GlobeSt.com further chatted about the San Diego and Inland Empire markets with Robinson and Stos in this exclusive joint Q&A, where they point out that “Demand for investment-grade industrial product continues to climb…Investors must be willing and able to close deals, and must be flexible enough to consider acquisitions in various markets in order to secure the best opportunities.” According to Stos, SR Commercial plans to invest in larger industrial properties throughout San Diego, Orange County, Los Angeles, and the Inland Empire.

GlobeSt.com: From an investor's standpoint, what's the difference in strategy when investing in San Diego vs. the Inland Empire?

SR Commercial: From a strategic standpoint, there is not much difference when investing in San Diego versus the Inland Empire. It's more of a basis difference. In the Inland Empire, superior product can be purchased at a much lower basis when compared to San Diego. However, along with that lower basis comes lower rents. Generally, we underwrite deals in the Inland Empire to a higher return hurdle. When compared to San Diego, it is about a 100 basis point spread.

GlobeSt.com: What key product attributes are most sought-after by investors in each of these markets right now?

SR Commercial:Generally, investors are seeking product with income and some component of credit. Every investor wants off-market deals with an income stream. More specifically, low-finish multi-tenant industrial or R&D/flex that is built out less than 30% office are key product attributes right now. Overall, investors can achieve a better stabilized yield when buying vacant product and repositioning the property. However, they are assuming a higher risk in these scenarios. On the other hand, risk-adverse investors can buy product with a current income stream, but will lose about 200 basis points in yield.

GlobeSt.com: It's widely accepted that the industrial market is recovering in both the Inland Empire and in San Diego. What key indicators of recovery are you seeing in each market?

SR Commercial:In both the San Diego and Inland Empire markets, there is no doubt that there are signs of recovery. Both markets are experiencing positive lease absorption and a lack of quality and available product. Some tenants are looking in both San Diego and the Inland Empire for space because of the lack of inventory. However, every market is unique in terms of supply and demand.

GlobeSt.com: What differences are you seeing in what industrial tenants are seeking in San Diego vs. the Inland Empire?

SR Commercial: While investors are chasing yields, tenants are chasing lease rates. However, everything is market specific. The Inland Empire is more of a true distribution market, where the number of dock high positions is more important to tenants. San Diego is more of a multi-tenant manufacturing and corporate headquarters market, where many start-ups originate and grow. Ultimately, the Inland Empire is attractive to tenants because of lower lease rates, but San Diego is attractive to the higher-skilled labor force.

GlobeSt.com: Which market is better for holding a property long-term vs. repositioning and selling?

SR Commercial: Ultimately, it depends on the product type and size, and the attributes of the specific submarket. There are opportunities to reposition and sell in both markets, but SR Commercial would rather own low-finish multi-tenant industrial product and hold long-term in San Diego, as opposed to the Inland Empire. For specific industrial properties, we are long-term holders in the Inland Empire as well, but we prefer to own in San Diego long-term.

GlobeSt.com: Do you see a big difference in lease rate growth in the Inland Empire vs. San Diego?

SR Commercial: Both markets experienced their historical lease rate peaks a year or two prior to the market cycling into recession in 2008. Since then, industrial lease rates slowly declined year-over-year until about 2011 in both markets. Between 2011 and now is where we see a difference in lease rate growth in the Inland Empire vs. San Diego. The Inland Empire market has experienced a quicker recovery since 2011, with lease rates growing approximately 30 percent from 2011 to 2012. However, rates have slightly declined, dropping approximately five percent in 2013. On the other hand, the San Diego market has experienced a slower recovery since 2011, with lease rates holding steady from 2011 to 2012. However, in San Diego, rates have increased approximately five percent in 2013.