate real estate experience locating the best buildings for our clients. Our latest tool, the Kleincom Industrial Building Analysis, will help you make the best choice amongst all the available space on the market today.

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