Stos: We continue to see strong demand, upward pressure on rents and a decrease in vacancy.
The market is still hot; however, investors are being more cautious based on the rising-interest-rate environment. Low interest rates created positive leverage, which contributed to lower cap rates. Rising interest rates and uncertainty in the political landscape will likely cool investment sales in the short term, but we don't expect this to last. Looking ahead, rates will stabilize next year, and moderate increases are forecasted. The uncertainty surrounding the new administration will fade, and a more rational market will emerge in 2017.

GlobeSt.com: What new solutions are being employed to find or develop scarce industrial space?

Stos: Most of the quality industrial land has already been taken by users and investors, and the few quality remaining local sites are currently in escrow. We are starting to see more investor/developers looking for large sites that are priced to support demolishing existing structures and rebuilding new product.

Currently, we are looking at a complete redevelopment of an existing building, and our plan is to implement upgrades that would be above and beyond a typical redevelopment. We are going to raise the roof, add additional loading, paint the exterior and interior and implement tenant improvements to make the property more functional. This strategy is one that our firm will continue to pursue, and we believe other developers and investors will do the same.

GlobeSt.com: Which submarkets present the best opportunities for industrial space in San Diego?

Stos: We are firm believers in specific areas of North County, Midway district, the ports, Miramar and Kearny.

GlobeSt.com: What else should our readers know about this recent transaction?

Stos: We opened escrow on the National City property with the thought that we would be buying it vacant. Due to the lack of availability in this size range, the proximity to the freeway, functionality and a large yard, we were able to generate multiple lease offers while in escrow. We believe this trend will continue in the short term with quality real estate, and as owners and operators of industrial product, we are well positioned to benefit from this activity.

NATIONAL CITY, CA—Looking ahead, interest rates will stabilize and moderate increases are forecasted while the uncertainty surrounding the new administration will fade, Stos Partners principal CJ Stos tells GlobeSt.com. The privately held commercial real estate investment and management firm recently acquired a 91,541-square-foot single-tenant industrial building on 6.12 acres at 901 Bay Marina Dr. here for $12.2 million. The seller, a public company, was represented by Chris Holder of Colliers International.

During escrow, the firm secured a long-term lease with a credit tenant. Stos plans to invest in significant capital improvements for the facility, including adding a new roof, new exterior paint and new landscaping, and will upgrade the parking lot and HVAC system.

We spoke with Stos about this transaction as well as shifts he is noticing in the San Diego industrial market.

GlobeSt.com: What shifts are you noticing in the San Diego industrial market?

Stos: We continue to see strong demand, upward pressure on rents and a decrease in vacancy.
The market is still hot; however, investors are being more cautious based on the rising-interest-rate environment. Low interest rates created positive leverage, which contributed to lower cap rates. Rising interest rates and uncertainty in the political landscape will likely cool investment sales in the short term, but we don't expect this to last. Looking ahead, rates will stabilize next year, and moderate increases are forecasted. The uncertainty surrounding the new administration will fade, and a more rational market will emerge in 2017.

GlobeSt.com: What new solutions are being employed to find or develop scarce industrial space?

Stos: Most of the quality industrial land has already been taken by users and investors, and the few quality remaining local sites are currently in escrow. We are starting to see more investor/developers looking for large sites that are priced to support demolishing existing structures and rebuilding new product.

Currently, we are looking at a complete redevelopment of an existing building, and our plan is to implement upgrades that would be above and beyond a typical redevelopment. We are going to raise the roof, add additional loading, paint the exterior and interior and implement tenant improvements to make the property more functional. This strategy is one that our firm will continue to pursue, and we believe other developers and investors will do the same.

GlobeSt.com: Which submarkets present the best opportunities for industrial space in San Diego?

Stos: We are firm believers in specific areas of North County, Midway district, the ports, Miramar and Kearny.

GlobeSt.com: What else should our readers know about this recent transaction?

Stos: We opened escrow on the National City property with the thought that we would be buying it vacant. Due to the lack of availability in this size range, the proximity to the freeway, functionality and a large yard, we were able to generate multiple lease offers while in escrow. We believe this trend will continue in the short term with quality real estate, and as owners and operators of industrial product, we are well positioned to benefit from this activity.