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Friday, Jun 24, 2022

FAANG Footprint in the Valleys

 They are collectively called FAANG, an acronym referring to the stock market’s five most popular technology companies. And while not all five of them – FacebookInc., Amazon.com Inc., Apple Inc., Netflix Inc. and Google, a subsidiary of Alphabet Inc. – have expansion plans in the Valley region, several have become major tenants in the office and industrial real estate markets.

During the coronavirus pandemic, two of the companies – Amazon and Netflix – have prospered, which has translated into demand for space.As a company, Amazon’s revenue and net income have grown substantially with the pandemic. Even though it spent $4 billion in protective equipment for staff, in the second quarter its revenue climbed 40 percent year-over-year to $88.9 billion, compared to $63.4 billion in 2019. Net income totaled $5.2 billion.“The big player is Amazon,” said John DeGrinis, a veteran industrial sector broker currently based at Newmark’s Calabasas office.Meanwhile, Netflix announced last month that it had cemented a 171,000-square-foot deal at the Burbank Empire Center at 2300 W. Empire Ave. where it will establish its first animation studio. The streaming service has also benefitted from millions of people staying home during the shelter-in-place period, adding to its worldwide total of 193 million subscribers.“In the first half of this year, we’ve added 26 million paid memberships, nearly on par with the 28 million we achieved in all of 2019,” Netflix said in a second-quarter statement. “However, as we expected, growth is slowing as consumers get through the initial shock of COVID and social restrictions.”‘Warehousing everything’“Amazon is warehousing everywhere,” John Loper, director and chair of the USC Lusk Center for Real Estate. “They need so much fulfillment centers. Inland Empire is going through the same thing.”DeGrinis hit home how dramatic Amazon’s growth has been in such a short period of time. By the end of 2019, Amazon had 150,000 square feet in the North L.A. market. By the end of next year, it will dominate 3.5 million square feet.“What does this mean to the consumer? Certainly, next day delivery and probably same day delivery,” DeGrinis said.Amazon occupies 200,000 square feet in Newbury Park at Rexford Industrial’s Conejo Spectrum Business Park.In Valencia, Amazon took another 155,000 square feet at 28820 Chase Place.In June, Amazon signed a deal in Simi Valley for 250,000 square feet and took on another 250,000 square feet in Chatsworth; both sites are owned by Xebec Realty. DeGrinis and colleagues Patrick DuRoss and Jeff Abraham represented the landlord in those transactions.Amazon has taken another 750,000 square feet in Camarillo to create a fulfillment center that employs 400 people at 3175 Mission Oaks Blvd. On another 75 acres in Oxnard, a developer is building a future Amazon fulfillment center on the Sakioka Farms agribusiness property that could generate 1,500 jobs.A 198,000-square-foot deal for Amazon at Trammel Crow’s Needham Ranch in Santa Clarita earlier this year was brokered by CBRE Group while Overton Moore-owned Avion Burbank business park, currently under construction, has a commitment from Amazon for 750,000 square feet.This Amazon expansion actually coincided with its COVID pandemic business boost. But conversations on these recent deals really began in pre-virus 2020, DeGrinis noted.“It became very apparent that they weren’t slowing down, they were putting the pedal to the metal,” DeGrinis explained. “They didn’t slow down, they accelerated.”In retail market, Amazon opened its first Amazon Fresh supermarket in a 35,000-square-foot building at 6245 Topanga Canyon Blvd. in Woodland Hills. Earlier this month, reports emerged that a second Amazon Fresh is heading for Westlake Village’s The Promenade at Westlake by early 2021.Suburban presenceAmong FAANG companies, only Apple and Google have yet to develop a presence in North Los Angeles. However, Mike Tingus, an industrial broker at Lee & Associates, believes that it is only a matter of time.“There’s no doubt you’re going to see a surge of tech companies in the suburban submarkets,” Tingus said, noting places such as the West Valley and Conejo Valley. “Because of labor, transportation, housing, rents. Rents are still significantly less (in the Valley versus in Los Angeles proper).”Tingus believes that droves of business will meet where employees are going to move to – places such as Burbank, Agoura Hills, Calabasas, Westlake Village, and Simi Valley.“These companies are going where people are going to live,” agreed Loper at USC.

“I really look at the San Fernando Valley as a suburban market,” Tingus said. “When you look at it, it’s not vertical.”Two prime suburban markets – Thousand Oaks and Simi Valley – are in Ventura County.Tingus noted that the cost of business taxes on gross receipts and utilities go down compared to the city of Los Angeles in Ventura County. “A lot of things change (entering those communities),” he added.After the 2019 industry wide emphasis on live/work/play epitomized by hotel-like apartment buildings with amenities in downtown Los Angeles, Hollywood and Playa Vista, the pandemic quickly reversed the appeal of urban living. The residential market has shifted as young people move to the suburbs.Entertainment production has gone to Santa Clarita, where many below-the-line industry people live, with soundstages in former warehouses joining the movie ranches already in the area.“Santa Clarita has been getting a lot of entertainment companies,” Loper said. “It’s close enough to Hollywood but also provides that quality of life for Santa Clarita people.” Tingus predicted more such entertainment and tech companies coming to Simi Valley and Moorpark where “the worker bees in entertainment” reside.Netflix and Facebook“It’s very logical that Netflix would do animation in Burbank,” Loper said, noting that major players Walt Disney Co., Warner Bros. Animation and DreamWorks Animation are located nearby.Indirectly, Titmouse Animation, an independent boutique cartoon house that has created several series shown on Netflix, announced in February that it will upgrade to 95,000 square feet at 2835 N. Naomi St. in Burbank, where it will expand its animation workforce.“The entertainment people are starting to locate their studios where their employees are,” Loper said.“They’re trying to tap into that labor pool of entertainment,” DeGrinis said. “There’s a tremendous need for content at this point.”Disney announced this month that it is reorganizing its company model around its streaming service Disney Plus to compete for at-home entertainment consumers.

Meanwhile, Facebook has had a decidedly lower key — even secretive — presence north of the 101. In Northridge, the social network has 80,000 square feet at The Mix at Harman, a 44-acre mixed-use office campus developed by Shubin Nadal Realty Investors.“When that deal went on, you couldn’t find any details on what was going on there,” DeGrinis said. “This was just a unique operation.”An insider at The Mix at Harman — who albeit has not worked onsite since March and requested anonymity — believes Facebook is using the site as a skunkworks or engineering-related site.“There’s not a hustle or bustle,” the source said.

For an 80,000-square-foot hub, it seems to be generating an underwhelming amount of people, the source continued, based on the amount of people lining up at the taco trucks, eating at the adjacent Jersey Mike’s or traversing the common areas.Nevertheless, both Lee’s Tingus and Newmark’s DeGrinis believe that sexy tenants such as Facebook will, in the long game, attract more tech companies to areas such as Northridge.

Road aheadIt’s hard to foresee how FAANG players such as the insatiable Amazon, buoyant Netflix and resilient Facebook will continue to take shape and develop Valleyside.Those in the commercial real estate industry can only hazard a guess.DeGrinis thinks the “slow destruction of B-tier malls” may segue into more e-commerce, multifamily or manufacturing sites.“We’re on the cusp of a lot of change to properties,” he added.Since May, there have been persistent rumors that Amazon may purchase embattled Wanda Entertainment-owned AMC Theaters, which recently announced that it will burn through its cash flow by year’s end or early 2021. If that pandemic continues until physical movie theaters die away, then streamers such as Netflix and competitors Disney Plus, WarnerMedia’s HBO Max and Amazon Prime Video will distribute major film releases directly to consumers online.As for the physical locations, if the multiplexes go under, other types of companies await to claim the square footage, brokers told the Business Journal.“We’re already having those types of talks about the alternatives (to movie theaters),” DeGrinis said.

Michael Aushenker
Michael Aushenker
A graduate of Cornell University, Michael covers commercial real estate for the San Fernando Valley Business Journal. Prior to the Business Journal, Michael covered the community and entertainment beats as a staff writer for various newspapers, including the Jewish Journal of Greater Los Angeles, The Palisadian-Post, The Argonaut and Acorn Newspapers. He has also freelanced for the Santa Barbara Independent, VC Reporter, Malibu Times and Los Feliz Ledger.

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