Commentary on Industrial Markets

Commentary on Industrial Markets

Week of November 9, 2020

Transactions are down. Working on more, smaller deals to make up the difference. There is a greater appreciation for competency and referrals due to reputation. Finding greater cooperation in the market and less posturing.
Industrial real estate is the best of all product types. Still, there is more available in the lease market. Sale buildings are hard to find. Pricing has softened in the sense they are not going up 10% a year. More a plateau. Expectations are down but nothing is standing in the way of the institutional appetite. Private buyers are better served with situational deals or making a mark in the “sub-institutional” category.
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Ownership Concentrations in Los Angeles Industrial Real Estate

Ownership Concentrations in Los Angeles Industrial Real Estate

Every August, the Los Angeles Tax Assessor releases its annual Tax Roll that lists all ownership in Los Angeles County. This is valuable data and serves as an important part of our statistical analysis for the year. In other words, Tax Roll data helps us find properties to purchase.  For Tax Year 2019/2020, the share of Institutional ownership increased in all size ranges, particularly larger buildings.  For investment buyers, more focus on smaller buildings will be fruitful because there is less institutional concentration.

percent of institutional ownership
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Looking at US Industrial with the US Cluster Mapping Project

Looking at US Industrial with the US Cluster Mapping Project

The Cluster Mapping Project (CMP) was pioneered by Michael E Porter of Harvard University. He is just as well known for his works on Competitive Advantage.  His work is a necessary foundation for US Industry and business organizations. I reprint his Value Chain diagram below for company diagnostics, which has been repurposed to examine the competitiveness of regions. To understand the implications of location and clustering, you can read an article Professor Porter published in 1995 about the strategic location of inner cities which is just as relevant today. 


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Questions About The End of California Redevelopment

Questions About The End of California Redevelopment

We are starting an extremely interesting and confusing period as redevelopment agencies (RDAs) come to an end. Firstly, RDAs were a powerful force in every city’s arsenal. They employed large staffs and had enormous budgets. A lot of the built commercial world is attributable to redevelopment through direct land contribution, infrastructure, subsidies, guarantees, loans or other physical or financial contributions.  RDAs created a lot of very good development that would not have otherwise been built. High quality, low income housing units were developed.  Many private and capable developers profited.

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The Port Strategy Fallacy – It’s the Deal That Counts.

The Port Strategy Fallacy – It’s the Deal That Counts.

Both brokers and investors tout the strengths of investing in markets with a vibrant harbor and airport. This has been a pronounced strategy from at least 1997 when container imports began increasing beyond incremental growth. Many institutional investors have dubbed this the Gateway Strategy. But grand proclamations like these normally lead to increased competition amongst buyers and lower returns. If history is any lesson, the money was made by the first round Buyers who purchased these distribution buildings at distress. It was the following group who used port dynamics to justify their high purchases and are now sitting with vacant and poorly leased properties at rents vastly below proforma. In retrospect, it was the deal strategy that made investors money. Being located by the port was secondary.
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Back to Local Markets

Back to Local Markets

WHERE THE ACTION IS

Perhaps I should qualify. Where there is action, it’s on the local level. Now that plentiful financing has been squeezed from the market, there is no more room for mega projects, program development, or new concepts. It’s back to basics and that means individual businesses and landlords dealing with their own unique decisions. Loans are available through SBA programs but limited to business expansions. Local banks that were not burned by sub-prime also have resources for conservative lending. The land side is virtually dead for development except under the most risk averse situations. There is however considerable activity in securing tenants for build-to-suit, but locating sites is still a challenge.

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Container Freight Volumes Decrease

Container Freight Volumes Decrease

If there is one major driver that supports Los Angeles Industrial real estate, it is counted by container shipments that enter the Ports of Los Angeles and Long Beach.  These shipments are singularly responsible for the development and leasing of large blocks of high-cube industrial space. When goods are flooding into the ports, industrial building development booms throughout Southern California.
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