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Thursday, Jun 20, 2024

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Land//24″/CW1st/mark2nd By SHELLY GARCIA Staff Reporter Robert Lumley’s 3-year-old car has clocked over 170,000 miles. That’s because the senior vice president of the Voit Cos., the Woodland Hills-based real estate developer that built The Plant in Panorama City, spends a lot of time looking for a place to put his next project. And like many other developers and brokers anxious to arrange their next deal, Lumley isn’t having an easy time. “You’re not going to go out there and find five or 10 acres,” he said. “I’m constantly working with brokers looking for properties. Most of the time, they don’t work.” With an industrial vacancy rate under 5 percent, there is plenty of opportunity to sell or lease manufacturing facilities in the San Fernando Valley. Trouble is, there is no raw land available, and suitable sites for redevelopment are few and far between. Renovating old, outdated industrial parks often proves too expensive, if the owners are willing to sell at all. So-called “infill,” typically a smaller parcel of land of several acres surrounded by other developments, is often plagued with environmental, marketing or other problems. “The challenge is, is it easier to go find another area to develop in another county?” said Greg Geraci, senior associate at CB Richard Ellis Inc., who represents Cascades in Sylmar, one of the area’s only industrial complexes to be built on raw land in over a decade. “The niche developers will focus here, but for those that operate on more of a regional or national basis, it may not be worth the headache.” Besides Cascades, two other industrial centers in the Valley have recently come on line or are about to: Voit’s Plant and Lewis Business Park in Van Nuys, both redevelopment projects created at the site of factories that were no longer in use. But for every successful redevelopment, there are many others that fail to materialize. “You just have to look at every deal and figure out ways that you can create value there,” said Bill Shubin, a partner with Legacy Partners, a development company formed following a reorganization of Lincoln Property Co. Price keeps most developers from acquiring existing industrial parks and tearing down the buildings in favor of new facilities. To work, these teardowns must be at or near the value of the raw land, and most are not. Even buildings that seem obsolete by today’s standards can often find a market among users who may not mind low ceiling clearance, outdated loading facilities, insufficient parking and other shortcomings. As a result, sellers include the value of those potential leases in their offering price, and that can make the cost prohibitive for a developer. “Even though these buildings are functionally obsolete, what tenants would pay would translate to the land value, and that would exceed what you could pay by 20 or 30 percent,” Shubin said. Infill sites pose other problems. They may be in blighted neighborhoods that would be less attractive to potential tenants, and they are often surrounded by older developments that affect the investment value of the property. “You’re not in a master-planned environment,” said CB’s Geraci. “So you’re spending $8 million or $10 million and three years of your time to put something next door to a stucco building that’s going to bring down the value of your building.” The good news for developers is that when landlords do opt to sell, the sites are often large. Users in the market for 40,000 square feet of space and more are generally big companies that require the bells and whistles of a new development, and owners of large, outdated facilities have difficulty leasing those properties. “A user looking for 10,000 or 20,000 square feet will sometimes make compromises,” said Brent Weirich, a senior associate at the Seeley Co. “Larger users are more sophisticated.” Sometimes developers or brokers get lucky. “You find a single-purpose building that has little use to the general public,” said Jim Linn, senior vice president at Grubb & Ellis Co. That was the case with a Nestle-owned building in Panorama City that had been used as a research-and-development facility for Nestle’s Carnation division, said Linn, who brokered the sale of that building, on about 11 acres of land, to Public Storage Co. The property is now expected to be sold to Selleck Development Group Inc., and will likely be developed for retail and industrial use. In other cases, the solution lies in renovating at least some of the structures on the site, rather than tearing it all down. “It would still be a class-B building, but you could still make good returns on those types of acquisitions,” said Legacy’s Shubin. When the tenant in the facility is also the owner, developers may pursue a different strategy. The company may be persuaded to sell its property at a rate in line with the market value of the land alone, in exchange for a better deal on a new, state-of-the-art building the developer would provide upon completion of the redevelopment. “It’s actually fairly common,” said Lumley. “But it’s a matter of having the numbers work and coming to a meeting of the minds.” Oftentimes these tenant-owners have owned the property for years, and it’s now clear of debt. Even at a reduced price, entering a new deal usually means incurring new debt, something the company may not be willing to do. Some developers have turned to outlying areas, including Valencia, or the Ventura Freeway (101) Corridor through Thousand Oaks, Camarillo and Oxnard. But while land is more plentiful in these areas, they too have their drawbacks, especially if the developer is based in L.A. It may also prove more difficult to get projects approved in these outlying areas when the developer has no history with the community or the local government. L.A.-based developers are accustomed to working with the city’s officials and they have built up credibility. Despite the problems, most developers say they haven’t given up on the Valley. “I’m out crawling in the woods for more land,” said John Lewis, president of the Lewis Co. “Once you’ve developed in the Valley, you become an expert, and the land still exists.”

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