Developers Showing New Industrial Strength

SUN VALLEY —  Real estate developers in the San Fernando Valley were an industrious lot during the last three months.

In the first quarter, which ended March 31, Sherman Oaks-based SunQuest Development announced plans to convert a stretch here long dominated by a rock quarry and landfill into a 33-acre industrial park. The estimated cost: $36 million.

That project is the start of what developer Randall Roth, managing member of SunQuest, hopes eventually will become a 5-million-square-foot face-lift in the region.

“There’s a tremendous demand for quality industrial product in the San Fernando Valley,” said Roth, who runs the 3-year-old company with his partner, Gary Johnson.

Because industrial tenants have been unable to find the space they need in the Valley, “we’ve been losing a tremendous number of jobs to Riverside, Valencia, etc.,” Roth said. “It’s time the Valley got those jobs back.”

The SunQuest project is one of several industrial endeavors announced, launched or completed in a quarter that saw construction completed on 534,171 square feet of new industrial space, according to figures from Grubb & Ellis.

That additional room helped nudge the overall vacancy rate for industrial properties in the Valley region, including the Conejo and Santa Clarita valleys, to 8.1% for the quarter--higher than any quarter during 1999.

Rents edged upward also: going from 59 cents per square foot, per month in the last quarter of 1999 for standard industrial space, to 60 cents. That’s an 11% rise over the first quarter of 1999, according to the company’s first-quarter report.

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And figures from the American Industrial Real Estate Assn., a regional trade group, show that the Valley last year posted an especially strong showing for sales of industrial properties: up 82% compared with 1998, to 2.765 million square feet.

Local real estate experts see the strong level of industrial activity (an additional 600,000 square feet is under construction) and gradually increasing rents as signals that the market, overall, remains healthy.

“I would look at that as a stable vacancy rate; it’s a very healthy vacancy rate,” said Jim Linn, a senior vice president of Grubb & Ellis who specializes in industrial properties in the east San Fernando Valley and Santa Clarita. “There are some size ranges that have a very short supply of buildings. We don’t really have a plethora in any size.”

One size and type of property that’s definitely in short supply, local experts said, is high-ceiling, high-end space for the region’s growing high-tech industry.

“There is a shortage of some types of quality buildings,” Linn said. “The San Fernando Valley has a wider age range of buildings than some other areas.

“We’ve had a lot of construction in our market,” he added, noting the impact of the construction on the region’s vacancy rates. “The older buildings are being absorbed, but at a slower rate.”

As the newer buildings open, he said, they normally are quickly snapped up.

Standing at the edge of a vast, flat, mostly vacant space--populated only by trash trucks and a few small utilitarian buildings--developer Roth hopes a similar destiny awaits the tech-ready structures that will comprise his new industrial park.

Three of the four buildings that will rise on the property already are under contract and commitment, he said. A fourth will be leased out.

“Four buildings are going up, and we have nine offers,” Roth said. “It’s a very secure position to be in, no question about it.”

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Replacing the fleet services facility for sanitation trucks now operated by the city Department of Public Works will be a manufacturer of household goods and a company that makes products used in hazardous-waste cleanup, among other occupants, Roth said.

At build-out, Roth estimates that the park will be home to more than 1,000 jobs.

“Over 90% will be manufacturing,” he said. “That’s my push.”

Roth already has acquired all but six acres of the land from Los Angeles-based CalMat, a producer of asphalt and ready-mixed concrete, which once operated a quarry on the property. Another section, which will be used for parking, was used in the 1920s, ‘30s and ‘40s as a municipal landfill.

Acquisition of the remaining six acres must be approved by the Los Angeles City Council.

But Roth has more acquisitions in his sights. Alternating between unabashed bullishness about the region and concern that he might sound too corny, Roth said he is attempting to snap up enough land to bring 5 million square feet of industrial development to the region over the next seven to 10 years.

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“Disney’s putting up a million square feet in an area with low unemployment,” said Roth, referring to plans by the Walt Disney Co. to build a new office-studio complex in Glendale.

“Arleta, Pacoima, that’s an area that could use the jobs,” he said. “It’s an area that needs to be looked after for a while.”

While newer industrial properties in the Valley are attracting the most attention, new is by no means a synonym for “in demand.”

“In general, things are healthy,” said John DeGrinis, who served last year as president of the American Industrial Real Estate Assn. “But there are some buildings that have been on the market for a year.”

He mentioned fairly new industrial properties in the Cascades Business Park in Sylmar and the Lewis Business Center in Van Nuys as examples of properties that have been sitting for months “looking for tenants.”

“There are buildings that are sitting and many people are scratching their heads.”

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The Valley region had some of the lowest office vacancy rates in Los Angeles County for the first quarter, with Burbank posting a snug 5.9% rate--the lowest figure for any non-Westside community in the county, according to Grubb & Ellis.

On average, top-shelf space in Burbank cost $2.47 per square foot during the quarter--again a Valley-area chart topper. But that’s a bargain compared with the $3.35-per-square-foot price tag in Santa Monica.

“I think that’s an indication of the strength of the Burbank market that the entertainment industry continues to come there,” said Andy Feola, a director with Cushman Realty Corp. who specializes East Valley and Tri-Cities office properties.

Overall, the Valley region, stretching from Glendale to the Conejo Valley, posted a vacancy rate of 11.14%, according to Grubb & Ellis. That’s a notch better than the 12.4% rate for Los Angeles County.

Pulling up the Valley rate was the Santa Clarita Valley, virtually awash in space with a nearly 35% vacancy rate for the quarter. Fueled by rapid construction growth, that area had the highest office vacancy rate in the county.

The lowest rents in the region for upper-end office space could be found in the East Valley, which posted a weighted average asking rent of $1.97 per month, per square foot for “Class A” space.

Landlords in the Burbank and Glendale area were seeking, on average, $2.46 per month, per square foot, while the average for the rest of the Valley region was $2.15, according to Grubb & Ellis.

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More than 1.8 million square feet of new space was under construction during the quarter, the report showed.

Feola sees the Valley office market as strong, saying that in the months ahead, he expects the Valley to capitalize on escalating rents on the Westside.

“When you’re facing $4 per square foot versus paying $2.50 in Burbank or Glendale, that represents a significant savings,” Feola said. “The Valley doesn’t have the cachet [of] the Westside, but there is such a disparity in the rents that people are going to start thinking about it.”

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Valley@Work runs each Tuesday. Karen Robinson-Jacobs can be reached at Karen.Robinson@latimes.com.