Southern California Industrial Real Estate Blog

GREEN BUILDING BASICS

GREEN BUILDING BASICS

Didja know…cement is the critical ingredient that makes sand and gravel bind together and become hardened concrete. Manufacturing cement is energy intensive and hard on the environment. Research reveals; when a ton of cement is made, up to a ton of carbon dioxide is released into the atmosphere. A solution is to be able to reduce the amount of cement mixed into concrete without affecting its structural integrity. Try fly ash, an industrial waste created at coal burning power plants. Fly ash is said to strengthen the concrete because it changes its chemical properties. Another option, opt in recycled glass cullets for gravel -> made in part from the glass bottles.

The concept of green building is “Any structure, that is designed, constructed, renovated or operated in such a manner as to minimize its impact on the environment, protect the health of its occupants and utilize resources efficiently,” notes property columnist Paul Bianchina.

For those who want to build cleaner and meaner, there are two particular parts to green building – materials and occupant health.

OCCUPANT HEALTH

The World Health Organization has confirmed formaldehyde as a human carcinogen. This toxic eye and nose irritant and can cause respiratory problems. Ironically, Paints, finishes for floors and other components, some types of adhesives and other materials commonly found in building construction may cause volatile organic compounds such as formaldehyde that can be harmful to building occupants. Green building practices make extensive use of products that do not contain formaldehyde. The California Air Resources Board is considering standards that would ban some of these toxic substances in the use of indoor furnishings.

BUILDING MATERIALS

Twenty years ago, it was easy for builders to get 2×4s from old-growth forests. The wood was straight, and unlikely to warp. Today, 95% of the nation’s indigenous trees have been cut. Alternatives do exist, reclaimed lumber, engineered lumber, SIPs (structural insulated panels), oriented strand board, glu-laminated beams, I-joists and many other similar products make use of smaller, fast-growing trees harvested from tree farms like other crops.

The result is stable, uniform and structurally solid building materials that minimize the impact on existing old-growth and even second-growth forests.

“Green Building Products,” a guide for residential building products states that a product may be considered green if:

1) It’s made with recycled, salvaged or agricultural wastes (most commonly crop straws, as in adobe);

2) It conserves natural resources because it’s especially durable or it’s made with a rapidly renewing material such as bamboo that can be harvested every ten years;

3) It enhances indoor air quality because it has low or no emission of toxic chemicals into the air or because it helps block the introduction of indoor contaminants such as mold;

4) Its manufacture does not produce toxic emissions;

5) It saves energy or water;

6) It reduces the environmental impact of the construction itself. Porous driveway paving products absorb a substantial amount of the rain that hits them and this reduces the amount that runs off into a local and often overwhelmed storm water collection system.

BASIC EFFIENCY

In the Northern Hemisphere it is most efficient to orient the building with southern exposure. This allows for passive solar heating and improved natural lighting, which conserves energy usage.

An excellent example of Green multi-unit construction is Colorado Court, located on the corner of Colorado and 5th Streets, is a 100% “green” affordable housing project. The building features 44 “single room occupancy” units, each with its own kitchen and bath. The small units feel spacious because of the high ceilings, and efficient use of natural light.

“The original schematics for the building were east/west. That is the worst way to orient a building for solar conditions. We changed the orientation to north/south, so it would be more efficient,” observed architect Lawrence Scarpa.

A combined effort of the City of Santa Monica, The Community Corporation of Santa Monica, and local architects Pugh Scarpa Kodama, Colorado Court utilized energy efficiency on everything from solar heating to ecologically appropriate building processes.

Santa Monica also boasts one of the nation’s best examples of green commercial building. The Natural Resources Defense Council’s Southern California office at 1314 Second Street in downtown Santa Monica is constructed to the highest green building standards. The property has been given the Version 2 Platinum green building rating – the highest possible level of sustainable design – by the U.S. Green Building Council for LEED (Leadership in Energy and Environmental Design). It was the first structure in the United States to receive this status.

Jodi Summers negotiates investment properties for Sotheby’s International Realty. For your real estate needs, e-mail Jodi Summers at jodis@verizon.net, or call 310.260.8269. Visit her websites at http://www.SoCalInvestmentRealEstate.com or http://www.santamonicalandmarks.com.

NATIONAL ASSOCIATION OF REALTORS SPRING 2007 COMMERCIAL REAL ESTATE OUTLOOK

NATIONAL ASSOCIATION OF REALTORS SPRING  2007 COMMERCIAL REAL ESTATE OUTLOOK
INDUSTRIAL SECTOR
With a $306.8 billion transaction volume, investment in commercial real estate reached record levels in 2006. In particular, office building trades were up 32% and industrial building trades were up 9%. Add to this more than $35 billion in hotel trades and the continued robust flow of capital into commercial real estate is clear to see. With
investor interest in commercial real estate, there has been development of new
commercial space, most of which is either build-to-suit or with a significant pre-lease in
place. New supply can and often does have an impact on fundamentals.
NAR FORECAST: The flow of capital (both equity and debt) will continue to be strong
as through 2007. Office, hospitality and industrial will continue to be the most sought after type of commercial real estate, while retail and multi-family will remain in the
doldrums. The expanding new supply will be an issue for all sectors and will cause
fundamentals to worsen moderately by the end of the year.
¯¯¯¯¯¯¯¯¯¯¯¯¯¯
The Industrial Market: Outside of Southern California and South Florida,
industrial markets remain unchanged…
Two markets, Los Angeles and Chicago, continue to lead the way in terms of industrial transaction volume. While investor interest is high in both of these markets, the fundamentals are very different. In Los Angles, new supply is being matched by a similar rise in demand, and as a result the vacancy rate is not expected to rise above
5.0% this year. Chicago is also seeing a healthy level of new supply, but demand is not keeping pace and the industrial vacancy rate is expected to be around 12.5% by the end of 2007.
NAR FORECAST: Trade will continue to be the main factor influencing industrial markets on a national basis, from both an investment and a leasing standpoint. Pricing and rising rents in some markets are forcing many tenants and users to explore secondary and/or tertiary markets where both land and operating costs are often lower.
However, the overall vacancy rate in primary markets will rise back up to 10% by the end of 2007 – a level not seen since 2005.
 

386,000 SF OF INDUSTRIAL LEAST EAST OF THE 110 FWY

386,000 SF OF INDUSTRIAL LEAST EAST OF THE 110 FWY

Four tenants have signed new leases for nearly 386,000 sf of distribution space at Majestic Realty Co. developments in City of Industry, Chino, Norwalk and La Mirada. The four are Travelers Club Luggage Inc., General Cable, kitchen appliance make Dacor and Eco Wheel Corp.

Travelers Club, a maker of luggage and sports gear, signed a five-year lease for 100,000 sf of distribution space in a newly refurbished building at 14720 E. Alondra Blvd. in La Mirada. Peter Yu, president and CEO of Travelers Club Luggage, says he chose to move his company’s headquarters to the La Mirada property after surveying a number of Southern California sites. The company sells to US big box stores, specialty store chains, sporting goods chains, major dot.com operations and Latin American countries.

General Cable, a cable maker and distributor, signed a five-year renewal of its lease for 165,000 sf of warehouse space at the Majestic Spectrum in Chino, where the company has been since 2002.

Dacor, a designer and manufacturer of kitchen appliances, signed a five-year renewal for 100,000 sf of distribution space at 415 S. Seventh Ave. in the City of Industry - the company has been in the space since 2001.

Mike Laiman, vice president of manufacturing for Diamond Bar-based Dacor, says the Seventh Avenue location is an important customer fulfillment center for the company, which operates a manufacturing plant next door. The distribution center allows Dacor to consolidate shipments and fill orders throughout California and throughout North America, Laiman says.

Eco Wheel Corp., a provider of luxury automotive, truck and SUV wheels and accessories, signed a three-year lease for 20,600 sf of space on Blackburn Avenue in Norwalk.

Terms of the four leases were not disclosed. Average asking lease rates in the San Gabriel Valley were about 57 cents per sf per month triple-net in the fourth quarter, according to recent market reports.

info courtesy of Bob Howard of GlobeSt.com

CALCULATING COSTS IN A RUNAWAY REAL ESTATE CONSTRUCTION MARKET

CALCULATING COSTS IN A RUNAWAY REAL ESTATE CONSTRUCTION MARKET
 

The Wyoming Water Development Commission has found an effective way to budget in rising materials costs for new construction; they asked the state legislature to set up a special inflation fund for its construction projects.
 

L. Mike Besson, commission director, says his staff uses the fund to cover unanticipated price increases, rather than going to the legislature to seek more money - a process that can take months even as costs continue to rise.
 

“Prices have simply gone through the roof,” says Besson, who budgets in a 15% cost increase on projects.
 

Increased international competition for steel, record rates of constructions and recent hurricanes have sent materials costs escalating over the past several years. The result:  construction costs have been rising faster than the rate of inflation due to global economic expansion. “It really gets down to the law of supply and demand, and right now, construction materials are in high demand in Asian and other overseas markets,” explains David Lereah, chief economist for the National Association of Realtors.
 

The Labor Department, recently released data showing the cost of building a warehouse rose 7.6% in 2005. That’s well above the 3.4% consumer inflation rate and the 5.4% wholesale inflation figure for finished products.
 

The warehouse figures are the first in a series on construction costs that are now being analyzed by the government as part of its monthly producer price index. In the near future we will have measures for the cost of new school, office, manufacturing and industrial buildings. Labor economists will also measure inflation in building trades: electrical, concrete, roofing, plumbing and mechanical contractors. The new Labor Department data will give contractors more a general sense of whether they are in line with national trends.
 

Prices are up, but like the Wyoming Water Development commission, most contractors have been able to pass on many of their higher materials costs to building owners.
 

“It showed a little more success than I had expected,” shared Ken Simonson, chief economist of the Associated General Contractors of America.
 

Higher building costs and a tightening economy mean a drop in construction.
Builders are gambling on rising rent rates and are focusing on multifamily projects. According to the California Building Industry Association, the number of multifamily permits issued for the first four months of 2006 was up 12.2% compared to the first four months of 2005. This is contrary to the number of building permits issued for single-family homes in California – which were down approximately 18% compared to the first four months of 2005, the announced today.
 

“Continuing the trend of the past few years, multifamily activity continues to expand,” observed Alan Nevin, CBIA chief economist. “Most of the downturn in single-family permits is in more distant areas which have been accommodating the housing demands from those employed in the more urban areas.”
 

Statistics compiled by the Burbank-based Construction Industry Research Board
note that the number of single-family building permits dropped the most in Napa (-71.4%), Yuba City-Marysville (-61.3%), and Salinas (-60.7%) metro areas in the first four months of 2006 compared to the first four months of 2005.
Single-family building permit activity increased the most in the Madera (21.5%), Santa Rosa-Petaluma (17.4%), and El Centro (15.9%) metro areas in the first four months of 2006 compared to the first four months of 2005.
 

Home sales in Southern California are at their slowest pace since 2001, reported DataQuick information services. The median price paid for a home in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties was $485,000 in April, up 9.0% from $445,000 in April 2005. The 9.0% year-over-year increase in the April median price is the first time appreciation in SoCal has dipped into in single digits since November 2001, when the $238,000 median rose 9.2% from $218,000 the year before.”
 

“Builders are a bit more careful than they were. They used to build tracts and put up “For Sale” signs. This time around they’re building a couple of homes to show potential buyers, getting sales contracts signed with a deposit, and then building the rest of the tract. They don’t want to get caught with unsold inventory….” revealed Marshall Prentice, president of DataQuick.
 

Nevin noted that the price of fuel may be a factor to the decline in construction in outlying urban areas. Adding to the increased expenses associated with building is the 21^st century concept of disposable architecture. Towns in our Governator’s homeland of Austria stand for more than 700 years. In the U.S., the current expected lifetime of a building is about 30 years – think about our recently reconstructed library and police station. Commercial properties like the Santa Monica Place Mall, will make it less than 25 years. New structures are built with a limited lifespan, built as flimsily as usage will allow, with the plan that they will be thrown away when we’re finished with them.
 

According to property historian Arrol Gellner, “It was the unmatched prosperity of the post-World War II era that gave rise to the concept of the disposable society. With a booming economy and material goods aplenty–not to speak of persuasive corporate advertising–Americans bought into the idea that the world’s resources were essentially unlimited, and that throwing things away and buying new ones made better economic sense than conservation.”
 

Perhaps because we do not have to prepare the logs, chisel the rocks and smelt the iron, we treat raw materials differently than our forefathers. Records show that the English aristocracy historically used salvaged stone, iron, lead and glass in the construction of their manor houses.
 

“People will not look forward to posterity, who never look backward to their ancestors,” noted English statesman Edmund Burke.
 

Jodi Summers negotiates investment properties for Sotheby’s International Realty. For your real estate needs, e-mail Jodi Summers at jodis@verizon.net, or call 310.260.8269. Visit her websites at http://www.SoCalInvestmentRealEstate.com or http://www.santamonicalandmarks.com.