Sign of Recovery: Developer of Big Spaces Goes Small
Friday, February 6th 2015
LAS VEGAS, NV – A developer of big industrial spaces is going small in a sign of broader economic recovery.
Panattoni Development Co. said this week that it has bought a 103,000-square-foot industrial building at 1841 E. Craig Road for $5.25 million from Tower Distribution Center LLC, a small, local group of investors.
The building’s space is half-occupied by two tenants: the Cannery Casino, which has overflow storage space and a cabinet shop, and FlipNOut, a recreation center with bounce houses, trampolines and arcade games.
Panattoni has plans for the remainder of the space, and its approach is a bit of a departure for a company best known for building massive industrial spaces from the ground up.
Panattoni has made headlines for announcing projects such as the two 208,000-square-foot warehouses it’s planning at Sunset Road and Jones Boulevard in the southwest and the 450,000 square feet it’s slated to build at Lake Mead Parkway and U.S. Highway 95 in Henderson.
In its Craig Road project, by contrast, the company picked up an existing center with smaller spaces of 20,000 to 30,000 square feet. The idea: Lay fresh paint, reseal the parking lot, make interior upgrades and lease empty spaces.
It’s a strategy made possible by economic recovery, said Doug Roberts, a partner in Panattoni’s Nevada division.
“When you look at the overall market and North Las Vegas in particular, there’s a steady decrease in vacancy rates. The amount of available properties for lease has been going steadily downhill in the last 12 to 18 months,” Roberts said. “And because of development risks and timing to get products to market, we sometimes look for existing opportunities to buy buildings we can fix up.”
The time is right to deploy the quick-turn approach not just because of dropping vacancy rates but also because smaller businesses are finally growing again, Roberts said.
“Big companies are still part of the market, but now we’re seeing regional and local distribution companies looking to expand or improve their position. That’s been a big part of the recent recovery — smaller companies that weren’t in the market from 2008 to 2012 are starting to pop up. It becomes a fuller, more vibrant recovery when smaller tenants, as well as large ones, are active.”
Overall industrial vacancy reflects the broader activity. Marketwide vacancy was 8.1 percent at the end of 2014, its lowest level since early 2008 and below a 10-year average of 10 percent, according to local research firm Applied Analysis. That fourth-quarter rate was down from 11.9 percent a year earlier and 15.2 percent two years earlier. Vacancy peaked at 17 percent in early 2011, after hitting a low of 3.2 percent in 2005.
The industrial market is “leading the commercial real estate recovery,” said Brian Gordon, a principal in Applied Analysis.
The Panattoni deal “is a little bit different than what companies like that have done as of late, but creativity is what is going to propel the market forward, whether that’s developing product from the ground up or finding ways to repurpose existing buildings and make them more attractive for potential tenants.”
Roberts said Panattoni is eyeing a couple of other acquisitions in the local market, including one of about 50,000 square feet.
The company will break ground in April on its 208,000-square-foot buildings. Like many of its large projects, Panattoni is building on spec, which means it has no tenants lined up. Roberts said the company is negotiating with users now.
Also, Panattoni will break ground this year on its Henderson project, which will have a 163,000-square-foot building, a 200,000-square-foot building and several smaller buildings.
“We see a lot of good tenant activity and the willingness of our capital partners to invest in Las Vegas,” he said.
Bryan House of Albright Callister &Associates represented Land Exchange Corp. as a qualified intermediary for Tower Distribution Center in the sale, while Greg Pancirov and Mike DeLew of Colliers International represented Panattoni.