Let’s Make A Deal

When it comes to industrial and office development in the Antelope Valley, Lancaster and Palmdale have had their share of home runs. Yet, there have been some whiffs as well. For every BYD Motors Inc., a Chinese manufacturer of electric buses, or Kinkisharyo International, a Japanese light rail-car manufacturer, that opens up shop in north Los Angeles County, there are just as many strikeouts. Take, for instance, Ecolution, a Lancaster company that proposed a $100 million automated recycling center in the city and then backed out in 2013 when unable to secure enough waste to make the venture profitable. Or there’s the 130,000-square-foot building in Palmdale once occupied by contract manufacturer Senior Systems Inc. – until the company went out of business three years ago. Potential buyers have toured the empty building and at least one was close to making a deal, but it fizzled. Kari Blackburn, senior project manager at the economic development department in Palmdale, said the city is anxious to breathe new life into the building at 600 Technology Drive but so far has had little luck. “We have had lots of lookers but we have not found the perfect one yet,” Blackburn said. Part of that might be perception. For many Angelenos, the Antelope Valley is simply the boonies, a land of scrub brush to be observed through a car window on the way to Las Vegas or Mammoth. And it is vast, stretching nearly 1,200 square miles on the edge of the Mojave Desert and straddling Los Angeles and Kern counties. But all that open space is also the attraction. The industrial market in the Los Angeles basin around the ports of Los Angeles and Long Beach is tight with a vacancy rate hovering around 3.5 percent, while new construction in the San Fernando Valley is costly given land values. Santa Clarita still has space but it’s not as plentiful or as cheap as found farther up the 14 Freeway. The High Desert valley also has a more plentiful and educated workforce than might be imagined. It’s home to more than 500,000 people, with the largest cities of Palmdale and Lancaster counting for more than 150,000 residents each. And with the establishment of Edwards Air Force Base during World War II in the desert north of Lancaster – where the military tests all its aircraft and operates a test pilot school – the region has attracted operations of major military contractors such as Lockheed Martin, which has its top-secret Advanced Development Programs division there, and Northrop Grumman Corp., which builds its unmanned Global Hawk aircraft at U.S. Air Force Plant 42 in Palmdale. That means thousands of highly skilled engineers and technicians call the desert home, giving brokers and economic development professionals more than just cheap land to crow about as they seek to entice new businesses to the area. However, low-costs are the main attraction. Vern Lawson, the Lancaster economic development director, wants corporate executives and site selectors to think of the Antelope Valley first if they are considering moving out of state. “We are ready to deal and provide incentives to job creators and will cooperate with developers too,” he said. Diversified development Aerospace has been key to jumpstarting a whole new industry of commercial space exploration with Virgin Galactic, XCOR Aerospace, and Scaled Composites operating from the Mojave Air & Space Port in Mojave. The pioneering companies are pursuing everything from satellite launches to space tourism. Many manufacturing companies in the area service the industry. But in recent years, the area’s economy has diversified as the population has grown by about 100,000 since 2000. That’s especially true of the service industry, which has boomed with new national restaurant, retail and hospitality chains such as Target Corp., Best Western International Inc., Marriott International Inc., and Dick’s Sporting Goods Inc. More than 16 percent of the workforce in Palmdale and Lancaster is employed in sales, food preparation and related jobs, according to figures compiled by Lancaster-based business advocacy group Greater Antelope Valley Economic Alliance for its 2014 annual report. But the cities and business groups in the area are focusing much of their effort on attracting manufacturing, which offers better-paying jobs. “We leverage the stories that we have with Kinkisharyo, BYD and Virgin Galactic up in Mojave; all these companies are already doing cool things here,” said Kimberly Maevers, chief executive of the Greater Antelope Valley Economic Alliance. Both cities have established specific areas within their borders for light and heavy industrial uses. Lancaster has the Fox Field Industrial Corridor along West Avenue G adjacent to the county-owned Fox Airfield, an 8,000-acre master-planned industrial complex. Tenants include distribution centers for drug store chain Rite Aid Corp., arts and crafts chain Michaels Stores Inc. and food distributor Sysco Corp. There is also Lancaster Business Park along Avenue L (see article on page 14); and the North Valley Industrial Center near Sierra Highway and Avenue H, containing build-to-suit lots ranging in size from a half- acre to 100 acres. Palmdale has nine available lots from 1 to 11 acres at the Fairview Business Park along West Avenue O. The business park was a project of the city’s redevelopment agency, which was abolished by state law in 2012. A successor agency is working with the state on getting those plots back on the market, Blackburn said. For now, the city is focusing on 600 acres it owns at Sierra Highway and East Avenue M. A piece of the property is slated for a proposed 570-megawatt natural gas power plant to be built by Summit Power Group of Seattle, but the remainder is unclaimed. The site is a natural for manufacturers, particularly any associated with aerospace as Plant 42 is adjacent. “It is flat, buildable and zoned for industry,” Blackburn said. Upgrading space Rob Martin of Martin Properties Inc., in Westlake Village, is someone adding more space for office and commercial tenants. Among his development projects are Centerpoint Business Park in Lancaster, and Challenger and Woodland business parks in Palmdale. Last year, Martin completed a 100-room TownPlace Suites by Marriott hotel at the Lancaster Spectrum retail center. But Martin is seeing most of the leasing activity at his properties coming from businesses just moving around inside the Antelope Valley. “The majority of the tenants are upgrading their space,” Martin said. Challenger Business Park, within walking distance of Palmdale Regional Medical Center, offers medical offices and is 100 percent leased. Martin Properties also owns 30 pieces of vacant land with commercial zoning ranging from 1 acre to 20 acres. Some of those parcels are near Antelope Valley Hospital in Lancaster where he can build medical office space which tenants could either lease or buy. Martin, however, does not have a timeline of when work will start in Lancaster. “Things will still need to improve to justify (buying) a medical office,” he said. Toneman Development Corp., in Lancaster, is also in the medical office market, constructing three buildings totaling 24,000 square feet on 2.1 acres above the Palmdale Regional Medical Center. The spec development, called Project 029, is selling at $195 a square foot, or $1.48 million to $1.77 million for one building and the surrounding parking. Blackburn said that there is a market for build-to-suit construction in Palmdale. “If you have the owner and a developer willing to build on your specs, the availability of build-to-suit land is not a problem,” she said. Real estate professionals in the valley describe the market for industrial and commercial properties as improving as prices stabilize and business owners are more willing to sign multi-year leases. Like Martin, brokers such as Harvey Holloway are seeing more activity from established business owners moving internally within the Antelope Valley than clients coming from outside. “The economy is strengthening and there is more confidence in what is going on,” said Holloway, with Coldwell Banker Commercial Valley Realty in Lancaster. Holloway said leases are being signed for industrial flex space in the range of 60 to 65 cents a square foot, from about 50 cents a few years ago. Sales prices can range from $50 a square foot to $100 a square foot for a concrete tilt-up with office space attached to it. “There is such a wide range up here, it is hard to say what an average number is,” said Holloway, who also serves as the board chairman of the Greater Antelope Valley Economic Alliance. Helping out For all the opportunities for development, Chuck Hoey, who has been selling and developing real estate in the Antelope Valley for 25 years, sees an industrial inventory that is beginning to run short. He is involved with two new projects – a 24,000-square-foot building in the Lancaster Business Park, and a 16,000-square-foot building in Palmdale. The Lancaster building is attracting attention from a tenant willing to take all the space even with a starting lease price of 80 cents a square foot. But it’s a chicken-and-egg problem: it’s hard to start building tons of new space without even more buyers and tenants – and you’re not going to interest companies without more available product. “We need more space, we need more development,” is how Hoey puts it. The cities are doing what they can to help out. They work with brokers such as Hoey on available properties that may suit their clients. “We are making sure that it is on the radar of those folks working with clients on relocation and expansion,” said Blackburn of Palmdale. Her city also regularly attends conferences and trade shows, such as the International Council of Shopping Centers, to meet executives interested in moving or expanding. And the city advertises available property it owns and in private hands with brochures. Lancaster also had advertised in newspapers such as the Los Angeles Times and through billboards placed throughout the region before the marketing budget was cut during the recession, Lawson said. Both Lancaster and Palmdale also work with the Governor’s Office of Business and Economic Development, or GO-Biz. Last year, Lawson said, Lancaster received about 50 inquiries that came through the Los Angeles County Economic Development Corp., which is based in downtown Los Angeles. Meanwhile, the economic alliance launched a new website – socalleadingedge.com – late last year to aid in its attraction efforts, and its Leads campaign targets companies that are under pressure to leave California. The alliance works with a consulting firm to identify which companies to contact, Maever said. “I do know that some Leads efforts resulted in second and third looks, and the economic development contacts (at the cities) are working with those executives to ink the deal,” she noted, optimistically.