IRVINE, CA—With its entrepreneurial nature, Orange County boasts many single-tenant industrial users who are also owners. As GlobeSt.com reported earlier this month, TSW Wheels sold its 62,639-square-foot headquarters building at 14462 Astronautics Dr. in Huntington Beach, CA, to manufacturer ZZ Partners LP for more than $10 million, represented by JLL Orange County. We spoke exclusively with JLL SVP Steve Wagner about why it makes sense for single-tenant industrial users to own rather than rent their space.
GlobeSt.com: What are the benefits to single-tenant industrial users of owning vs. leasing their space?
Wagner: The benefits of owning include capitalizing on low interest rates to lock in a payment vs. being susceptible to future rental increases, they can depreciate the building and write off property taxes and the interest portion of the loan, and they can use their business to fund real estate acquisitions (with a built-in tenant) and create long-term wealth. Even if they retire or sell their business, they can retain the real estate and collect rent.
GlobeSt.com: Is this a common practice in the Orange County market, and is it becoming more common?
Wagner: Yes. Orange County is quite entrepreneurial, and historically a major source of Orange County's wealth has been created through real estate ownership. The development trend in the early 2000s was constructing smaller buildings (down to +/- 2000 square feet), and that made commercial real estate ownership accessible to many more business owners.
GlobeSt.com: With space scarce and sale prices rising, does it make sense for users to buy space now in anticipation of selling it in the next five to 10 years?
Wagner: Typically, businesses decide to buy or sell based on their space needs, not necessarily trying to time the market. Sure, it was better to be a buyer in 2010 than today, but we still feel we have a ways to go before hitting a new peak. Buying the right building to support the needs of the business is the key, as well as looking at a building purchase over a long horizon since commercial real estate is not a very “liquid” asset.
GlobeSt.com: What else should our readers know about the single-tenant industrial market in Orange County?
Wagner: There have been very few new industrial buildings constructed in Orange County since 2006. Prior to 2006, the trend was to construct buildings smaller than 10,000 square feet. Today, the trend is to construct 40,000-square-foot to 150,000-square-foot buildings, and new projects are selling out prior to completion.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
