Despite Slowing Market, SoCal Industrial Owners Are Holding Tight To Their Properties
Although there has been a notable slide in rents in some Southern California markets, it's still broadly a desirable market, and for those developers and owners still looking to acquire in the region, the deals are hard to find and the competition is steep.
“We're struggling to find sellers, frankly — that's our biggest challenge,” Rexford Industrial Realty Chief Investment Officer Patrick Schlehuber told attendees at Bisnow's Southern California Industrial Conference at the Omni Los Angeles Hotel Thursday.
Many sellers saw how high the peak prices were and are having a difficult time tempering their expectations.
“We're struggling sometimes getting people to get off the sidelines on a sale,” Schlehuber said.
There are always motivated sellers staring down a maturity date, but overall, the flood of deals that some buyers hoped for has failed to materialize.
“I wouldn't say there’s been a ton of distressed industrial,” Ares Management Managing Director Gregg Boehm said. “I think banks have figured out a way to play ball with their borrowers, knowing just how great the sector is, and so we haven't quite seen as many deals as we had hoped for.”
Difficulty finding deals joined the high cost of capital and, in some areas, increasing regulations as challenges facing those looking to develop, acquire and lease in the SoCal industrial sector.
Rents in the Inland Empire drooped last quarter for the first time since 2009, and nationally, a “recalibration” appears to be underway in the sector.
Southern California’s troubles are a foil to what panelists specializing in or owning mostly in Kern County said they see: growing opportunities to snap up land and a “pro-business” climate that means fewer hoops to jump through on things like labor and real estate regulations.
Farmers who may have slammed screen doors in the faces of real estate professionals a decade or two ago are rezoning their agricultural properties to make them attractive redevelopment opportunities, ASU Commercial Senior Vice President Wesley McDonald said. Restrictions on water and oil drilling have changed perspectives, and now many major land-owning families are thinking about selling.
“We're in a unique position right now to take down land in Kern County,” McDonald said. “We have thousands of acres.”
The appeal of port-adjacent markets such as the Inland Empire wasn't up for discussion. Panelists were fairly bullish on the longer-term prospects for the area, even though they said there was a bit of a supply glut brewing, if not already present, because of its proximity to the two largest ports by volume in the country.
Aside from the record rent growth of the past three years, “this is really the most inexpensive place in terms of shipping a product here, especially considering most of [the products] are coming from Asia,” Boehm said.
“You're even finding users that took space in other states are shipping it here, taking it to Phoenix, and trucking it back.”
When rents come down a bit further, those occupiers will probably want to come back to the LA area, he said.
