Southern California is facing a dwindling supply of developable industrial, office and residential land. Available infill sites are typically priced high, are smaller and often have substantial environmental issues or other challenges to development. The Inland Empire is also facing a reduced supply of land. Land prices in the Inland Empire have risen dramatically and forced some companies and residential builders to continue moving east and south to find more competitively priced land. Geographic limitations (mountains, Salton Sea, dedicated public space, military and environmentally sensitive areas and other issues) are such that developable land anywhere in Southern California will be in short supply and therefore more expensive to acquire.
The O’Donnell Group, Inc. (“TOG”) and its affiliates are interested in taking advantage of these trends by putting together a land development portfolio. The business plan has three primary sectors: Industrial and Commercial Development, Acquisitions and Dispositions, and Residential Land Development.
Industrial and Commercial Development
The O’Donnell Group, Inc. focuses its attention on three general areas of development. The first is speculative office and industrial opportunities with in-fill locations in major markets. Many in-fill locations lack Class “A” developments. The O’Donnell Group, Inc. has been successful at building these Class “A” projects and leasing to many of the tenants which were previously in older functionally obsolete buildings.
The Southern California In-Fill Market
The O’Donnell Group focuses its attention on the In-fill markets of southern California. This target market includes the sub-markets of the South Bay, Commerce, Montebello, the Mid-Counties, the San Gabriel Valley and Orange County. The industrial buildings located in these cities are collectively referred as “The Target Market.” The Target Market is comprised of approximately 800,000,000 square feet of industrial buildings. Class A buildings account for approximately .5% of the industrial base or 3,859,473 square feet. The Target Market offers a large pool of tenants and a dearth of developable land.
Class “A” Buildings
The vast majority of industrial buildings developed by The O’Donnell Group are speculative in nature. As a result, these buildings must accommodate the largest number of potential users. In order to accomplish this goal, the general specifications for an O’Donnell Group industrial building include 30’ clear height ceilings, Early Suppression Fast Response sprinkler systems(ESFR), truck loading areas of 120’ to 160’ in depth, contemporary offices, and extensive exterior landscaping. Buildings that offer these types of amenities are collectively referred by the brokerage community as being a Class “A” developments.
Why Class A?
* A tenant increases its cubic capacity by 50% when said tenant is able to store inventory up to 30’ as opposed to 20’. The base square footage stays constant while the cubic capacity is increased.
* ESFR sprinkler systems allow tenant to “high pile” combustible or flammable inventories. Again the tenant is able to store more product while using the same amount of rentable square footage.
* Large truck courts allow trucks to maneuver into and out of loading doors more easily. This limits the amount of time required for loading and unloading.
* Due to Just-In-Time technology (JIT), changes in distribution patterns and direct shipping from warehouses to consumers, building image is increasingly important to industrial tenants.
* Tenants are willing to pay more to rent Class A buildings and users are willing to pay more to buy Class A buildings.
* Institutional investors are willing to pay a premium for new buildings.
* Class A buildings are the first to lease in both strong and weak markets.