As land for giant warehouses gets harder to find in Southern California, Tejon Ranch Co. sees an opportunity. The company owns the largest privately-held land mass in California, but with only a portion of it in L.A. County and most in Kern County, it hasn’t received much attention from big industrial tenants or real estate developers. Now that is changing. It has land entitlements, funding and new partnerships with developers to expand its Tejon Ranch Commerce Center logistics park, and to build more than 30,000 homes and commercial space near the center to supply it with labor. Together with partner Majestic Realty Co., the country’s largest private owner of industrial real estate, Tejon Ranch will build its first new warehouse in eight years, a nearly 500,000-square-foot facility for distribution or e-commerce that it plans to break ground on in November. “We see this as the time to jump in,” said Hugh McMahon, executive vice president of commercial and industrial real estate for Tejon Ranch. “Up till now, tenants have focused on pursuing the Inland Empire. Now we see what’s happened in the North L.A. market. We’re the next logical location.” New partners Headquartered in Lebec, Tejon Ranch has a large agribusiness in addition to its land development venture. The company has 30,000 acres of permitted, entitled land available for eventual development and an additional 240,000 acres promised for conservation. As for its new partner, Majestic is a City of Industry developer that built Staples Center and owns 80 million square feet of industrial land in the United States, half of it in Southern California. President Ed Roski, Jr. also co-owns the Los Angeles Kings and the Los Angeles Lakers. For Tejon, Majestic will be a conduit to drive tenant interest to the 1,450-acre commerce center that it envisions growing into a major logistics hub. Straddling the Interstate 5 freeway just north of the Grapevine, the Tejon Ranch Commerce Center has attracted a handful of big e-commerce and distribution companies since opening in 1999. Inter Ikea Holding B.V., parent of Ikea stores, has 2 million square feet across two buildings; and Dollar General Corp., Famous Footwear, owned by Caleres Inc. and Caterpillar Inc. have together more than 1.5 million square feet. New eateries, hotels and an outlet mall have sprung up. All told, about 4 million square feet of Tejon Ranch’s industrial and commercial land has been developed so far. Now the company wants to develop the other 16 million square feet, and partnering with developers is its business model. With New York’s Rockefeller Group, Tejon has built industrial buildings and the $90 million Outlets at Tejon mall, completed in 2014. With TravelCenters of America, Tejon built several truck stops and gas stations with convenience stores around the center. Tejon Ranch is banking on Majestic’s national presence and relationships to attract large tenants to the to-be-built $20-plus million warehouse, McMahon said. “They are aware of who’s looking to do what across the country,” McMahon said. “They’re very prominent in the L.A. market amongst the same type of users we would be pursuing.” Brett Tremaine, senior vice president with Majestic, said the company takes long-term positions in submarkets that it feels have strong potential to grow, such as the City of Industry and the Inland Empire. It has been watching the Tejon Ranch area for several years. “Land is very constrained in the L.A. markets,” Tremaine said. “As a result of land being constrained, Tejon is the next logical step.” Several large-scale tenants have leased or built space in the commerce center and that validates the area’s location and infrastructure for e-commerce and distribution, he added. Plus, Interstate 5 is a major north-south transportation corridor and provides access to west- and east-bound highways. It’s also geographically well-positioned between the population bases of Northern and Southern California, Tremaine added. “You look at where you can put that warehouse in the most beneficial location and where you can distribute from that so efficiently,” he said. “Tejon is one-third of the way to Los Angeles, and two-thirds of the way to the Bay area. It’s that ideal, one-third, two-thirds mix.” Cory Restad, director of commercial and industrial real estate at Tejon Ranch, believes the property is where Valencia was 30 years ago – on the edge of the L.A. metroplex. But that will change as the region continues to grow. “We can now access almost 41 million people from our location for next-day delivery,” he said. “As California grows, we’re able to access the majority of the market.” Tremaine said Majestic has already started encouraging tenants to consider space in Tejon Ranch. “We feel very good about the strong, long-term growth potential for Tejon Ranch,” he added. “Our goal is to build multiple assets in Tejon, and then own them in joint ventures with Tejon Ranch.” That includes the pair’s first joint purchase – the buyback of an existing 650,000-square-foot, fully-leased industrial building for about $25 million. Tejon had built it at the commerce center years ago with a development partner but sold it in 2007. New building The new warehouse will be built on speculation and have 480,000 square feet with the expected features that make e-commerce centers efficient. It will have 36-foot clear ceiling height, cross-dock truck loading doors, skylights and an early suppression and fast response sprinkler system to control fires. Industrial real estate broker John DeGrinis, senior executive vice president at Colliers International’s Encino office, is handling the leasing of the building along with Patrick DuRoss, Jeff Abraham and Tom Taylor from the Inland Empire office. Nothing of its size has been built in Northern L.A. County, including in the Santa Clarita/Valencia area, and there’s no available land to build one, he said. It can be subdivided, if necessary, he added. With the land in Tejon Ranch cheaper than the areas closer to Los Angeles, the building will rent for lower rates, he said, probably about 40 cents a square foot, although that hasn’t been formally set, he added. According to Colliers third-quarter data, the San Fernando Valley’s industrial market has only 1.5 percent vacancy, and its Central Valley has less than 1 percent. Santa Clarita Valley is tighter with only 1.4 percent vacancy, while the Antelope Valley is 1.8 percent. Rents are up, too. Industrial space costs 74 cents a square foot on average in the San Fernando Valley, up 2 cents since a year ago. In the Santa Clarita Valley, rents rose 5 cents from a year ago to 65 cents a square foot and Antelope Valley rents jumped the most – to 53 cents from 46 cents a year ago. The Inland Empire East and West have nearly half a billion square feet of industrial space but vacancies have dropped almost every year since 2009. In the third quarter, the area had 4.7 percent vacancy, according to Chicago-based Cushman & Wakefield. The western region, which is closer to the ports of Los Angeles and Long Beach, had only a 2.7 percent vacancy rate, while the eastern portion is 7.9 percent vacant. The average overall rent in the Inland Empire is 55 cents a square foot, with space in the eastern region averaging 51 cents a square foot and the west at 55 cents. From a logistics perspective, Tejon Ranch Commerce Center is about 110 miles from the Port of Los Angeles, compared to 55 to 60 miles for the western parts of the Inland Empire (see map). Victorville, one of the most eastern outposts of the Inland Empire that Tejon Ranch plans to compete against, is 105 miles from the port. Chuck Belden, executive vice president at Cushman & Wakefield’s Ontario office, said Tejon Ranch will be a supplement to take overflow from the Inland Empire because the supply of available land is “dissipating,” and developers are pushing farther and farther east. Rents will probably continue to grow at 3 to 5 percent a year for facilities 800,000 square feet and larger. “I think eventually Tejon Ranch is going to be a go-to location, although from now through to the next five years, it will probably be a bit of an outlier because of the distance and (question) of an accessible labor force,” he said. It’s still the long drive to the South Bay ports, Belden noted. While partnering with Majestic was a “smart move” to help its build-out, he said Tejon Ranch is “not a threat” to the Inland Empire right now. Future housing Tejon Ranch has proposed three massive housing communities that would potentially entail nearly 35,000 residential units and more than 15 million square feet of commercial space across its properties. One is in L.A. County while two are in Kern County. Kern County is ripe for logistics jobs. The economy there has historically been dominated by agriculture and oil and gas industries so it’s time to diversify, said Richard Chapman, chief executive of the Kern Economic Development Corp. in Bakersfield. Unemployment is around 10 percent because of the downturn in oil and gas industry, Chapman said. Local gross domestic product dropped by 6.5 percent last year due to the industry’s woes, he added. Agriculture’s annual revenues also dropped somewhat. “That’s why we want to offer additional opportunities,” he said. In contrast is the Inland Empire’s logistics industry and its impact on the local economy. Between 2011 and 2016, logistics (including trucking and trade) has driven job growth there, providing nearly one-quarter of the new jobs in the area, according to the July quarterly economic report compiled by Redlands economist John Husing and his company, Economics & Politics Inc. With a median annual salary of nearly $45,500, the industry has enabled workers to move into a middle-class income bracket. In June, the distribution and transportation sector alone added 12,400 jobs, an 8.3 percent increase compared to the same period a year ago. But that success has a price – land. Every 1 million-square-foot facility requires 52 acres of flat land, and that land is becoming scarcer, Husing explained. “As a consequence of that, I can see why Tejon is trying to do that,” he said, referring to its effort to become a logistics hub “What they have going for them is flat land.” There may be enough e-commerce distribution logistics to go around as the industry grows. E-commerce is 8 percent of retail sales now, Husing said, up from 1 percent in 2001, and it’s expected to rise to 25 to 30 percent. Tejon could be competitive with Victorville, as both are about the same distance to the sea ports, their topography for trucks is about the same, and the weather issues are not that different, he added. Tejon Ranch also offers pre-entitled building. Husing said the entitlement process has become very challenging for developers in the Inland Empire. “It’s a war zone particularly when it moves to a new area,” he said. “Tejon – that’s an advantage for them.” He said a few companies have settled in Tejon Ranch and he predicts it will eventually become more competitive, but it will require the Inland Empire building out first. “They’ll get a piece of the action in the long-term,” Husing said. “It will happen – it’s just a question of time.”
