San Gabriel Valley industrial market tightening up; availability of large warehouses becomes very limited.

Commercial real estate brokers in the San Gabriel Valley would love to say they're making monster transactions all the time. Unfortunately that's not the case. However, as the second quarter moves forward, the market is tightening up - industrial warehouse spaces of 100,000 square feet and larger are becoming scarce.

The San Gabriel Valley industrial vacancy rate as of the end of the first quarter was 9.94 percent, up slightly from 9.28 percent at the end of 1993.

"As we go into 1995, we'll be in a situation with severe shortages of certain sizes," predicted Jim Center, a senior vice president at commercial brokerage firm Grubb and Ellis Co. "The good news is that land may be back in demand. The bad news is that then there will a need for financing."

Financing for build-to-suit properties may soon be available, once banks recognize the increased rate at which commercial properties are being leased and sold in the San Gabriel Valley, said Anthony J. Brent, a senior vice president and partner at the City of industry office of commercial brokerage firm Lee and Associates. "We've even heard from a few banks that they'd be willing to finance," he added.

City of Industry-based Majestic Realty Co., a major developer and land-owner in the San Gabriel Valley, is continuing its joint-venture activities with Des Moines, Iowa-based Principal Mutual Life Insurance Co. That Majestic-Principal team has in the last few years been the only major speculative developer in the valley. And within the next few months, Majestic plans to break ground on the final phase of the Fairway Business Park in the City of Industry, said Majestic spokesman Terry Baker. The final phase is slated for 100,000 square feet of speculative industrial space.

Bill Lee, founder of Lee and Associates, said, "Besides Majestic, no one's been able to pull the trigger on any speculative development. Returns on lease rates aren't high enough to support the risk. Any speculative development would take a lot cash."

Top-quality industrial buildings in the San Gabriel Valley are getting average monthly rental rates of 27.5 cents per square foot, "triple net," industry sources said. Triple net rents exclude insurance, maintenance and taxes. Lower-quality buildings are getting 20 to 23 cents a month per square foot, triple net. These rates are considerably below the 34-cent, triple-net monthly rents industrial buildings were getting in the 1980s' bull market.

Even the available "big box" spaces - warehouses with more than 150,000 square feet of space - may not suffice for distributors and light manufacturers that often seek properties in the San Gabriel Valley.

"A fair amount of what comprises the available vacancies are less-functional facilities," explained Brent Enright, a first vice president at the national brokerage firm CB Commercial Real Estate Group. "If someone wants a building that's 4 years old, or less, then (their options) will be extremely limited because nothing has been built."

Despite a perceived lack of capital for new development, relatively small, short-term lease transactions continue to close. "We're seeing a lot of short-term leases, three years or less, in industrial spaces. There's still a desire from big and small companies not to get tied up in long-term lease obligations. I think this revolves around a lack of confidence in the future," said Rick Sheckter, a vice president in the City of Industry office of Grubb and Ellis.

Majestic's Baker said that during the first quarter, Majestic closed about 300,000 square feet worth of short-term leases. About 75 percent of those deals were done in the Fairway Business Park. "All of our existing for-lease properties are bulging at the seams. The existing tenants want more space," he said.

Baker cited a few examples. At the Fairway Industrial Park, also in the City of Industry, Little Tykes, a toy manufacturer and distributor, expanded from its pre-existing 200,000 square feet to 260,000 square feet of space; and Lithonia Lighting expanded from its pre-existing 146,000 square feet to 200,000. Also, American Standard Inc. renewed its 200,000-square-foot lease for an additional five years at the Fullerton Road Industrial Park in the City of Industry.

Bruce Haas, a first vice president at CB Commercial, represented Amerigon on its 30,000-square-foot lease of research and development space in Monrovia at the beginning of February. Amerigon, a new research-and-development, high-tech company whose principals are also involved with the electric-car maker CalStart, plans to begin manufacturing CD-ROM navigational devices for automobiles at the Monrovia location. Amerigon is also relocating its Burbank headquarters to the Monrovia site. This is significant. Haas said, because the growth-oriented high-tech industry has traditionally preferred Northern California over Southern California. "Most (high-tech) companies have been moving out of the area," Haas said.

On March 31, the biggest San Gabriel Valley deal of the quarter closed when General Tire Inc. sold and then leased back its 332,790-square-foot distribution facility in the City of Industry. The Seeley Co. represented General Tire in the $8 million sale-lease transaction. Brent of Lee and Associates represented the buyer/lessor, Haim Abulafia, who owns Vernon-based World Bazaars Inc., one of the largest gift import-export companies in the world. General Tire signed a three-year lease with Abulafia, and agreed to carry the financing for Abulafia's purchase.

Food processing companies also seem to be making the San Gabriel Valley their home. Snak King plans to relocate from its present Pico Rivera headquarters processing facility to a new City of Industry facility it purchased for $3.5 million at the end of March. Snak King represented itself in its purchase of the 140,000-square-foot distribution/manufacturing facility. Grubb and Ellis represented the seller, a Michigan-based investment company. "The local and regional expansion of food processing into the area is reflected in that deal," explained Center.

On the office space front, about 150,000 square feet of space is soon to become available, as World Vision U.S. prepares to move its headquarters from Monrovia to southern Seattle. The board of directors for the non-profit international relief and development organization voted March 14 to relocate the headquarters. Although some details remained unresolved as of press time, World Vision had signed a letter of intent to sell its Monrovia property to the Tacoma-based paper and lumber giant, Weyerhaeuser Co., for a price it claims is 50 percent below the property's present market value.

Cathy MacCaul, a World Vision U.S. spokeswoman, said, "Basically, our move out of Southern California will save us $5 million a year in staff salaries, regulatory fees, workers' compensation and health insurance. Additionally, we'll be reducing redundancy by being all under one roof." World Vision U.S. owns nine of the 11 buildings it occupies in Monrovia. "We looked at about 72 (alternate) 150,000-square-foot possibilities and none offered significant cost savings," she added. About 70 percent of those alternate sites were located in the San Gabriel Valley area, she said.

World Vision U.S. hopes to get between $11.3 million and $14 million for its nine buildings. It is projecting that about half its 525 employees will relocate to Seattle. Wade Laming, president of The Royce Co. in Century City has been hired to find a buyer for the property. World Vision's move is scheduled to be completed by September 1995.