Twin Border Plants Spur San Diego’s Economy

SAN DIEGO —  While the Midwest and South scramble for Japanese firms to build more cars and trucks in the nation’s heartland, this city, better known for tourism and its dependence on military installations, is also hustling for its share of Asian manufacturing.

San Diego is using the availability of more than 3,000 acres of industrially zoned land in the Otay Mesa area due north of Tijuana International Airport, the 2 1/2-year-old Otay Mesa international border crossing and 12 million square feet of industrial space completed in Tijuana to boost the twin-plant maquiladora concept that taps the huge reservoir of low-cost but highly productive Mexican labor.

About 35,000 Tijuana residents work in that city’s maquiladora companies.

Maquiladoras derive their name from the fee-- maquila --Mexican millers collect for processing grain. As they operate today, maquiladoras usually take in parts from the United States or Asia--80% of the plants in Tijuana obtain their parts from the Far East--assemble them in Mexico and ship them to nearby finishing plants in the United States.

Plants in United States

The operations performed in the U. S. plants vary, but generally include a final quality control check, packaging, warehousing and shipping.

Already operating maquiladoras in San Diego and Tijuana are such Japanese industrial giants as Sanyo, Sony, Matsushita and Hitachi, as well as American firms such as Parker Hannifin, Johnson & Johnson, Kendall Corp. (a unit of Colgate-Palmolive), Anderson Desk Corp. and Hewlett-Packard.

The firms are taking advantage of wages that--at an average of 80 cents an hour, including fringe benefits--undercut South Korean workers who earn about $1.75 to $2 an hour, more or less the same for those in Taiwan, Singapore and Hong Kong.

Sean P. Doyle of Coldwell Banker Commercial Real Estate Services in San Diego said there are 100 maquiladoras in the Ciudad Industrial area in Tijuana, just south of the Otay Mesa crossing, about one-third of all the maquiladoras in the city. By the end of the year, he expects Tijuana’s total to be 360.

Twin-Plant Concept

He said that the twin-plant concept, with final quality control, packaging and warehousing on the U. S. side, exists because of favorable U. S. tariffs, as well as such realities as marketing efficiency and trade union opposition to the whole concept. This opposition would be fiercer than it already is if all the manufacturing work were performed on the Mexican side of the border, he said.

The Gateway at International Center, Trammell Crow’s $50-million project within walking distance of the border crossing, will have more than 1 million square feet of space when completed, leasing agent Kelly Burt said.

The first phase of five buildings and 322,908 square feet is nearing completion and is 93% leased. Three of the buildings are for multitenant industrial use, while the others will be primarily for warehouse use.

The second phase will have more than 700,000 square feet of warehouse and multi-tenant industrial space. The contractor is Snyder-Langston Inc., San Diego, and the architect is Ware & Malcomb Architects Inc., Irvine.

The Gateway has won foreign trade zone approval from the San Diego City Council, Burt added. Foreign trade zones allow imported goods to be stored duty-free until they are distributed for sale in the United States. Goods destined for sale outside the country are not subject to import duties.

California Structures, developer of the $70-million, 74-acre San Diego Business Park on Otay Mesa Road, is a firm that believes that there is room for maquiladoras and conventional industrial site users.

R. Michael Murphy, president of the La Jolla-based firm, is proud of the recent swap involving Sanyo’s 410,000-square-foot, 19-acre refrigerator plant in Kearny Mesa for a 38-acre, 324,000-square-foot plant in the business park.

The transaction, valued at $38 million, is the largest industrial exchange in San Diego history, he said, and demonstrates “Sanyo’s commitment in Otay Mesa, as well as opening up a quality facility in Kearny Mesa, in the heart of the city, for major manufacturers.”

Joe Smith and Mike Smith of Coldwell Banker handled the transaction and will be in charge of leasing at the revamped, re-landscaped former Sanyo facility at 4000 Ruffin Road.

Vast Labor Pool

While most of the developers in Otay Mesa are targeting twin-plant clients, Murphy believes that the abundance of affordable housing in San Diego County’s South Bay, coupled with the vast labor pool, will attract firms that--unlike Sanyo--have no connection with the maquiladora program.

“There has been a shortage of true dock-high industrial space in San Diego ever since the completion of facilities at Miramar Road about eight years ago,” Murphy said.

“Otay Mesa affords industrial space users the opportunity to add to San Diego’s existing pool of about 50 million square feet of true industrial space in an area that is close to the labor pool and away from the congestion of areas on the north side of San Diego.”

Another California Structures project is Brown Field Business Park, 155 acres at Britannia Boulevard and Otay Mesa Road, across the street from Brown Field airport. Development is expected to begin next year, according to Mike Smith of Coldwell Banker.

Another major player in the Otay Mesa land game is the Irvine-based Koll Co., developer with Weyerhaeuser Mortgage of San Diego.

A July 1 completion is scheduled for the first building in the 40-acre Koll Otay Mesa business park at Britannia Boulevard and Siempre Viva Road, according to Coldwell Banker’s Doyle. The 146,000-square-foot building will be divisible into 8,000-square-foot modules.

Koll Construction is the general contractor and the architect is Sheldon Feinstein of Engineering Alliance Corp.

The building, along with the rest of the park, is seeking designation as a foreign trade zone, according to Joe Smith of Coldwell Banker.

Adjacent to the Koll project, he said, is the Britannia Commerce Center by Bob Bristow Inc. of San Francisco. The lot-sale project is anchored by a large Parker Hannifin plant that is expected to be in construction soon, he said.

Another large--about 300 acres--Otay Mesa lot-sale project is De La Fuente Business Park, with available lots up to 26 acres in size, he said.

Bennet B. Greenwald, partner with P. Michael McDonald in San Diego-based Greenwald/McDonald, believes that maquiladora users are only part of the Otay Mesa and greater South Bay real estate market.

South Bay communities such as Chula Vista, National City, San Ysidro and Otay Mesa are considerably more affordable than well-established industrial areas and are interested in encouraging growth, Greenwald said.

Land is cheaper, leading to lower rents, the labor pool is second in the county only to central San Diego, and housing is more affordable than it is north of the city, he added.

He said that his firm’s International Business Park in San Ysidro --with 88,000 square feet of industrial space in its first phase--is more than 60% leased, with 95% of the businesses having ties with Mexico.

Planning Second Phase

Tenants include Sanyo, San Marcos Blankets, Tijuana Oil Co., Multis Trades Corp., Tacna International and U. S. Trac.

“We plan to start a second phase, totaling 73,000 square feet, because of the success of this project,” according to his partner, P. Michael McDonald. “Land prices averaging $7 to $8 a square foot, compared to $10, $11 and more up north, help keep costs affordable.”

McDonald and Greenwald have developed nearly 600,000 square feet of space, valued at nearly $60 million, in the South Bay. In addition to the San Ysidro project, they have developed the Marina Gateway Business Park in Chula Vista and plan to break ground soon on the 177,000-square-foot Otay Valley Industrial Park on Otay Valley Road in Chula Vista.

The Otay Valley project will include--in addition to expandable space--a 70,000-square-foot building suitable for a maquiladora or twin-plant user, Greenwald said.

High-Tech Companies

The Marina Gateway Business Park, at the entrance to the new Chula Vista Marina, demonstrates that the South Bay can attract the kind of high-tech space users that normally would never have considered the area, he said.

“Amex Systems and Integrated Systems Analysts in Marina Gateway find the location convenient to the Navy facilities.

“Our 102,000-square-foot Amex Systems building and the 27,000-square-foot Integrated Systems Analysts won a beautification award from the Chula Vista Chamber of Commerce and the city.

“We plan to build a 125-room hotel there, a restaurant and another build-to-suit, possibly for an Amex expansion.”