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COVER STORY, MAY 2005
MASTER OF ITS DOMAIN
Master Development finds industrial formula that works.
Brian A. Lee
Deft and determined, Newport Beach, California-based Master Development has proved that less is more in Southern California’s industrial market. Don’t let the small size of the company fool you. In 10 short years, the developer — solely owned by managing partners Bruce McDonald and Bryan Bentrott — has constructed 134 buildings in 21 projects totaling 5.5 million square feet and $250 million.
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Industrial sales have been brisk at Master Development’s Corona Commons Business Park in Corona, California.
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Master Development’s size belies its considerable range in delivering industrial product to the region. “That allows us to take advantage of opportunities in different market segments, be it smaller, free-standing buildings for sale, mid-sized 50,000- to 200,000-square-foot buildings or buildings as large as 1 million square feet,” says Bentrott.
The advantages of Master Development’s industrial approach don’t end there. The company is an owner-builder, which means it does its own construction. Not having to rely on third-party contractors to get projects constructed allows Master Development to do a better job of controlling costs and scheduling.
Having powerful partnerships and a fast response time can also help a company maintain a nice margin over its larger competitors, and healthy margins are just what the market-responsive company is making off these deals. “Being a small company but having access to capital partners that like to do big deals, we can often times move quicker than national companies that have to go through various chains of command,” says Bentrott. “If we want to write a check and put a deposit down to secure a deal, that’s our money and we don’t have to ask anybody except my partner and me.”
Master Development teams up with larger capital partners such as GE Capital and Lincoln National Life. On a typical deal size of $15 million, Master Development would put in roughly $1 million of its own funds, with $4.5 million of equity raised in the joint venture. Seventy percent of the financing would come from the construction loan.
Call it a return to its core identity if you will, but in 2000, after 2 years of such work, the Orange County firm focused almost exclusively on developing smaller, for-sale industrial facilities. The truth is those size projects are more challenging, giving Master Development the opportunities to distinguish itself.
“The advantages of building small buildings is that it takes a skill set that is not as easily acquired as building a 100,000-square-foot box building,” says Bentrott. “It’s easier to understand the fundamentals of how to do a bigger building than it is to do these smaller buildings because smaller ones have more little nuances to them in terms of how you lay them out and how you take a piece of property and optimally design buildings that go on that site.”
Also, financial partners aren’t as likely to grasp how to underwrite deals involving the development of small industrial product. These inhibiting development factors, stout market demand, a still-favorable interest rate environment and the fact that more sites in Southern California lend themselves to small, for-sale development equates to prime industrial opportunity for a company of Master Development’s ability.
The results have been impressive. In summer 2004, Master Development’s 9-building, $16 million West Corona Business Park was completed with all product selling within the first 6 months of development. By mid-2005, the company will have completed 29 more for-sale industrial buildings in the $6.6 million Norco Trails Business Park and $21 million Corona Commons Business Park. Bentrott reports that the 10 buildings in Norco Trails were sold within 30 days, and 17 of the 19 facilities at Corona Commons, which range in size from 7,000 to 30,000 square feet, are pre-sold. A 12-building industrial development in Otay Mesa, 12 buildings in Chula Vista and 17 in Chino confirms Master Development’s strong market presence as well as the great demand for for-sale industrial product.
And why wouldn’t an owner of a small distribution, manufacturing or distribution business want to purchase his own building? The cost of ownership is nominally higher than that of leasing. Plus, the owner can lease the property to his company, depreciate the building, write off the interest from the loan, expense the rent attributable to the facility and, when the career winds down, enjoy a quality retirement asset.
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Completed in 2004, Master Development’s One Piper Ranch in Otay Mesa features 12 free-standing industrial buildings.
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Master Development has also started to focus on buying existing properties and plans to do more acquisitions. “We’re going to look to reinvest in some existing properties, ones that maybe just need a little tender loving care or ones that offer the same sort of break-apart play,” says Bentrott. “We’ll buy it in bulk and go out and start selling the buildings off individually. That’s a way to do what we normally do but just do it a lot quicker, provided they’re separately parcelized.” The firm launched its acquisition efforts in June 2004 when it bought Park Orangewood, an office complex consisting of 11 free-tanding buildings located near Anaheim Stadium in Orange, California. The 69,000-square-foot office park was rehabbed and then renamed The Stadium Collection.
About 15 to 20 percent of Master Development’s business involves office product. McDonald and Bentrott are traders in that sector, eschewing multi-story office properties for, you guessed it, smaller office projects. “We’ll look for what we call business park space that maybe just hasn’t been properly managed or that just simply needs to be broken up and sold out in areas that lend themselves to owner-user acquisition,” says Bentrott. “Generally, those areas are adjacent to good residential. That’s kind of the formula. When we go to build our industrial for-sale or office buildings for sale or look at buying office projects, the thing that seems to be the common denominator for all of that is proximity to good residential. Business owners want an easy commute to their office and they want to own their office.”
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Sherer at (630) 554-6054.
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