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Thinking Outside the Box (excerpt from Western Real Estate Business publication)


Thinking Outside the Box (excerpt from Western Real Estate Business publication)

Joseph N. Rentfro, executive vice president of real estate at Tejon Ranch Co. in Tejon Ranch, Calif., has other ideas for expediting development and drawing the masses to your project. They start with looking outside the traditional big box markets. “We need to make users aware that they don’t have to be constrained by the scarcity of supply in what they traditionally consider to be their market area,” he says. “There are many users who have found a great lower-cost opportunity by looking just outside the Los Angeles area. Rents can be a fraction of the cost, labor pools still contain highly qualified, highly motivated workers and, in some instances like Kern County, you can take advantage of Foreign Trade Zone status and aggressive economic incentive policies.” That’s just what Rentfro’s company did when it built Tejon Ranch Commerce Center, a 20-million-square-foot commercial and industrial development in a Bakersfield submarket that’s about 40 minutes north of the Santa Clarita/Valencia market. Notable tenants at the center include Ikea, Famous Footwear, Caterpillar and Dollar General. Rentfro attributes Kern County’s many incentives – including employee training and placement assistance; industrial development bond financing; and revenue-sharing subsidies for property, sales, use, transient occupancy and business license taxes, among others – as some of the primary reasons why Tejon Ranch took its project north of LA proper. “Scarcity of space in Greater Los Angeles is making it very difficult for growing users to find space in their current market areas,” Rentfro continues. “Vacancy rates of 1 percent or less are the ­­norm in the Northern Los Angeles markets, which is similar to other Los Angeles markets where vacancy is scant and demand is high. These supply pressures have also resulted in huge price increases, with rents up 20 percent to 35 percent in the past five years. Users are now looking at alternatives outside their existing area.” Ken Giannotti, senior vice president of McClellan Park in McClellan, says his Sacramento County, Calif., submarket similarly remains attractive by offering lower-cost options to Silicon Valley and Bay Area tenants who are tired of paying high prices and competing for land-locked spaces. “Over the last 18 months, the Sacramento industrial market moved from recovery to growth mode,” he notes. “Sacramento continues to be much more cost effective with lower costs of doing business. We expect more spillover from the Bay Area in 2018 and 2019.” Giannotti notes that another way to differentiate your offering is to target tertiary, emerging or novel industries. “California’s legalization of the cannabis industry is creating new demand for Sacramento industrial space,” he says. “This often occurs in Class B and C properties. Rates are moving higher as this new industry competes for space with traditional industrial users.” Giannotti knows it’s this type of creative thinking that will be necessary in California’s industrial market as space dwindles, competition tightens and rents rise among a population at the mercy of civil bureaucracies. “California business regulations are more restrictive than neighboring states, and regional municipal development fees are high,” he says. “We continue to be challenged by neighboring states that are more business friendly.”