COVER STORY, APRIL 2008

INDUSTRIAL BY INTERSTATE
I-15 goes the distance for western industrial players.
Brian A. Lee

A substantial read on the industrial pulse of the West can be made by assessing one of the region’s key arteries, Interstate 15. The interstate corridor goes from Southern California to Salt Lake City and beyond and, as you’ll see from the below, a long way in terms of value for industrial developers and investors.

Inland Empire

• High Desert

In the High Desert or the northern portion of San Bernardino County, the industrial spotlight is on the cities of Hesperia, Victorville and Apple Valley, all three of which are adjacent to I-15. Joseph W. Brady, senior vice president and director for the High Desert office of Colliers International Bradco, reports that those cities have had “good success in the development of small incubator type projects.”

Industrial demand in the High Desert part of the Inland Empire is estimated at approximately 1.2 million to 1.5 million square feet annually.

“There is a multitude of different reasons that we are starting to see all the industrial development,” says Brady, listing the High Desert’s cooperative cities, very competitively priced land parcels and access to I-15. “Interstate 15, by rail or truck, transports approximately 60 percent of all the easterly product that is imported into Los Angeles and Long Beach harbors. Interstate 15 traverses the Cajon Pass, the most heavily trafficked rail corridor in the country. BNSF is developing a third rail line that is under construction [currently].”

Stirling Capital Investments started construction on a 1 million-square-foot spec industrial building at Southern California Logistics Centre in Victorville.

Another big factor, both from a business and geographic standpoint, is the Southern California Logistics Centre (SCLC), formerly the George Air Force Base. Its nearly 8,500 acres, zoned as a potential multimodal business complex, are part of an approximately 60,000-acre redevelopment district, the largest in the state of California. The property also includes a 2,000-acre foreign trade zone, which offers tax assistance from the state and incentives through San Bernardino County, including tax-exempt bonds.

“You’re approximately 90 miles northeast of the largest ports in the country and of the two top ports in the world,” says Brady. “Interstate 15 traverses a good portion of our country, while Interstate 40 bisects the northern portion of the desert area. Also, Highway 58, which begins in Barstow, goes west to interstates 99 and 5 allowing movement of goods north and south. [Secondly], we have a tremendous amount of land which will allow the bigger boxes to be built and, more importantly, allow the cities to do the appropriate planning so that industry and home ownership can work in tandem versus the challenges that some industrial developers face in the more intro markets. [Lastly,] our land prices are substantially less than in Las Vegas.”

In Victorville, Stirling Capital Investments has started construction on a 1 million-square-foot speculative Class A industrial facility situated on approximately 46 acres in the SCLC. When completed in December 2008, the LEED-registered building will join four others, bringing a total of nearly 2 million square feet of product to the market by year’s end. The five buildings are part of the first phase of development plans, which will produce a total of 6.5 million square feet of industrial space over 350 acres of land.

“We remain bullish on the long-term growth of the Southern California industrial market and are confident users will be attracted to the economic benefits that SCLC offers,” said Brian Parno, vice president of Stirling, the master developer of SCLC. “SCLC is a proven solution for distribution companies looking for a strong cost advantage.”

Also part of the SCLC’s first phase, Newell Rubbermaid’s West Coast distribution facility, a nearly 408,000-square-foot building, opened in October 2007. Brady reports that two multi-tenant industrial facilities totaling more than 233,000 square feet, creating 200 new jobs, were recently completed as well.

• East & West

South of the San Gabriel Mountains, the Inland Empire’s industrial market composition is based on developable land and proximity to the ports more than the interstates.

“Freeways are incidental to the developable land,” says Len Santoro, a senior vice president in CB Richard Ellis’ Ontario, California, office, of the much denser part of the market located due east of Los Angeles. “The necessity of the warehouses is to hold, sort, mix and match imported products and ship to local retail stores. In this environment, distributors are consolidating and expanding into single large buildings, hence development occurs where there a large parcels of industrial or land that can be entitled to industrial.”  

That is why Santoro points to I-10, 215 and 60, not I-15, as the location of the majority of industrial development in the Inland Empire, east and west.

“The main impetus for warehouse industrial development is the increase in imports from China,” he says. “Building large warehouses necessitates large parcels of vacant entitled industrial land, as close to the ports as possible. Drayage charges and surcharges are based upon distance from the ports — hence the closer to the ports, the less drayage charges. [With that said,] there are no large parcels of industrial land within a 50-mile radius of the ports. Therefore, warehouse development has occurred farther from the ports in recent years.”

In early March, First Industrial Realty Trust announced that its landholdings in Southern California had reached 1,300 acres, developable to approximately 26 million square feet of industrial space.

“More and more customers are attracted to the Inland Empire and other markets in Southern California as a critical distribution hub for goods moving through the ports of Los Angeles and Long Beach,” says Mike Brennan, president and CEO of First Industrial.

Las Vegas

In Southern Nevada, Kevin Higgins, senior vice president of Voit Commercial Brokerage, points to the North Las Vegas area as the most active industrial submarket in the I-15 corridor, specifically the Craig, Cheyenne, and Speedway interchanges.

“We’ve seen a number of big box developments — 150,000 to 500,000 square feet — and larger freestanding buildings for-sale (20,000 to 50,000 square feet),” he says. “The North Las Vegas submarket is the last remaining area in the Valley with larger (i.e., 20 to 100 acres) sites available for development. The majority of the zoning [there] is a heavier industrial classification allowing for a variety of uses. Also, the North Las Vegas submarket has the lowest price per square foot within the Valley for industrial properties.”

Thomas & Mack Development Group recently delivered to the submarket the 430,000-square-foot first phase of The Northern Beltway Industrial Center, a 100-acre, 2 million-square-foot development. ProLogis Corp. recently completed the 513,000-square-foot Prologis Industrial Center North, a cross-dock facility located within a 102-acre master-planned industrial park; the latest addition brings the park’s total industrial product up to 1.5 million square feet. Also in North Las Vegas, Operating Engineers Pension Fund recently completed 187,000 square feet within two buildings in the Golden Triangle Industrial Park, which will ultimately comprise 2.5 million square feet upon build out.

Higgins cites the ability to serve the Southern California and Arizona markets on an overnight basis as a key advantage Las Vegas has over the Salt Lake City market farther north up I-15. When compared to industrial options to the south, Nevada can boast more advantageous tax advantages and better workman’s compensation rates than its neighbor, California. There is also a great deal of industrial demand originating from the staple resort business, which requires servicing to be local to Las Vegas.

“The Las Vegas market place is an importing market; therefore, our outbound freight charges are very favorable because a large percentage of the outbound freight goes out empty, thereby allowing the clients to ship on a more cost-effective basis.”

Salt Lake City

Draper and Sandy, located along I-15 in the south metro area, are the strongest Salt Lake City submarkets for industrial development, according to Randy Atkin, an industrial specialist at Commerce CRG.

“The main impetus is the availability of suitable and affordable land that can be entitled,” says Atkin, who also mentions Sugar Street in Layton, located just north of the capital city. “Many of the older industrial buildings in the center of the valley are being repurposed or razed and replaced with big box retail such as Costco and Wal-Mart.”

Atkin lists as a key market advantage the strong Salt Lake-area population, which boosts the availability of reliable services, customers and employees. He also mentions the east-west connectivity that I-80 offers, although that’s not the only conduit that increases the distribution access to Utah’s biggest market.

“Regarding Salt Lake City, the majority of the containers from China ship to Salt Lake [from Southern California] by the UP-SP and BNSF railroads,” says CB Richard Ellis’ Santoro. “It is much less expensive to ship by rail.”

According to Atkin, Price Development is developing Price Development Distribution Center, a 385,000-square-foot distribution warehouse in Draper. The developer is repositioning an old 285,000-square-foot Kimberly Clark facility and will eventually add 100,000 square feet of new space.

In the southwestern part of the Beehive State near Cedar City and I-15 is Port 15, an approximately 800-acre industrial park, which is served by not only the interstate but by rail and air, too. Quantum Development Group and LM Construction are currently building 73,000 square feet of flex space within the park.

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