East Bay Business Times - July 5, 2004
From the July 2, 2004 print edition
Big spec project challenges market
Katherine ConradPanattoni Development is daring to construct a 10-building industrial campus - a project designed to satisfy the market's demand for owner/user buildings - entirely on spec.
Even the broker for the 365,000-square-foot project in Fairfield, Glen Dowling of Cushman & Wakefield, conceded that building any project this close to a recessionary climate can be described as "ambitious."
"If you look at the overall vacancy, there's a tremendous amount of space in Vacaville and in Benicia, as well. To be building in the face of that, it is an ambitious project," Dowling said. "And yet Fairfield is well-positioned to handle this product."
"I don't think you can point to any other project in Solano County where this much square footage has been built all at once and on a speculative basis. It hasn't been done," he said.
Panattoni's bullishness about the Solano County market proved to be justified when Metropolitan Van & Storage of Benicia signed a 10-year lease for a 100,000-square-foot warehouse near the rear of the 27-acre development before ground has even broken on the Solano Commerce Center.
"In our business, you don't get a lot of activity until a building is under construction. And frankly, not until the walls are tilted," Dowling said. "So we're ahead of that game."
Construction is scheduled to begin this month, with the first buildings available in spring 2005. Despite the fact that interest rates are starting to inch up, Dowling believes demand will remain strong when the campus is complete.
"For the last year and a half, owner-users have been looking to own their own real estate. Interest rates are low and SBA (Small Business Administration) financing is available. What they normally pay in rent, they can pay in debt service and own their own building. That is driving the demand," said Dowling.
George Condon, development manager for Panattoni, one of the country's largest developers at 10 million square feet of real estate a year, described the project as unusual because it offers buildings in all sizes - from 5,000-square-foot offices to 126,000-square-foot warehouses and everything in between.
"It's unique in the sense that the front parcels are geared to owner/users looking to buy a freestanding building. The front buildings range from 8,000 to 19,000 square feet," Condon said.
"But it remains to be seen how they will be received. There is no product out there now."
Condon, working in Panattoni's Sacramento headquarters, said his company closed its Walnut Creek office when the economic downturn hit the Bay Area. Now the privately owned company is focusing on the North Bay region and plans to build a 120,000-square-foot business park in Napa County this fall.
Rental rates depend on the type of building and location but range from 45 cents a square foot to 60 cents a square foot. Sale rates range from $95 a square foot to $105 a square foot for an unfinished shell.
Referring to the 13 percent vacancy rates in Fairfield, both Condon and Dowling said the figure is not a fair assessment of the market because the buildings currently vacant are outdated and appeal to very few users.
"We can create a product that appeals to a broad tenant base," Condon said. The demand is coming back. We feel validated by the 100,000-square-foot lease."
While the first tenant came from Benicia, Dowling believes much of the demand will come from Oakland, Hayward and Richmond. And the project, located near the intersection of Interstate 80 and Highway 12, offers access to Interstate 680 as well.
"Where Solano County can pull is the labor pool. If a business owner is leasing in Hayward, his employees live in Solano County. He can't buy a building in Hayward, but he can go to Fairfield and buy a building," Dowling said.
Dowling said he and his partner, Matt Bracco, also of Cushman & Wakefield, are currently chasing a lot of deals, indicating plenty of interest in the product that he predicted will only intensify once construction begins.
Reach Conrad at firstname.lastname@example.org or 925-598-1427.
© 2004 American City Business Journals Inc.
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