Industrial owner/users are having a tough time finding opportunities to buy product in the San Diego market. With a limited industrial supply and rising rental rates, many investors are competing with owner/users on pricing, and developers of new product are choosing to lease instead of sell. Rusty Williams, a principal at Lee & Associates North San Diego office, says that his strategy for owner/user clients looking to buy has been to put in offers on for-lease product.
“There is a lot of demand for buyers to come in and make offers on projects that are for lease,” Williams tells GlobeSt.com. “We have a lot of clients that we represent that are really buyers. A lot of the properties that we look at are really for lease, and we will make offers to buy it. We will just make an offer to purchase, even if it is only available for lease.”
Industrial developer CT Realty recently sold a project in San Diego to an owner/user that made an offer on a value-add industrial project. The developer hand intended to hold the project after renovations, but received a healthy $44 million offer from the owner/user, and opted to exit early. “Instead of leasing the vacant space to another tenant, we ended up selling it to them,” Carter Ewing, a managing partner at CT, tells GlobeSt.com about the deal. “All in all, the project was exactly as we envisioned with the exception of a sale on the back end instead of a lease. That helped us expedite the reinvestment. So, we are really happy with the deal.”
Williams says that the strategy is becoming more common. In CT's case, the renovations were not yet complete before the eventual buyer made an offer. However, Rusty says that often, owner/users are competing with aggressive leasing offers as well, increasing the completion for an asset. “I have a property that we represent for lease, and we have had multiple very aggressive offers to purchase the property, and we have had multiple aggressive offers on the lease side as well,” he says. “With the lack of inventory for certain product types, this is definitely a landlord's market. Plus, there is very little out there for sale that is of any quality. If you are a seller or an owner that is interested in selling, you are certainly in the driver's seat.”
Williams hasn't seen an abundance of sales on for-lease product, like the CT deal, but says that the trend may pick up if for-lease industrial product begins to sit on the market. “I haven't seen developers start to market for-lease projects as for-sale yet. We may seen that down the road if there are properties that don't get leased,” says Williams. “We haven't seen a lot of those transactions yet, but it is likely to happen if those buildings don't get leased.”
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Kelsi Maree Borland
