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Real Estate Quarterly
Part of the Studio One Eleven architecture and urban design team is pictured outside the historic Ocean Center office building at Ocean Boulevard and Pine Avenue in Downtown Long Beach. The building is being converted to apartments and ground floor retail. Pictured from left are: Michael Bohn, Linda Fu, Reed Suzuki and David Sabunas. David Gray Architects is collaborating on the project with Studio One Eleven. Turn to Page 6-B for more information on this project and two others being coordinated by Studio One Eleven. (Photograph by the Business Journal’s Thomas McConville)
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REAL ESTATE QUARTERLY August 5-18, 2014
Long Beach Business Journal 3-B
More Buidlings Coming To Douglas Park Activity continues to be brisk at the 261-acre Douglas Park north of the Long Beach Airport. Pictured here under construction are two medical office buildings totaling 90,000 square feet, which are scheduled for completion in the first quarter of 2015. Both buildings have been sold to doctor groups, with the larger of the two – at 52,000 square feet – available for lease. Pictured left to right are: Shaun McCullough and Jeff Coburn, principals with Lee & Associates Commercial Real Estate Services; Jan van Dijs, owner of JR van Dijs Builders & Developers; and Bruce Mapes, superintendent of construction with Millie & Severson General Contractors. (Photograph by the Business Journal’s Thomas McConville)
Single-Family Home Sales Dip While Multi-Family And Industrial Markets Drive Real Estate Investments Commercial Sectors Are Slow But Steady ■ By SAMANTHA MEHLINGER Senior Writer
he residential and commercial sectors of the Long Beach real estate market are experiencing a mixed bag of activity this summer, with the most demand – evident in new construction, low inventory, strong sales velocity and increasing lease rates – appearing in the multi-family and industrial submarkets. The single-family market which last year made headlines for its doubledigit price gains and flurry of sales has since cooled off, with local, county and state sources all reporting moderating sales prices and slowing sales transactions. The California Association of Realtors (CAR) recently reported statewide sales transactions decreased year-over-year for the 11th straight month in June, dipping by 4.8 percent from the same time last year. Month to month, however, sales increased by 1.5 percent from May. CAR also reported the California median sales price of single-family homes decreased by 2 percent in June
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from the previous month, but increased by 6.6 percent year-over-year. Statewide, the median price of homes was $457,160 in June. Los Angeles County seems to be faring a bit better in terms of price gains than the state as a whole. Statistics from CAR show that single-family homes in L.A. County increased in price by 5.9 percent from May to June this year and by 8 percent from last year. Robert Kleinhenz, chief economist for the Los Angeles Economic Development Corporation, said gains in home prices in Long Beach from June of 2013 to the same month this year were as much as 10 percent. These figures represent a cool down in price appreciation compared with the gains experienced in 2013, Kleinhenz said. “The housing market was on fire at this time last year,” he recalled. A year ago, the median price of single-family homes in L.A. County had increased by 30.8 percent from the previous year – a much larger increase than the gains experienced so far this year, he pointed out. The total number of sales transactions in L.A. County dipped by 8.6 percent from May to June and by 6.1 per-
cent from last year. There were 181 sales of single-family homes in Long Beach in June, compared with 227 in May – a decrease of about 20 percent, Kleinhenz noted. While sales typically “hit a plateau” in June through August, he said the recent 20 percent dip in sales transactions was “at the very least atypical.” While he was not sure if the decreasing sales velocity would become a trend, he said he did not consider “the housing market in danger of turning south.” Negative news about the economy
may have played into the sales slowdown, Kleinhenz said, referring to the 2.9 percent decline in national gross domestic product (GDP) reported for the first quarter. “Even one piece of negative news on a significant indicator such as GDP shakes that already fragile consumer and business confidence state,” he said. Gary Painter, director of research at the University of Southern California Lusk Center for Real Estate, pointed out that sales transactions might be lag(Please Continue To Next Page)
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REAL ESTATE QUARTERLY 4-B Long Beach Business Journal
ging due to a very low inventory of homes available for sale. Despite large gains in regional prices in the past year, Painter said many investors who purchased homes in recent years have been renting them out instead of reintroducing them to the sales market, perhaps waiting for prices to appreciate more before selling. The multi-family market, on the other hand, continued to be in high demand both among renters and investors in recent months, and it may for the foreseeable future, according to Painter and Kleinhenz. This is largely because the millennial generation, which is even larger than the baby boomer age bracket, is expected to generate strong demand for multi-family units for the next five to 10 years, Painter said. “Most of the models have projected the millennial generation will rent longer because [they will] delay marriage longer than have previous generations,” he added. Due to anticipated demand and already low vacancy rates among multi-family units in Long Beach and regionally, developers have been investing both in new construction of multi-family properties as well as adaptively reusing buildings that for-
August 5-18, 2014
Connie Wildasinn of MetroCal Brokers is pictured outside an 1,800-square-foot, three-bedroom, two-bath 1930s-era home in California Heights she sold recently. She said homes are staying on the market about twice as long as they did a month and a half ago. (Photograph by the Business Journal’s Thomas McConville)
merly had other uses, such as office space, into apartments. Multi-family properties allow developers the option to present units either for rent or for sale, giving them flexibility with market trends, Kleinhenz said. Several multi-family developments are under-
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REAL ESTATE QUARTERLY August 5-18, 2014
opment at the southeast corner of Conant Street and Lakewood Boulevard. Plans include three industrial buildings, all measuring more than 100,000 square feet. The new development may not come as a surprise considering current market characteristics – high demand for industrial space with a very low inventory of available properties for sale. “We continue to have one of the tightest industrial markets for what should be obvious reasons, with our concentration of manufacturing activity, goods movement and other uses for industrial activity,” Kleinhenz said of the South Bay and Long Beach. A second quarter CBRE, Inc. industrial report pointed out that the South Bay industrial market is closely tied to the ports of Long Beach and Los Angeles, and as cargo volumes continue to increase, demand for industrial space should increase among third-party logistics companies. The office market, on the other hand, has yet to experience the kind of demand needed to recover from recession losses, Kleinhenz noted. “As the economy went south, we saw a decline in the number of jobs in those industries that typically fill office space,” he said. “Those job counts are coming back, but they are not where they were before the recession. For example, the finance and insurance sector of local, state and national economies has been suffering over the past year or so with job declines due to consolidation among financial institutions,” he said. In L.A. County, the number of people employed by these industries decreased by 1,500 from 2013 to 2014, he said. “That is a key industry that fills office space but continues to consolidate.” While the vacancy rate of office space in L.A. County decreased from 18.4 percent in 2013 to 17 percent in the second quarter of this year, the South Bay (which includes Long Beach) experienced an increase in vacancy from 20.2 to 23.3 percent, Kleinhenz said. The retail market has been faring better than the office market – Marcus & Millichap reported the vacancy rate in the South Bay and Long Beach region decreased by 10 basis points to 4.4 percent in the second quarter. “Both L.A. County and Orange County, including Long Beach, are very good retail markets in the sense that vacancy rates tend to be lower than they are nationally,” Kleinhenz said. As a resident of Long Beach, Kleinhenz has observed new construction of retail locally, which he said points to positive trends in that sector
Long Beach Business Journal 5-B
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Price Gains And Sales Transactions Slow In Long Beach Single-Family Market ong Beach’s single-family real estate market cooled off this summer as “over-optimistic” sellers listed their homes at inflated prices and buyers took a step back, resulting in a slowdown in citywide sales transactions, according to local real estate agents. “Sellers are unrealistic,” Phil Jones, owner of Coldwell Banker Coastal Alliance, told the Business Journal. In June, the median list price of Long Beach homes had increased by 14 percent, but the actual sales price of homes increased by only 5 percent, he said. “That is a 9 percent gap,” he pointed out. “We are seeing sellers realize less of a percentage of asking price for the sales price. It wasn’t too long ago that we were seeing sellers on (Please Continue To Page 7-B)
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REAL ESTATE QUARTERLY 6-B Long Beach Business Journal
August 5-18, 2014
Studio One Eleven-Designed Residential Projects To Attract Millennials, Create Affordable Housing demolition process is going to take longer than is typical, Bohn said, explaining that before the building is Studio One Eleven, knocked down, contracthe architecture and tors are scouring it for urban design firm which reusable materials. is a division of “This will occur for sevDowntown Long Beacheral months because the based Perkowitz+Ruth idea is to recycle a Architects, has designed majority of the materials three new residential in the building,” he said. developments set to After demolition is transform portions of complete, a storm drain the Greater Long Beach line beneath the buildlandscape. ing must be rerouted to The firm has designed the street. “We are two multi-family mixedworking closely with use projects to meet the the City of Long Beach needs of a growing base The 222-unit Parc Broadway apartment complex is planned for Pacific Avenue and Broadway in Downtown Long Beach. and the county to move of young professionals those storm drain lines under the street,” looking to move into Downtown Long Beach, Bohn said. After that, “The construction of according to Michael Bohn, principal with the new development would occur probaStudio One Eleven. Both projects are replacbly late spring to early summer next year.” ing vacant and under-used office space. The design for Parc Broadway “is very Studio One Eleven is also set to impact focused on the millennials because they are Signal Hill after the Signal Hill City a very strong force and interested in living Council selected its design for a new affordin urban environments,” Bohn explained. able housing apartment community there. Amenities built into the complex to attract Ocean Center Adaptive Reuse the millennial generation include a pet Project To Connect North grooming station, a “bike kitchen” with And South Pine Avenue tools to fix bikes, an art gallery and a fitOne of downtown’s historic office The Ocean Center building at Pine Avenue and Ocean Boulevard will be converted to apartments ness center. The site plans also include buildings is soon to be transformed into a and include outdoor dining to help “connect” the upper and lower portions of Pine Avenue. ground floor retail, which may include a mixed-use project to attract young millencafé to serve residents and nearby city hall nial tenants and help connect lower and workers, he added. upper Pine Avenue with designs by Studio ■ By SAMANTHA MEHLINGER Senior Writer
Affordable Housing For Signal Hill One Eleven. Levy & Associates, the owner In mid-June, the Signal Hill City Council of the Ocean Center Building at 110 W. approved Studio One Eleven’s designs for Ocean Blvd., recognizable for its tiered an affordable housing project by developer levels and rounded tower with red Spanish Meta Housing. Plans for the project at Hill tiles, hired the firm to create designs for Street and Gundry Avenue include 72 one-, the adaptive reuse of the building into twoand three-bedroom apartments as well rental units with ground floor retail. as townhomes, Bohn said. The 1920s-era building was constructed The site currently houses vacant and paron a steep incline at the corner of Pine tially occupied warehouse buildings. “The Avenue and Ocean Boulevard, and stretches buildings there are fairly dilapidated and are to the bottom of the hill where it sits adjanot economically viable,” Bohn said. “At cent to The Pike at Rainbow Harbor. Affordable housing units are planned for this Signal Hill project at Hill Street and Gundry Avenue. least half of them are closed or abandoned.” “It is not a very inviting gateway into Implementing the affordable housing upper Pine,” Bohn said of Ocean Center, pointing out about the project’s design, he did share that the planned community should bring much needed life to the area that the ground floor has no signage, storefronts or apartment units “are going to be quite unique and interand hopefully discourage crime, Bohn said. “I think trees lining the sidewalk. This current environment may esting” because of Studio One Eleven’s intent to retain having eyes on the street and residents here will make not be appealing to conventioneers coming out of the the building’s historic character. Long Beach it a safer neighborhood,” he predicted. Long Beach Convention & Entertainment Center, Development Services Director Amy Bodek previously “The quality of the project will look like a private which is across Pine Avenue and slightly to the south, told the Business Journal that plans include 84 residential sector development,” Bohn said. “Our goal is always to he noted. “The folks who come out of the convention units, although Bohn couldn’t confirm a figure. create dignified affordable housing that weaves into a In addition to ground floor retail and residential center look at Pine Avenue and they see the hill they neighborhood and does not look like affordable houshave to climb and . . . kind of stay down by the water,” units, the property features “amenities focused on miling; it looks like market rate housing.” he observed. If these visitors were to climb up the hill, lennial residents,” Bohn said. As to what those may be, The 72 units are to be spread across four buildings of they would find the downtown core of Pine Avenue full he hinted, “Downtown Long Beach has a very strong varying heights and styles, Bohn explained. “They will of restaurants such as the new BO-beau, The Federal bike and pet culture and this project will continue to have common materials throughout, but they will have support and enhance that culture.” Bar, George’s Greek Café and many others. Bohn anticipated the project’s final approval from the a distinctive style of their own,” he said. A common “We are looking at having outdoor dining and makbuilding, a deck area for grilling and a community garing it enticing for people to walk up the hill. Then once City of Long Beach in the next four to six months. den are also included in the plans. they get to the top of Ocean [Boulevard] they will see Parc Broadway To Bring Millennials Downtown About a quarter of the property is being devoted to park the other amenities on upper Pine [Avenue],” Bohn A Studio One Eleven-designed 222-unit apartment said. To accommodate outdoor dining, Studio One complex called Parc Broadway, located at at 245 W. space, Bohn said. “The majority of units front the green Eleven has created preliminary designs for parklets, Broadway, is one step closer to realization now that pre- [space]. The lower units have private patios that front the which are extensions of the sidewalk into the street. liminary work to demolish an onsite vacant office build- green, and the upper units have balconies,” he said. Additionally, “We envision a major destination restau- ing has begun, Bohn said. The developer is Northern The developer is applying for state tax credits in rant on the ocean side of the project,” he said. California-based Broadway Property Company, LLC. 2015, and if approved, construction may begin in 2016, Although Bohn was not able to divulge many specifics Project completion is awhile down the road because the Bohn said. ■
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REAL ESTATE QUARTERLY August 5-18, 2014
average get anywhere from 98 to 100 percent of their asking price. That is no longer the case.” He cited the median price of Long Beach homes at $428,000 in June. Much of 2013 saw double-digit gains in home prices. In July of last year, for example, Long Beach homes were selling for about 15 percent more than they did at the same time in 2012. Jones characterized last year’s single-family market as “overheated” due to speculative investors buying up homes for cash and then flipping and selling them, which drove up prices. The market activity and more modest price gains of this year mean that “we are now heading towards normalcy,” he explained. Connie Wildasinn, owner of MetroCal Brokers, said Long Beach home sellers have been “shooting for the stars,” because listing agents are not counseling them about current market trends. Buyers haven’t been willing to pay inflated prices thanks to easy access to current market information online and elsewhere, Jones said. As a result, the number of sales transactions in Long Beach slowed down as list prices increased. “Sales are down about 7 percent year-over-year,” he said.
Long Beach Business Journal 7-B
A low inventory of homes for sale in Long Beach translated to few options for homebuyers in recent months, which may also be impacting the volume of sales transactions, Jones noted. “Probably a bigger restraint on overall sales than anything is that the biggest demand appears to be in that $450,000 to $750,000 range, but that is where there are the fewest listings,” he noted. “Demand has definitely slowed down,” Wildasinn observed. “I am seeing properties that are staying on the market now about twice as long as they would have a month and a half ago.” She said the slowdown in sales transactions might be due to decreased affordability among buyers as home prices continue to rise. In June, the average number of days single-family homes remained on the market was 72, compared with 53 days in May and 48 days in June of last year, Jones said. The slowdown in sales transactions may be due in part to the summer season, when the housing market tends to cool off a bit, he noted. He expected the market to pick up again in coming months. Due to decreased affordability for detached single-family homes, the (Please Continue To Next Page)
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REAL ESTATE QUARTERLY 8-B Long Beach Business Journal
local condo market has picked up, Jones said. “While people may want single-family homes, those may be out of the price range for entry-level buyers, so they look to condos,” he explained. “Condo prices are still appreciating at a double-digit ratio. They were up 31 percent year-overyear in the first half of the year,” he said. Price appreciation has slowed somewhat since then, but demand has not, he added. Wildasinn said she has
August 5-18, 2014
observed strong sales activity among condos in the downtown and East Village areas of the city in the past few months.
Young Professionals Drive Demand, New Construction In Multi-Family Market ow that the economy has seen a couple of years of slow growth, millennials have started to move out of their parents’ homes and into rental
units, economists and local real estate professionals observed. The trend is evident in Long Beach, particularly downtown, where several planned apartment complexes are being marketed to the millennial generation. Downtown Long Beach Associates (DLBA), the nonprofit organization overseeing downtown’s business improvement district, recently reported in its Downtown Economic Profile 2014 that the majority of the area’s new
residents are young, career-oriented and ethnically diverse. Johanna Cunningham, executive director of the Apartment Association, California Southern Cities, based downtown, observed that many young professionals are waiting to buy homes. “They are developing their careers and preparing themselves financially,” she said, adding that young professionals may be renting longer to save up for a future single-
6th Street Lofts To Revitalize Vacant Parcel In East Village Arts District First Project In Long Beach To Use ‘Parking Lifts’ Technology
Scott Choppin is founder and CEO of Urban Pacific Group of Companies that includes business development, capital acquisition, and strategic planning. Here he is shown at the property at 431 E. 6th St. that is being developed into a four-story, 30-unit apartment complex. (Photograph by the Business Journal’s Thomas McConville)
■ By SAMANTHA MEHLINGER Senior Writer A casualty of the Great Recession, a 14,997-square-foot parcel of land in the northern portion of the East Village Arts District lay partially developed for nearly a decade until developer Urban Pacific Multi-Housing, LLC, led by founder and CEO Scott Choppin, decided to give the project new life. The property at 431 E. 6th St. changed hands a few times after a 10-unit condo development began there in 2004. The developer tried to sell the land around 2009 or 2010 during “the worst years for a real estate project,” Choppin said. The property was ultimately foreclosed on and listed on LoopNet.com some time in 2011, when another company bought it. Choppin came into the picture at a Christmas party in 2012, where a fellow developer let him know the land was up for grabs again. Choppin had it under contract with partner Pacific Partners Residential within a month with plans to develop a 30-unit multi-family rental project called 6th Street Lofts. As the owner of a Downtown Long Beach-based urban development company and as a third generation Long Beach resident raising a fourth generation in the city, the property’s location appealed to Choppin. “I always try to find projects that are in our [company’s] backyard,” he said. “We have a good understanding of Downtown Long Beach and have a history there,” he added, explaining Urban Pacific has large multi-family developments above the ground floor retail at downtown’s City Place Shopping Center. He said the “primary driver” for his company to continue investing in the area is that “Long Beach has a great downtown.” Choppin was also interested in the property, which is near the corner of 6th and Elm Streets, because he and his colleagues had observed a positive trend of real estate and urban activity moving towards the northern end of Downtown Long Beach. “Part of the reason we picked this site is we always love to be in the heart of the up-and-
coming neighborhood and we will look for the movement or the trending towards a particular place,” he said. Evidence of economic growth in the area is the building adjacent to the property, which houses a couture shoe manufacturing business. The business owner continues to invest in the area by buying additional property, Choppin said. Another example is a retail hub a few blocks away at 4th Street and Linden Avenue, where the popular Fingerprints record store and Berlin Coffee House have become hot spots of activity, he noted. Urban Pacific recently began construction on 6th Street Lofts after its subsidiary, Choppin Demolition Services, finished removing existing structures on the property. The 30-unit loft development, with studio, one- and two-bedroom units, is scheduled for completion by February 2015. The units are relatively conservative in size to meet the lifestyle needs of the most likely tenant – young professionals, Choppin said. This demographic tends to spend a lot of time away from home, socializing in nearby walkable areas, he explained. “The design is responsive to what our research tells us about how somebody who is a millennial lives, and it is not at home a lot,” he said. The development’s design reflects the company’s urban aesthetic, Choppin said. “We ended up with something contemporary with an angular look to it,” he explained. “It has got a very contrasting color scheme, but then we soften it with a wood accent on the ground floor.”
The four-story building is being built with an on-grade parking structure. The development features 1.25 parking spaces for every unit, which amounts to one guest space per four units in accordance with the Downtown Plan, a development guide for the area meant to facilitate investments, Choppin explained. To maximize the amount of parking space and meet the requirements of the Downtown Plan, Urban Pacific developed a unique solution – parking lifts. “To my knowledge we are the first project in Long Beach to use that [technology],” Choppin said. The independent stacked parking lifts enable one car to park at the bottom level of the lift, which may then be lowered into a pit below so another vehicle may park on the top level of the lift. The loft project’s design includes amenities such as a fitness space and a community lounge area with flat screen TVs and a bar, as well as two outdoor social spaces. One open-air deck space is being built on the third floor with units surrounding it and includes an outdoor fireplace and resort-style seating. A similar rooftop patio is also planned. “I think we should be the first building to deliver market rate units in downtown in this new [housing construction] cycle,” Choppin said. Many other multifamily projects are underway downtown as well, although he noted most of them have later completion dates due to their larger sizes. ■
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REAL ESTATE QUARTERLY August 5-18, 2014
family home purchase. These lifestyle trends are giving a boost to the local multi-family market both in terms of new construction and rentals of existing units, she explained. Ratkovich Properties is one development firm among many others investing in the rental market in Downtown Long Beach. Cliff Ratkovich, president of the company, told the Business Journal that young professionals are driving demand for rental units downtown. “You have Generation Y or the millennial generation who are starting to reach their prime rental years between the ages of 25 and 35,” which is creating upward pressure on demand, he said. “There hasn’t been any construction of apartments in Downtown Long Beach since about 2006,” he added. “During that eight-year period there has been a lot of pent-up demand for apartments . . . What is being built today is just starting to catch up with the void in the market for supply.” Cunningham estimated there are as many as 2,000 new multi-family units planned throughout Long Beach. Multi-family developments currently under construction in the downtown area are the 129-unit Urban Village at
Long Beach Business Journal 9-B
1085 Long Beach Blvd., the 30-unit 6th Street Lofts at 431 E. 6th St. and the 69-unit Pine Square project at 250 Pacific Ave. The Studio One Elevendesigned Parc Broadway at 245 W. Broadway with plans for 222 units is awaiting construction following the demolition of an existing on-site building. Ratkovich Properties’ adaptive reuse of the former City Hall East office building into 156 units and 4,000 square feet of ground floor retail is also underway, Ratkovich said. “We completed all of the environmental remediation work and we just recently pulled our building permit. We are starting with the interior demolition and structural upgrades,” he said. The development, called Edison Lofts, should be completed by the end of 2015. The Current, a high-rise luxury rental complex at 707 E. Ocean Blvd., broke ground in March, and construction begins the first week of August. The 17-story tower with 223 units “will be the first high-rise residential tower built in Long Beach since the Great Recession, and the first rental apartment tower developed since the 1970s,” according to Ryan Altoon, executive (Please Continue To Next Page)
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REAL ESTATE QUARTERLY 10-B Long Beach Business Journal
August 5-18, 2014
Johanna Cunningham is the executive director of the Apartment Association, California Southern Cities based in Downtown Long Beach. (Photograph by the Business Journal’s Thomas McConville)
vice president for developer AndersonPacific, LLC. Some developments are awaiting final approval from the City of Long Beach, including the adaptive reuse of the Ocean Center Building at 110 W. Ocean Blvd. into 84 units, converting office space at the Security Pacific National Bank building at 110 Pine Ave. into 124 units and a new 216-unit apartment complex by Lennar Multifamily Communities at 150 W. Ocean Blvd.
High demand for rental units has translated into high occupancy rates among Long Beach multi-family properties, according to Robert Stepp, owner of multi-family investment firm Stepp Commercial. “Occupancy is very strong. On average we’re seeing buildings with 97 or 98 percent occupancy,” he said. Low vacancy has enabled landlords to raise rents, according to Steve Bogoyevac, vice president of multifamily investments for Marcus &
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Millichap. As an example, Bogoyevac said he has raised the rent on one of his own apartment units from $825 to $1,075 by implementing improvements such as granite countertops, hardwood floors and new cabinets. “That is a pretty significant jump,” he said about the rental increase. In the past year or so, demand to buy multi-family property in Long Beach has been increasing, but lately Bogoyevac has noticed a drop-off in sales transactions. “The number of transactions has definitely slowed down,” he said, adding that sales have decreased by about 20 percent since May. He attributed the drop-off in sales to a lack of available desirable properties rather than a decrease in demand. “The buying side is pent up and desperately looking for product to buy. It’s the sellers’ side of things that has slowed things down,” he said. Stepp identified more desirable multi-family properties in Long Beach as Class A or Class B (highquality) buildings either in East Long Beach or beach areas south of 4th Street. Only about a dozen listings are currently on the market in those areas, he said. Citywide, 50 active listings of multi-family properties are for sale.
“Typically there are around 75 listings – that is your average,” he explained. Due to high demand and low supply, sales prices have continued to increase. Bogoyevac said the sales prices for multi-family properties in Long Beach have increased 10 percent so far this year. Both Stepp and Bogoyevac predicted the demand for higher quality properties should remain strong through the year.
Leasing In The Office Market Remains Stable, Investment Sales Heavier In Downtown ■ By BRANDON FERGUSON Staff Writer
ommercial realtors are reporting continuing strength and stability in both the leasing and sales of office space. “If you can find the product, people are buying,” Doug Shea, owner of INCO Commercial told the Business Journal. “The highest demand [is] really for top quality institutional grade assets,” he said. Shea further explained that the office sector, like retail and industrial, is strong due to continued
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REAL ESTATE QUARTERLY August 5-18, 2014
low interest rates with the medical industry as a key factor driving the office market. “We all know medical is very strong still,” he said. Last year, Lee & Associates Principal Jeff Coburn and colleague Shaun McCullough secured the sale of two planned office buildings in Douglas Park – local medical companies purchased both. The two buildings, one of which is 38,000 squarefeet and the other is 52,000 squarefeet, are currently under construction. The concrete walls for both have been completed, and according to Richard Lewis, managing member of Urbana Development, interior work is expected to begin this fall. The buildings should be completed by year’s end. Lewis added that the smaller building is currently 100 percent leased. Coburn told the Business Journal that he sees more leasing activity occurring in suburban Long Beach, specifically around the airport. When it comes to the sales market, however, investors (as opposed to owner-users) have taken more action in downtown. “On the investment side, that is where we see a lot of the sales in this last year, especially in the larger invest-
Long Beach Business Journal 11-B
Doug Shea, president of Inco Commercial, is pictured at the 30,000-square-foot office building at 1650 Ximeno Ave. near the Traffic Circle. The building houses companies such as Comerica Bank, Pacific Coast University of Law and Coldwell Banker Coastal Alliance. (Photograph by the Business Journal’s Thomas McConville)
ment stuff in Downtown Long Beach,” Coburn said. He cited the August 2013 sale of the 396,972-square-foot Landmark Square building, which sold for $101,700,000, fetching $256 per square foot. According to Cushman and Wakefield’s 2nd quarter report, the overall vacancy rate for the downtown
area is 20 percent, while the overall vacancy rate for the suburban area is 17 percent. Cushman and Wakefield maintains that average rental rates have remained stable in both markets. The report also stated that since last quarter the downtown area experienced negative absorption of 40,460 square-feet of direct space, while the
suburban area experienced negative absorption of 22,189 square feet of direct space. Robert Garey, senior director at Cushman Wakefield, doesn’t see this negative absorption as a long-term trend. “The market has remained relatively stable. I think this is just a little (Please Continue To Next Page)
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REAL ESTATE QUARTERLY 12-B Long Beach Business Journal
August 5-18, 2014
Adam Friedlander is a senior associate at the Marcus & Millichap Real Estate Investment Services regional office located at the World Trade Center in Downtown Long Beach. The office, according to its website, “provides real estate investment clients with the opportunity to buy and sell all types of commercial property, including apartments, retail, office, single-tenant net-lease, industrial, healthcare, self-storage, seniors housing, hospitality, land, manufactured homes and special assets.” (Photograph by the Business Journal’s Thomas McConville)
of the hangover of the great recession where some tenants have downsized and given back some space where the space wasn’t quite meeting their needs,” Garey said. With continued reports of growing job numbers, Garey expects the office market to improve and even suggested 2015 could be a breakout year. “When job growth occurs, office demand follows,” Garey said. “The commercial real estate market tends to lag the general economy for job growth. Most owners don’t like to take on a larger commitment until they’re very comfortable about what the future looks like. The comfort level is getting better.” In June, Cushman Wakefield sold a 65,540-square-foot office building at 115 Pine Ave. to Pinelux Associates for $10,410,000 at $158.83 per square
foot. In April, CBRE brokered the sale of 4060 Watson Plaza Dr., a 71,450-square-foot building, which sold for $16,000,000, or $223.93 per square foot. “Office buildings that are available have sold relatively quickly,” Garey said. “There’s strong demand for investors looking to purchase office buildings. We expect that to continue.” In addition to taking advantage of low interest rates, Garey explained that investors are drawn to commercial real estate by a lack of stellar investment alternatives. “Short term money and banks, they pay nothing,” Garey said. “The bond market’s been pretty good overall, but there hasn’t been great alternatives, so investment in real estate is one that provides some upside potential.”
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Despite Slow Down In Velocity, Commercial Retail Market Remains Strong ccording to Adam Friedlander, senior associate at the Long Beach office of Marcus & Millichap, the sales velocity for retail establishments has been slowing. He attributed this trend to a reduction in inventory. “As far as retail sales, the velocity has definitely slowed down. There aren’t as many properties that are available for sale right now and the inventory is affecting sales,” Friedlander said. Still, he added, the market remains strong. “There are definitely transactions going down, a lot of which are off-market opportunities as well as properties
that are exclusively listed. But because of the lack of inventory, people are starting to find ways to access more inventory by doing things unsolicited and off the market,” Friedlander said. Low capitalization and interest rates have led to pre-recession property values, Friedlander said, adding that when single tenant investments such as bank buildings and fast food restaurants come on the market, the sellers are inundated with offers. Marcus & Millichap recently closed escrow on a Church’s Chicken located at 1199 E. Anaheim St., which sold for $1,385,000 with a 4.95 percent cap rate. Friedlander explained that sales prices, spurred by low inventory and high demand as well as low interest rates, have recently risen. “Prices in the last 12 months have increased. I’d say properties have appreciated in value by the cap rate compression that we’re seeing,” Friedlander said. Marcus & Millichap is currently in escrow to sell a property located at 3339 E. Anaheim St. The property, which has a Walgreen’s at the site, is listed at $8,750,000 with a 5.66 percent cap rate. On the leasing side of the equation, Friedlander said the numbers remain solid. “If it’s a well located retail space with good visibility, good traffic count, it’s in a good location, the leasing market is very strong right now,” Friedlander said. “The tougher spaces to fill will continue to remain vacant, the economy’s not yet strong enough to fill that space, and most of the tenants that are looking for space in this market right now are food usage tenants.” According to Brian Russell, vice president of Coldwell Banker Commercial Blair Westmac, the vacancy rate for retail space in the Long Beach area is hovering at around 10 percent, though he added that it’s
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REAL ESTATE QUARTERLY August 5-18, 2014
difficult to provide an accurate figure. “It’s much better than it was a year ago,” Russell said of the vacancy rate. “It might just get close to single digits if we keep on this trend next quarter.” Like Friedlander, Russell sees the retail market as strong. “Capital for acquisitions for lending and so forth is actually flowing nicely now,” Russell said. Still, he sees investors acting more cautiously than they have in recent quarters. “They’re asking a lot of questions and being very dutiful in their analyses. It’s interesting, just two or three quarters ago we saw investors say, ‘That looks good – great location – let’s do this,’” Russell said. Russell also sees the leasing market as strong. “People are moving,” he said. “I’ve done five or six leases this last quarter that are noteworthy.” Among them, Russell said he secured a lease in Carson for a 60,000-square-foot industrial building to be used as a distribution center. On the property, AT&T also plans to open a Cricket Wireless store specializing in prepaid cell phones in a 1,400-square-foot space. Russell also mentioned an end cap space located in the shopping center at Bellflower Boulevard and Spring
Long Beach Business Journal 13-B
street will soon house a Southland Financial Services. “That was on the market for several years, that was good to see that finally lease,” Russell said. As for where he sees the highest demand for retail, Russell said spots like the eastside and Belmont Shore are typical. He added, however, that downtown is also becoming more popular. “As more and more apartments get occupied and so forth, people really like the downtown core,” Russell said.
In The Industrial Market, Low Interest Rates Fuel Demand hile inventory is low in Long Beach’s industrial real estate market, by all accounts the sales outlook remains positive. According to John Eddy, senior vice president of Coldwell Banker Blair Westmac, sale values continue to climb and are nearing 2007 numbers. “Provided the economy stays strong and we’ve got favorable interest rates, I don’t see any reason why it won’t continue,” he said. The leasing market hasn’t seen the same amount of growth as the sales (Please Continue To Next Page)
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REAL ESTATE QUARTERLY 14-B Long Beach Business Journal
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August 5-18, 2014
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The sprawling Douglas Park north of the Long Beach Airport (A) continues to be a beehive of activity for industrial, office and commercial construction. Shimadzu Precision Instruments, Inc., broke ground last month (B) on a 58,796-square-foot headquarters building for its aircraft equipment subsidiary that is relocating from Torrance. Across the street (C) on a former parking lot, Sares-Regis Group received planning commission approval last month to move forward with the construction of three buildings totaling nearly 500,000 square feet. The 25-acre tract of land is known as Pacific Pointe East. Across the street from that project is one million square feet within two buildings that has been leased by Mercedes Benz. The buildings were previously used by The Boeing Company for commercial airplane assembly. Last year, Mercedes signed a 15-year lease agreement with Sares-Regis. The 52.2-acre site is slated to house Mercedes’ West Coast regional offices, a vehicle preparation center (VPC) and staff training facilities. During ceremonies held in early June, then-mayor Bob Foster said, “This is going to be a great facility, not only for Mercedes-Benz but for the City of Long Beach. I believe you are going to see many lateral businesses come in to serve Mercedes and serve the workers here. I think this is the beginning of a real nice cluster in and around Douglas Park that will enhance the economy in Long Beach.” Behind the Courtyard Long Beach Airport, construction is underway on two medical buildings totaling 90,000 square feet of office space – also pictured on Page 3-B). (Photograph by the Business Journal’s Thomas McConville)
market, Eddy said, but he added that the numbers were still reminiscent of pre-recession figures. “Leasing is mirroring sales as far as competitive market – low inventory, high occupancy – I don’t think growth from a percentage standpoint has been as significant comparing lease rates to sales rates, but we’re still achieving numbers that are in some cases equal or even greater to the mid 2000s when we were at the top of the market,” Eddy said. Eddy recently secured a lease at 1661 32nd St., a 3.5-acre lot with a 40,000square-foot building, for .21 cents per square foot. “We had several qualified tenants looking at [the property]. It was absorbed by a regional company that distributes hay to China,” Eddy said. John Schumacher, executive vice president at CBRE Inc. South Bay, painted a similarly positive picture of the industrial market and explained that low inventory is driving a greater demand for properties, making sales the hottest part of the market right now. “Our product across the board in all classifications, including Class A and Class B properties, everything that is for sale has action on it,” Schumacher said. Schumacher’s office is currently in escrow to sell a 140,000-square-foot building located at 1483 West Via Plata St., adjacent to the Long Beach Freeway. “We have that in escrow with a user. That’s been on the market for a good nine months and all of a sudden – bang,” Schumacher said. Though he
declined to disclose many details, the property is listed on loopnet.com for $18,849,240. Garnering attention from local media more than a year ago, Schumacher and
In an early July photograph by the Business Journal’s Thomas McConville, Mercedes cars are parked temporarily outside the future home of Mercedes Benz West Coast regional offices.
colleague Brian DeRevere secured a deal involving a 1.1 million-squarefoot former Boeing property, across the street from Douglas Park. Mercedes Benz is currently leasing the property.
Last quarter, the Business Journal also reported that Schumacher closed escrow on a 3.5-acre parcel of Douglas Park land that will soon be home to Shimadzu Precision Instruments. The company is building a 58,796-squarefoot structure featuring both office and manufacturing space. Though he declined to offer specifics, Schumacher is continuing to build on past successes, and told the Business Journal he is currently working on more deals at Douglas Park. “We have some things that we’re working on, but are confidential, that are going to continue to create employment and quality operators in the park,” Schumacher said. A second quarter report by commercial real estate company Lee & Associates explained that the South Bay industrial market is experiencing its third straight quarter of positive absorption. This is due, the report stated, to increased cargo volume coming out of the ports. The report also pegged the South Bay area vacancy rate at 4.8 percent with Long Beach coming in at 3.5 percent. According to Lee & Associates Principal Brandon Carrillo, sales are strong and he expects the trend to continue to be strengthened by clients who take advantage of low interest rates and loans from the Small Business Administration. “We’re getting good demand in inquiries on our current properties,” Carrillo said. “Sales will continue to be
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REAL ESTATE QUARTERLY August 5-18, 2014
strong as long as interest rates stay relatively low.” But the recent passage of California State Assembly Bill 1103 concerns Carrillo. The law requires landlords and building owners to pay for a report disclosing a building’s energy consumption data. “[The state] wants us as agents to begin paying for a report or the landlord pays for the report then supplies this either to the tenant or the purchaser in regard to how energy efficient their building is,” Carrillo said. “We already have a sensitive recovery and throwing on additional costs, throwing on another variable onto the transaction slows down business and has people rethink whether they want to do business either in a particular city or state.” Carrillo is also concerned about the threat of a port trucker’s strike. “I hope and pray that between the parties, they can find a resolution without going to a strike, because L.A. and Long Beach have a lot more competition than they had previously with the Panama Canal, Baja, Washington, Canada. You’ve got all these places where everyone’s trying to cut into our market share and we shouldn’t give them that opportunity,” Carrillo said. ■
Leases And Transactions Inco Commercial announced the following transactions: • The Benwell Portfolio – 101 apartment units in four complexes located at 26 Alamitos Ave., 717 Medio St., 444 Chestnut Ave. and 636 Chestnut Ave. – sold for $10,250,000. Inco’s Eric Christopher, who represented the seller, said the units were built mainly in the 1920s and consist of primarily studios. “The portfolio sale represents the paradigm shift in urban housing – smaller, more affordable units located within walking distance to dining, entertainment and mass transit,” Christopher said in a statement. Jupiter Holdings announced the following transactions: • PROCEL Nurses & Allied signed a lease with Jupiter Holdings to occupy space at Topaz, an 11-story, 292-540square-foot office building on the waterfront in San Pedro. PROCEL, a medical staffing agency, is relocating its headquarters from Hermosa Beach. PROCEL was represented by John Ottinger of West Coast Tenant Advisors, while Jupiter Holdings was represented by the CBRE team of Dave Smith, Tim Vaughan and Mike Harry. Other new tenants for Topaz include Rockefeller Philanthropy Advisors of L.A.’s Westside, and Blue Logistics, which relocated from the LAX area. Coldwell Banker Commercial BLAIR WESTMAC announced the following transactions: • The Harbor Dental Society signed a
Long Beach Business Journal 15-B five-year lease for 1,493 square feet of office space at 4010 Watson Plaza in Lakewood. The transaction, valued at more than $150,000, was handled by Becky Blair, John Eddy and Tyler Rollema. • LMD Integrated Logistic Services signed a three-year lease for 59,979 square feet of industrial space at 1411 E. Watson Center Rd. in the City of Carson. Eddy, Rolema and Brian Russell handled the lease transaction, which was valued at $1.16 million. • Pacific Captial LLC purchased an 11,500-square-foot building in June at 1300-1310 Long Beach Blvd. for $1,275,000. Blair, Sheva Hosseinzadeh and Hoyt Hochman handled the transaction. • Baja Sonora restaurant signed a fiveyear lease for 2,000 square feet of retail
space at 10900 Los Alamitos Blvd. in the City of Los Alamitos. Steve Warshauer and George Bustamante handled the transaction. • A 7,096-square-foot mixed-use property at 3291 E. Artesia Blvd. in North Long Beach was sold for $1.26 million. The transaction was handled by Warshauer, Bustamante and Cameron Jacques. Lee & Associates announced the following transactions: • The Teachers Insurance and Annuity Association of Amercia sold its 28,480-square-foot industrial building at 16604 Edwards Rd. in Cerritos to Aluflam, a fire-rated aluminum/glass construction firm. Lee & Associates’ Jeff Coburn represented the Aluflam and CBRE represented the teacher’s group.
• Warren Distributing signed a fiveyear lease for 10,150 square feet of industrial space at 2648 E. 28th St. in Signal Hill. Lee’s Coburn and Greg Gill represented the landlord and Lee’s Jesse Laiken represented the tenant. • PWP International recently leased 1,196 square feet of office space at the 100 W. Broadway building in Downtown Long Beach. Lee’s Coburn and Jeff McCullough represented the tenant and Wm Commercial represented the landlord. • Alain Hirsch Contruction Group recently purchased a 5,847-square-foot office building at 1383 Redondo Ave. in Long Beach for $630,000. Coburn and Sean Lieppman represented the buyer, and Jeff Bischofberger represented the seller. ■
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