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Tuesday, Oct 3, 2023

Industrial Park Blooms in Valley

A Gardena developer is making a big bet on Valley manufacturing – perhaps as much as $40 million. In a month or so, Overton Moore Properties will break ground on an industrial development with some retail at De Soto Avenue and Nordhoff Street in Chatsworth. The project is on 7.5 acres, which in June Overton purchased from United Technoloiges Corp. of Hartford, Conn. The defense contractor owns adjacent land where Aerojet Rocketdyne is still operating a rocket-engine plant. The Overton development can’t come fast enough for manufacturing tenants seeking space in the West Valley, which had a low 3.1 percent industrial vacancy rate in the second quarter, according to the L.A. office of Colliers International. “You just can’t find land in this submarket. Vacancy is incredibly low and there’s no new construction going on. And it’s because there’s no land to develop. The only place is in the Antelope Valley or Santa Clarita Valley,” said Overton Moore Chief Executive Timur Tecimer, who’s been eyeing the property for nearly a decade. Tecimer said the company plans to construct four industrial warehouse buildings on the eastern portion of the land, each with 28-foot clearance heights and fenced yards. The buildings will range from 25,000 to 30,000 square feet, with the total industrial footprint stretching to 112,500. Tecimer declined to state how much his firm paid for the land or what construction on the project may cost, which is expected to be completed by early next summer. But John DeGrinis, senior executive vice president at the Encino office of Colliers, said Overton Moore likely paid about $25 a square foot, putting the purchase price at roughly $8.1 million. DeGrinis estimates that with construction costs, it could pencil out to about $125 a square foot in total, or about $40 million. At such a cost, DeGrinis estimates the firm will be looking to sell the buildings around $180 to $200 a square foot, which could amount to about $6 million each, depending on exact building size. “It’s a deep market, and that helps, but the challenge will be to find the guy that can justify the costs. That’s the limiter,” he said. “That being said, we haven’t seen new product in Chatsworth in forever and this company knows what they’re doing.” The project is being financed at least partially through a $16.1 million construction loan from Wells Fargo & Co., according to real estate data firm CoStar Group Inc. Storied land The land on Nordhoff Street has been vacant for decades, and at times was used as a seasonal Christmas tree lot. In fact, DeGrinis said that when he entered the real estate business about 30 years ago, he was told not to bother calling the land owner, as the dirt was being saved to allow for Rocketdyne to grow. However, after decades of mergers and acquisitions in the aerospace industry – which passed Rocketdyne from Rockwell International to Boeing Co. and United Technologies before it was sold off to GenCorp. in Rancho Cordova in 2012 – that expansion never happened. United Technologies finally decided to sell the property but did not respond to calls for comment. “To have this land finally change hands is pretty momentous,” DeGrinis said. “It’s good to finally see something getting done. The product meets the needs of the market too – that mid-sized stuff. And as far as location, it doesn’t get any more main than De Soto and Nordhoff for industrial development.” In addition to the industrial construction, Overton Moore is developing about 17,000 square feet of retail space, the largest spots of which are already preleased to El Pollo Loco and another company. There also is about 10,000 square feet of retail that Tecimer said will eventually get leased out to quick service retail or small restaurants. DeGrinis thinks industrial businesses with retail arms might be best served for the space, such as a tile or flooring company. That way, they get the industrial space for light manufacturing and frontage for a store on a major thoroughfare. Overton Moore has a history of industrial development, including in the San Fernando Valley. In its more than 40 years of business, it has developed more than 36 million square feet of office, industrial and mixed-use space, with the majority being industrial. One of its most recent industrial developments was in the West Valley submarket: the Northridge Business Center, a collection of seven small industrial buildings totaling about 167,000 square feet. The development was built about 10 years ago and Overton Moore has sold off all but one of the units. “We need to provide space for manufacturing companies in the market,” Tecimer said. “And I would speculate that no more than 20 percent of the overall market, excluding Santa Clarita, is Class A product. There’s tremendous need.” The company’s only other Valley region development is a 105,000-square-foot industrial space at 85 Moreland Road in Simi Valley, which is fully leased to Monrovia drone manufacturer AeroVironment Inc. Tecimer said the company is already in contact with a potential buyer for one of the buildings in Chatsworth and that grading will begin Sept. 15. He expects to report a tract map to the city within the next month that would parcel out the buildings individually, making it much more likely that they would be bought by an owner-user rather than leased up. “Our ultimate user is certainly entrepreneurial,” he said. “It’s someone that wants amazing visibility and wants to move their business to nice, newer space.” Valley woes While the industrial market in the San Fernando Valley has remained strong, it does suffer from several issues. First is old stock. Much of the space in Van Nuys and elsewhere was built more than 30 years ago, which forces both developers and tenants to look at newer buildings in neighboring regions such as the Santa Clarita Valley, which is business friendly and has a lot of newer stock. What’s more, developers in Santa Clarita have plans that could add up to 6 million square feet of new industrial space in the next few years. Kenn Phillips, vice president of business and workforce development for the Valley Economic Alliance, a Sherman Oaks business attraction and retention group, said new construction is an important step for the market. “It’s good to see developers believe the local economy will support what they’re constructing,” he said, adding that he hopes more construction will follow. “Maybe success will breed more success.” The other problem for industrial development is simply a lack of available dirt. With much of the San Fernando Valley built out, there aren’t a lot of opportunities for anything other than infill. “We are heavily land constrained in the entire region,” said DeGrinis, the broker. “In the Valley, anything that’s going to get built is probably a scrape and redevelopment. That’s the only option left.”

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