California Real Estate Journal

Developers Focus on Central Valley – Open Land is Attracting Industrial Building and Accompanying Retail, Residential Growth

February 6, 2006

The Central Valley’s landscape has gone from cucumbers to concrete, as industrial, residential and retail developments dot the once-open farming land and oil fields. Industrial developers who capitalized on the historical abundance of land in the Inland Empire are running out of options in Riverside and San Bernardino counties. The similar landscape of Kern County is beginning to attract both builders and businesses.

Some officials in the Central Valley said the San Joaquin Valley has a distinct advantage over Southern California because the region is closer to Northern California and Nevada. For example, a single warehouse facility in the town of Shafter, 15 miles north of Bakersfield, can serve both the Los Angeles and San Francisco Bay areas plus Las Vegas in the same day.

“We are now on a lot of companies’ radars,” said Rob Dunn, a member of the San Joaquin Valley Economic Development Committee. “We are right in the middle of everything here, and trucks can deliver goods throughout the state and to Las Vegas within one day. You can’t do it with the long distances from the south and the traffic jams in L.A.”

Another asset to the growth of the area is the infrastructure. State Route 58 provides access to Interstate 15, which passes through Las Vegas, and to Interstate 40, which passes through Arizona. Some day, Route 58 may be upgraded into a four-lane freeway and be extended west to I-5.

On top of that, RailAmerica in 2003 opened the $14.2 million San Joaquin Valley Railroad rail corridor that connects the city of Huron to Visalia. It’s giving commercial and industrial customers along that corridor, which is between I-5 and Route 99, improved freight service and an increased opportunity for development.

Most distribution centers being built in the Central Valley are located along Route 99 instead of I-5 because the latter has little access to developed infrastructure and no access to water.
Several large companies have built or are planning to build warehouses and distribution centers along Route 99 from Kern to Fresno counties.

In Shafter, Richmond, Va.-based Performance Food Group will employ 350 people when it completes a $35 million, 125,000- square-foot distribution warehouse for large restaurants such as TGI Friday’s, Mimi’s Café and Outback Steakhouse.

Nearby, Target Stores Inc.’s 1.7 million-square-foot distribution center employs 1,000 at the Shafter International Trade and Transportation Center, a 700-acre industrial park on the main line of the Burlington Northern Santa Fe Railroad that includes an intermodal facility for direct rail service to the ports of Los Angeles, Long Beach and Oakland.

Harvey May, former president of the industrial park, said he’s happy that Target recognized the lower land costs, strategic location, abundant labor supply, access to an intermodal facility and the foreign trade zone designation.

The Shafter center is part of the Los Angeles Foreign Trade Zone, which provides state tax breaks to companies’ activities within its borders.

Distribution centers appear across the valley. For example, in Tulare, U.S. Cold Storage has a 7.3 million-cubic-foot cold storage facility and 2.2 million square feet of dry warehouse space. In Tracy, Kellogg USA Inc. has a 750,000-square-foot distribution center and Safeway Stores Inc. has a 1.9 million square- foot facility.

Away From the Corridor
In Visalia, where the city annexed 640 acres of land to add to the Visalia Industrial Park after Jo-Ann Stores Inc. built a 630,000-square-foot distribution complex, VF Outdoor is building an 817,000-square-foot warehouse at the Midstate99 Distribution Center.

“The demand is so great the place is running out of room,” said Mike Cully, president of the Visalia Chamber of Commerce. “We had to do the annexations.”

Midstate99, with highways nearby and rail service on site, reaches 35 million people within a 300-mile radius. Michael Egeck, president of VF Outdoor, said the warehouse development would help the company’s growth in the western U.S. “We also see an excellent and great business environment for this to happen,” Egeck said.

Midstate99 is part of the Foreign Trade Zone 226, the Merced Regional Foreign Trade Zone, which includes seven counties in the Central Valley and stretches from Merced south to near Bakersfield. Hanford and Lemoore, both within Enterprise Zones, also offer financial incentives and credits to businesses.

And, 70 miles north of Los Angeles, the Tejon Industrial Complex is a master-planned site in a 500-acre foreign trade zone that when built out will offer 9 million square feet of space. The 1,450-acre Tejon Industrial Complex is home to a 1.7 millionsquare- foot distribution center by IKEA. Other companies have shown interest in building facilities at Tejon Ranch.

“What’s driving the growth here is cheap land costs, which had drawn major developers and big-name companies,” said Danny Ordiz, principal with Bakersfield-based Ordiz-Melby Architects Inc., a company with 40 projects under construction or in the planning stages that total 1 million square feet of space and $230 million in construction costs.

The Central Valley has 6 million square feet of industrial space. Fresno and Bakersfield together have another 3.7 million square feet of space, either under construction or in the planning stages.

The Central Valley offers low lease and land prices compared to its neighbors to the south. Industrial land per square foot based on improved land ranges from 80 cents to $2.20 per square foot. The same industrial land in much of Los Angeles County would be
triple that much.

Monthly lease rates per square foot average from 25 cents to 28 cents in the Central Valley to 30 cents in the Inland Empire to 42 cents per square foot in Los Angeles County.

The Central Valley has seen its population increase to 3.3 million. Today, Bakersfield’s population is nearing 300,000, and Fresno’s is close to 450,000. The median price of a home in the valley is $300,000, compared to $540,000 statewide.

“People are moving here because not only are there jobs here but housing is cheaper, too,” Dunn said. “It’s interesting to watch the market change.”

With such population growth, the Central Valley is attracting national retailers. In Madera County, an 800,000-square-foot power center will include big-box stores such as Lowe’s and Kohl’s; and in Tulare, a 1 million-square-foot power center will consist of big-box stores and an outdoor lifestyle center with high-end retailers, entertainment and upscale restaurants.

In Visalia, building permits totaled $300 million in 2004, a $50 million increase year-over-year. Monterey-based DBO Development developed the $110 million, 230,000-square-foot Packwood Creek shopping center, designed by Long Beach-based Perkowitz & Ruth.