Daum Commercial Real Estate Services’ Inland Empire Team of Gus Andros, Eric Fikse and Richard John has won the Society of Industrial and Office Realtors (SIOR) Top Transaction Award for the Largest Transaction Overall for 2022. The team secured a new 15-year, 1.239-million-square-foot industrial lease on behalf of landlord Prologis.
The property, located in Ontario, was leased to a Canadian-headquartered clothing company as its primary distribution center for the western U.S. in a leasing deal valued at $285,565,101. SIOR’s Top Transaction Awards are presented to SIOR members who have completed the largest sales and lease transactions with one or more other members in the prior year, ranked by dollar volume.
“This transaction is a testament to the dedicated efforts of our team and the whole Inland Empire office,” said John. “It is also a demonstration of the resilience of the Los Angeles region and the Inland Empire as a strategic location for industrial real estate assets.”
KB Homes is set to build another 207 new residences in Greater Los Angeles after securing entitlements and acquiring the land for development.
The company paid $24 million for 13.5 acres of commercial land in the city of El Monte in Los Angeles County’s San Gabriel Valley, about 15 miles from Downtown L.A. The L.A-based firm will build 169 single-family residences and 38-multi-family units, according to past media reports.
DAUM Commercial Real Estate Services announced the deal and represented both the buyer and the seller.
The property at 2540 Rosemead Boulevard was formerly the home of the Starlite Drive-In movie theater built in the 1950s. More recently, Taiwan-based Starlite Swap Meet Group acquired the site in the 1990s and managed the weekend swap meets, which closed in 2020 during the COVID-19 pandemic and never reopened.
“After owning the land and managing the Starlite Swap Meet for three decades, the owner was ready to sell,” said DAUM’s Nick Peukpiboon who brokered the deal with Rudy Lara. “With available land for new development at a premium, the chance to purchase over 13 acres of empty acreage was too good to pass up for KB Homes.”
The property had been zoned commercial but due to significant housing shortages in the San Gabriel Valley, El Monte city officials changed the zoning to residential. The entitlement process took nearly two years to secure.
“The process to change the entitlement from commercial to residential, though long, was the ultimate catalyst that enabled this transaction to come to fruition,” Peukpiboon said, adding that the transaction highlights the current demand overall for commercial real estate in the San Gabriel Valley.
Indeed, earlier this month, Commercial Observer reported Chateau Group USA sold a 127-unit development with 50,000 square feet of retail in the small city of San Gabriel.
Subletting has its advantages but remains only about 1% of the total inventory.
Industrial sublease space is increasing as more tenants see it as a viable way to earn revenue, and landlords are attracted to its potentially shorter lease terms.
However, even though subleasing has more than doubled compared to a year ago, it still represents only less than 1 percent of the nation’s total industrial inventory.
Therefore, it’s not a threat to industrial’s streak of 13 consecutive years of positive absorption, according to a new report from CBRE.
The rise in sublease availability, up by 30% alone between April 1 and June 9, is attributable to several factors, CBRE said: Overestimates of product inventory needs, economic uncertainty, retailer store closings, and record-high rents.
Meanwhile, taking rents have grown by nearly 67% over the past three years.
“This makes subleasing an enticing option for many occupiers, which can often generate enough revenue from subleasing a portion of their facility to pay rent for the entire building,” according to the report.
New and under-development industrial space represents a sizeable chunk of available subleasing space.
Sublease blocks of 300,000 sq. ft. or more that account for 38% of total sublease space are in Class A buildings, 37% of which were completed within the past two years or are still under construction.
General retailers account for more than 26% of available sublease blocks of 300,000 sq. ft. or more, followed by general wholesalers at nearly 24% and e-commerce-only occupiers at nearly 18%, CBRE found.
The Inland Empire has the most blocks at 300,000 sq. ft. or more.
CBRE said it “expects that available sublease space will continue to increase due to economic uncertainty and lower product inventory levels. Demand for such space also is expected to increase due to the opportunity for shorter lease terms with lower-than-market rental rates.”
Firms Leased Large Volumes When Scarcity was Acute
Lisa DeNight, National Industrial Research Managing Director at Newmark, tells GlobeSt.com that, based on its Q1 report, subleases have been added to the industrial market at an “accelerated rate” over the past three quarters.
Sublease volume in Q1 2023 was on par with the volume charted during the height of the pandemic and significantly above the long-term pre-pandemic average.
E-commerce, 3PL and consumer goods firms are among the largest contributors to the sublease volume, but a wide mix of industries are represented across sublease availability.
“Many firms either leased large volumes of space when scarcity was most acute and international supply chain disruption was at its peak or leased an excess of space because it was the only available option, DeNight explained.
“Now, rising interest rates, an inflationary environment, and declining consumer demand are driving some firms to control costs via supply chain optimization and consolidation, which includes putting excess or underutilized space up for sublease.”
Newmark said that over the next few quarters, pre-leased construction deliveries “will continue to apply upward pressure to net absorption as some right-sizing occupiers apply downward pressure through subletting or giving space to landlords. Sublease volumes stand to impact local market dynamics — but on a national scale, still represent a very slim portion of total availability.”
Adam Roth, executive vice president, industrial services, NAI Hiffman, tells GlobeSt.com that the unreliable supply chain caused corporations to miss sales due to displaced inventory.
“The result of this was in 2022, corporations mandated their product be on the continent, therefore, increasing their inventory and real estate footprint to not miss a sale,” Roth said.
In 2023, as the supply chain unwinds and dependability returns, “corporations are right-sizing their footprint as traditional trade flow patterns resume,” Roth added. “Therefore, there will be an increase in sublease vacancies; however, due to the record-low industrial vacancies, I don’t see this as a concern.”
Port Activity a ‘Direct Driver’ for Sublets
Rick John, SIOR, Executive Vice President and Branch Manager at Daum Commercial’s Ontario Office, tells GlobeSt.com, “The direct driver for the increase in industrial sublease availability seen throughout California’s Inland Empire can be accurately correlated to the decrease in Southern California’s port activity this year.
For the ports of Long Beach and Los Angeles, activity is down 22% from last year and this slowdown directly affects the Inland Empire’s absorption rate, John said.
At the close of Q2 2022, the amount of sublease space available in the Inland Empire for buildings over 100,000 square feet included 8 buildings totaling 1,469,110 square feet. Nearing the close of Q2 2023, sublease space currently available has more than doubled last year’s metrics with 19 buildings available totaling 6,464,301 square feet.
“Current lessees are increasingly lacking the inventory to fill their leased space resulting in challenges to pay their monthly rents. With vacancy rates on the rise, the sublease market is becoming an attractive alternative for lessees to meet these economic challenges head-on.”
The sublease market in the Inland Empire is particularly desirable to third-party logistics (or 3PL) companies that provide outsourcing of e-commerce logistics processes.
Fewer Occupants ‘Circling’ 300k+ Assets
Joe Santaularia, Senior Vice President, Managing Partner of Bradford Commercial Real Estate Services/CORFAC International, tells GlobeSt.com that the market has bi-fricated since Amazon switched gears and stopped eating up space.
“This has led to a ‘trickle down’ effect leaving vacancies of 300k+ square-foot facilities sitting for much longer and have fewer occupants circling,” he said.
For spaces below 200K SF, Santaularia is seeing the opposite effect: 80%+ bumps on renewals and very few options to show clients that are expanding as the market is tight and rents continue to escalate at a heightened space.
“This is leading to landlords of bulk vacancies being more flexible in breaking up larger vacancies and come out with more TI incentives, sign tenants with lesser credit and term,” he said, adding that this trend will not diminish as the development of bulk assets continues its record pace.
O’Hare Sublet Market Healthy
Mike Plumb, Principal, Lee & Associates of Illinois, tells GlobeSt.com that industrial vacancy rates, including subleases, remain at historic lows in the Chicago area.
He said the highest concentration of sublease availabilities are in the 50,000- to 200,000-square-foot range, and that the O’Hare market—where rents tend to be the highest of all Chicago submarkets—is seeing the most subleasing opportunity.
“While the space is coming on the market for a variety of reasons, it seems like the cost of the space (higher than in other locations) may be a factor as companies look to their real estate portfolios to save money as the economy slows,” Plumb said.
Newly available sublease space is creating opportunities for both tenants and landlords.
“For tenants, strong subtenant demand has made it easier to reduce lease liability in economically uncertain times, or in the event of an operational change within the company.
“Landlords will likely be amenable to release tenants from their lease obligations to capitalize on higher rents. These subleases that could ultimately lead to lease terminations allow for immediate backfill with new tenants giving landlords the opportunity to “mark to market” the rent that was typically leased at a much lower rate a few years ago.
“The result is the realization of impressive rent growth that the Chicago market has achieved over the last few years.
He said that from the landlord’s perspective, a sublease also creates an opportunity to profit share in a portion of the rent growth above the prime lease prior to that lease maturity.
For example, if a tenant subleases their space for more than their negotiated base rent, the landlord and original tenant can share in the profits that come from the rent the sublease tenant pays over and above the original rent.
June 27, 2023 | Patrick Sisson, Bisnow National
As part of its bid to decarbonize vehicles of all kinds, California is on the cusp of implementing new charging regulations for electric semitrucks that will require billions of dollars in investment for industrial outdoor storage, where charging access will be an amenity needed to attract top-tier tenants.
“Right now, I think it’s something that is going to help you attract a tenant, not something that someone’s gonna pay more for,” Colliers Vice Chair Jace Gan said. “But in terms of the top-tier companies in the country, like Fortune 500 groups, they’re all gonna get electric trucks. Pepsi is buying Tesla trucks; they’re going to play the game on EV trucks.”
Via a series of regulatory changes, including the Advanced Clean Trucking and Advanced Clean Fleets rules, as well as emissions reductions schemes for warehouses, such as the Indirect Source Rule, California regulators have aggressively pushed to establish cleaner, emissions-free freight and warehouse sectors. Medium and heavy-duty trucks in the state, which account for one-fifth of California’s greenhouse gas emissions, must be zero-emission by 2045.
This means electric vehicle charging will come to warehouses and IOS properties across the state, and fast. As of mid-2022, there were just over 300 electric heavy-duty trucks in California, which has a total of 1.8 million trucks on the road, though that number is expected to grow.
The transformation will require billions of dollars of investment in the Golden State alone, said Gregg Healy, head of Savills’ industrial services group. Industry analysts believe that EV charging will become a key amenity and feature at IOS sites, one that can attract top tenants and help lease property more rapidly.
Some warehouse owners, especially giants such as Prologis, have already begun to make significant investments in their own charging networks, aiming to establish a charging-as-a-service product with no upfront cost to tenants, and hit net-zero emissions by 2040.
It’s likely that larger firms with more access to capital will make the investments first, and see whatever benefits come from establishing EV charging routes, while smaller businesses may struggle, entrenching current power dynamics in the industry.
“The road to get there will be littered with the corpses of businesses that no longer are going to be able to afford to do business in California,” Matt Schrap, CEO of the Harbor Trucking Association, a trade organization that represents drayage fleets on the West Coast, told Grist.
Based in large part around the operations of a handful of large Pacific Ocean ports and the vast Inland Empire warehouse market, the IOS market in California has slowed in recent months, impacted by the larger CRE slowdown and decreasing trans-Pacific freight volume, as well as intermittent strikes and labor actions at the Port of Los Angeles.
But it’s still incredibly tight in terms of vacancy, brokers say, and the paucity of new supply caused rates to run up in recent years, said Derek Fish, head of real estate investments for Realterm, a firm that specializes in logistics real estate. With high land prices compared to the rest of the nation, it’s harder to take on extra space in California or make significant infrastructure investments.
That won’t pause the state’s larger push into electrification of heavy vehicles and logistics.
Many leading developers have already committed to adding charging stations on their industrial sites, Daum Commercial Executive Vice President Rick John said. He’s convinced tenants with aggressive ESG goals will seek out sites wired for electric trucks, and early adopters will see big benefits when it comes to absorption and signing leases. The federal Inflation Reduction Act includes a 30% rebate on the cost of heavy-duty chargers, and a variety of proposed state incentives, investments and rebates will also help bolster needed new infrastructure spending.
Eventually, EV charging for IOS sites will be akin to an improvement or amenity that a property owner needs to make to stay competitive, renew leases and attract users, Fish said. Now, it’s more tenant-led in terms of what types of specifications any EV upgrade would have. Realterm has made investments on properties in Oakland and Fontana, California, and it has found tenants who need EV charging and are willing to help pay for the upgrade.
The financial models may not be clear yet, but there’s going to be a lot of new businesses that are “going to pay a lot for real estate,” Industrial Outdoor Ventures CEO Tom Barbera said. Already, startups like Zeem and Forum Mobility are building out charging networks and capacity, and big players like unicorn cleantech startup Terawatt and a $650M coalition between Daimler Truck North America, NextEra Energy Resources and BlackRock plan to build out charging capacity with a SoCal focus.
IOS owners have time, however, to make investments in EV infrastructure, Barbera said, in part because the production and availability of heavy-duty chargers and electric trucks is lagging the state’s aggressive goals. Colliers’ Gan sees most owners looking to install conduit to be charger-ready, and waiting until they’re pushed to invest in EV chargers. He’s heard industry sources say the state’s proposed pace of change, which will push the transition to EVs forward, is basically impossible to meet given existing resources.
There’s also the added complications of being able to wire these sites for the massive power needs heavy-duty electric vehicles bring, Fish said. IOS sites weren’t scouted or developed with EV charging needs in mind, and the process of bringing power lines to these sites can be “can be politically and administratively intensive,” he added.
“There’s a slowdown in freight overall, a slowdown at the ports, happening to these companies at the same time they need to invest in their real estate,” Fish said. “So it’s gonna be a little bit of a push-pull.”
WattEV, a firm that is building out its own all-electric fleet and charging stations in a bid to provide a turnkey clean transit option for freight and logistics, plans to field 300 electric trucks by the end of next year, increasing to 1,000 trucks by 2026. The firm’s plans will take advantage of state and federal grant funding to build up a fleet of vehicles and charging networks, starting at SoCal ports and spanning I-5 and I-10, backbones of vehicle freight in California. The network of charging sites, currently planned for 50 locations but likely to expand quickly, is either purchased or leased.
Picking sites depends heavily on how hard and expensive it can be to wire them with sufficient power and the ability to work with utilities to do so. WattEV CEO Salim Youssefzadeh said that some were perfect from a location perspective, but would be prohibitively expensive to service with sufficient power. With enough space, however, more sustainable, less limited solutions are possible; one planned 150-acre WattEV site in Bakersfield will boast 100 acres of solar panels.
WattEV has many competitors seeking to build up infrastructure, but few wrapping it in with fleet investments; each site costs between $3M and $20M, with each electric truck running $500K. Currently, the chargers WattEV has deployed can take a typical truck from zero to 80% charged in under three hours. In a few years, Youssefzadeh predicts, technological advances will cut that time to 40 minutes or less, currently the average time a trucker already spends at a rest station, an inflection point that will see the industry rapidly grow.
While the ultimate shape of this shift, and the speed of adoption, may be in flux, what’s clear is that the push for electrification won’t end on California’s borders. States including New York, Massachusetts, New Jersey and Oregon have adopted or explored similar rules. Youssefzadeh said WattEV has already begun securing properties outside of California, betting that as more trucks in California plug in, they will fuel the growth of a regional charging network.
“This is going to have a trickle effect into other neighboring states, with both vehicles and infrastructure,” Healy said. “The wave has already come, let’s lean into the new technologies.”
Contact Patrick Sisson at [email protected]
Daum Commercial Real Estate Services completed lease renewals of two single-tenant commercial properties in Camarillo. The two buildings were leased for $7.1M, according to Daum Commercial Vice President Stuart Scott.
The first lease renewal, a 48K SF office and research and development building, was with Interconnect Systems International, which uses the space for its headquarters as well as design and manufacturing. The tenant renewed its lease for a 10-year term. The second renewal was at a nearly 26K SF industrial building used by tenant Burloak Technologies for manufacturing commercial parts. Burloak extended its lease for five more years.
Century-old commercial brokerage has seen double-digit growth since the pandemic
Daum Commercial Real Estate Services is expanding into larger digs in the South Bay.
The Downtown Los Angeles-based brokerage, after 40 years in cramped quarters in Torrance, has moved to larger offices at 19191 South Vermont Avenue, the Los Angeles Business Journal reported. Terms of the deal were not disclosed.
Its new offices are at the 10-story Pacific Gateway, near the 405 and 110 freeways. The offices, built in 1981 and renovated in 2019, are owned by Silicon Valley-based Nome Ventures, which bought the property in October 2020 for $55.5 million.
Daum’s South Bay office is led by Brad Levin and Chuck Brill, who said the 30-percent larger quarters would help facilitate a South Bay expansion with the hiring of more agents. The size of the new office was not disclosed.
“Our (old) offices were tired and dated,” Levin said of the decision to move. “We’ve been having record years and have been in a money-spending mode and trying to hire and improve services and staff and marketing capabilities.”
He said the South Bay expansion was able to “take advantage of the market turn and get a much better space for our needs.”
Daum, in Los Angeles for more than a century, has seen double-digit growth since the dawn of the pandemic.
Its year-over-year gross revenue rose by 23.2 percent in 2020, 41.8 percent in 2021 and 21.3 percent last year.
Brill said the company, which operates in Southern California and Arizona, had no plans to enter new markets but was “always actively looking” at acquisitions of other companies and growth.
In the South Bay, the company is working on a lot of industrial real estate transactions, where Levin sees strong demand.
“The South Bay has been a very good hub for the industry, and we’ve been able to capitalize on that,” he said.
Daum Commercial Real Estate Services represented Rusher Air Conditioning in its acquisition of a 16,680-square-foot industrial building in Lawndale for $5.52 million.
Michael Collins and Dustin Hullinger of Daum’s Capital Markets Group represented the buyer in the transaction. Brian Held of CBRE Group Inc.’s South Bay office represented the seller, the Sendy Hartwell Trust.
“Rusher Air, a preeminent Southern California company that has been in existence for more than 75 years, was looking to expand from its 10,000-square-foot facility in Torrance, California to a larger, more efficient headquarters,” Collins said in a statement. “Our team worked throughout 2022 to source an ideal building in an excellent location in Lawndale that more than suits their needs. We were also successful in assisting the buyer in facilitating a ‘reverse’ exchange and solidifying a loan with favorable terms.”
Constructed in 1967, the 16,680-square-foot building — located at 4435 W. 153rd St. — features a gated concrete yard. Its central location offers immediate access to multiple freeways and ample space for efficient operation and long-term growth potential.
According to a Daum report, Lawndale’s industrial market direct vacancy remains extremely tight at 1.9% as of the third quarter. Sales prices rose 11.1% and deal volume increased 73.8% during the quarter, demonstrating investors’ robust interest in this market, Collins said.
In addition to directing the purchase of Rusher Air’s new headquarters, Daum is marketing the buyer’s previous headquarter property on Normandie Avenue in Torrance, just south of the 405.
GARDENA, CALIF. — El Segundo, Calif.-based Dunbar Real Estate Holdings LLC has acquired two freestanding retail and industrial buildings from T.A. Properties LTD for $22.7 million in an off-market transaction. The buildings are located at 1355-1361 W. 190th St. in Gardena.
AutoZone, 3 Day Suit Broker, Off Broadway West and 4 Wheel Parts are tenants at the 92,640-square-foot asset. The property consists of two concrete tilt-up buildings situated on 3.7 acres. The buildings offer 18-foot and 19-foot clear heights, fire sprinklers, dock-high loading doors, private security fenced yards and ample grade-level parking.
Chuck Brill of DAUM Commercial represented the buyer, while The Altemus Co. represented the seller in the deal.
Los Angeles-based investment firm Manhattan West Real Estate has acquired Talbert-Mount Washington Industrial Park, a two-building, multi-tenant complex in Fountain Valley, CA. Manhattan West purchased the 3-acre, 60,000-square-foot asset from DDK Investments for $16.5 million.
“This asset’s diversified tenant mix from a use perspective, and staggered lease expirations provide us with the opportunity to capitalize on a mark-to-market investment strategy in supply-constrained Orange County,” said Manhattan West’s Grant Fisher.
Talbert-Mount Washington Industrial Park is fully occupied by six tenants, including OC Art & Home, Harwood Galleria, The Drawer Shop and RADCO. Both freestanding building are two stories, and feature large outdoor storage yards, 18’ to 23’ clear heights, fire protection, oversized ground-level doors and HVAC.
Manhattan West was represented by Joseph Harmon and Charles Johnson of DAUM Commercial Real Estate Services and the seller, who has owned the property for several decades, was represented by Devin Ray and Mike Barreiro, also with DAUM.
DAUM Commercial Real Estate Services has arranged the sale of an eight-acre parcel, including two industrial buildings, located at 4510 Azusa Canyon Road in Irwindale. Rexford Industrial acquired the asset from DS Services of America, a water bottling and distribution company, for $40 million. The sale-leaseback deal includes a five-year lease with an option to extend.
Dennis Sandoval, Kevin Sandoval and Bryan Sandoval of DAUM represented the seller, Dennis Sandoval also represented the buyer in the transaction.
Constructed in 1950, the property features a 52,780-square-foot Class C industrial building and a 14,728-square-foot building. The buildings offer 24-foot clear heights, ample parking and a fully fenced and secured lot.