2004 Penner & Associates

Transcription

1 Penner & Associates

2 Business Park Expense Category Percentages MEDIAN OPERATING EXPENSES Mgnt Fee 15% Miscellaneous 5% Taxes 29% Repairs & Maintenance 22% Grounds Maintenance 7% Trash Removal 7% Utilities 8% Insurance 7% Recent Survey Statistics (Annual) Expense Category Range - Low Range - High Average Median Std Dev Taxes $0.34 $0.86 $0.58 $0.55 $0.15 Insurance $0.07 $0.31 $0.15 $0.13 $0.07 Utilities $0.10 $0.31 $0.17 $0.16 $0.06 Trash Removal $0.00 $0.28 $0.12 $0.13 $0.09 Grounds Maintenance $0.04 $0.29 $0.16 $0.14 $0.08 Repairs & Maintenance $0.08 $0.67 $0.38 $0.43 $0.19 Management Fee $0.14 $0.50 $0.30 $0.29 $0.10 Miscellaneous $0.00 $0.21 $0.10 $0.11 $0.07 Reserves $0.00 $0.00 $0.00 $0.00 $0.00 Totals: $1.18 $2.75 $1.96 $2.08 $0.43

3 Summary of Survey Expense Comparables (Annual) Expense No: Location Industry Anaheim Carson Rancho Cucam. Huntington Bch. Cerritos Brea Pacoima Industry Glendora Year Built Project Size 57,412 SF 375,291 SF 57,555 SF 12,439 SF 13,327 SF 40,686 SF 20,430 SF 56,570 SF 87,228 SF 9,880 SF Expense Category P.S.F. P.S.F. P.S.F. P.S.F. P.S.F. P.S.F. P.S.F. P.S.F. P.S.F. P.S.F. Taxes $0.82 $0.52 $0.51 $0.48 $0.62 $0.58 $0.34 $0.51 $0.57 $0.86 Insurance $0.08 $0.10 $0.12 $0.20 $0.31 $0.12 $0.17 $0.14 $0.07 $0.15 Utilities $0.13 $0.10 $0.24 $0.23 $0.16 $0.12 $0.17 $0.15 $0.13 $0.31 Trash Removal $0.12 $0.20 $0.14 $0.00 $0.12 $0.01 $0.28 $0.00 $0.15 $0.20 Grounds Maintenance $0.07 $0.13 $0.07 $0.14 $0.12 $0.29 $0.21 $0.04 $0.27 $0.23 Repairs & Maintenance $0.08 $0.49 $0.25 $0.18 $0.40 $0.55 $0.45 $0.15 $0.67 $0.58 Management Fee $0.34 $0.50 $0.25 $0.24 $0.34 $0.27 $0.38 $0.18 $0.14 $0.31 Miscellaneous $0.10 $0.16 $0.08 $0.00 $0.21 $0.18 $0.14 $0.01 $0.03 $0.11 Reserves $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Totals: $1.74 $2.20 $1.66 $1.47 $2.28 $2.12 $2.14 $1.18 $2.03 $2.75 A larger sampling of projects were analyzed for this study. However, the ten projects utilized above were found to be the most conforming in nature and operation. Our current survey reflects business parks ranging in size from 10,000 to 375,000 square feet. The units in these complexes are generally incubator size in nature; ranging from 1,000 to 2,500 square feet. The projects had ages ranging from 1974 to 2000 and contained stabilized occupancies of 90% and above.

4 EVOLUTION OF THE INDUSTRIAL BUILDING The manufacturing process is as old as the pyramids of Egypt, where stones were carved and set into place by large organized workforces. The earliest industrial buildings began to appear along seaports and harbors. These points of commerce brought together the business components of raw materials, labor and capital for the making of goods. Manufacturing plants were generally build-to-suit and consisted of primitive brick or block structures. The late 18th & 19th centuries ushered in the Industrial Revolution and the emergence of large urban industrial centers. Technological advances in machinery and inventions such as electricity, increased the size and function of industrial real estate. Improvements in transportation and mass production furthered growth to unparalleled levels. Railroads had a tremendous impact on industrial real estate by reshaping the industrial landscape. Originally, in the pre-industrial era of older cities, everyone was packed together within walking distance of the center, and artisan workshops were frequently inside or next to employee homes. Later, as cities expanded and manufacturing grew in importance, much of it took place in separate multi-story loft buildings with high ceilings and open floor space. With the advent of the railroad, industry began to branch out from port facilities. New industrial parks began to appear on the outskirts of large cities and nearby suburban locations. Unlike the giant factories, these parks were primarily speculative real estate ventures. With an expanded highway system after World War II, trucking became an essential means of distribution. This led to warehouse type facilities which stored goods for distribution to growing markets. Most of these structures were constructed with the new concrete-tilt-up construction technique. The start-up of new businesses in the post war economy also spawned the development of the industrial flex building with incubator spaces as small as 500 square feet. Research and development (R&D) buildings evolved from laboratories and in some cases now approach a full office build-out with ground and mezzanine levels. At present, modern distribution warehouses as large as 1,000,000 square feet are being built with state of the art features such as 35 foot clear heights, dock-high loading, 125 foot truck courts, super flat floors and high suppression fire sprinklers systems. Transportation improvements continue with high speed intermodal rail stations and the use of piggyback rail cars taken from ships. In conclusion, the industrial building continues to evolve with the reality of a global economy and the ever changing needs of the consumer. Presented on the following page is a loose classification of the different product types found in the Southern California market for multi-tenant business parks.

5 MULTI-TENANT BUSINESS PARKS CLASSIFICATION A Business Park is defined as a master planned development encompassing a group of industrial and/or office buildings. This may include a campus like setting with extensive landscaping, and special CC&R s to promote a harmonious and attractive environment. In general, business parks are predominately industrial in nature, have a low-rise configuration as opposed to their predecessor the loft building and cater more to incubator business uses with sizes ranging from 500 to 10,000 square feet. Also sometimes referred to as flex-space, these projects are loosely classified below with a quality rating that indicates the competitive ability of the project to attract tenants and investors. CLASS A Location: Construction Type: Use: Age: Office Build-out: Clear Height: Amenities: Major Thoroughfare - Suburban/Commercial Proximity to Strong Demographics&Businesses Concrete Tilt-Up (High Image Glass) Office, R/D, Showroom, or Warehouse Newer - New to 15 Years 15% - 35% (Good Quality Tenant Finish) Feet Sprinklered, 200 Amps Income Characteristics: Institutional Grade, Highest Rental Rates CLASS B Location: Construction Type: Use: Age: Office Build-out: Clear Height/Power: Income Characteristics: CLASS C Location: Construction Type: Use: Age: Office Build-out: Clear Height/Power: Some Credit Tenants, 3 to 5 Year Leases Moderate Thoroughfare Suburban Proximity to Residential & Businesses Concrete Tilt-Up & Concrete Block Manufacturing & Warehouse Mid-Life - 16 to 35 Years 10% - 25% (Standard Tenant Finish) Feet, Amps Average Rental Rates & Occupancy Established Tenancy, 1 to 3 Year Leases Minor to Moderate Thoroughfare - Industrial Proximity to Businesses Concrete Block & Brick Manufacturing, Warehouse & Storage Older 36 & Up 0% - 10% (Low Cost Tenant Finish) Feet, 100 Amps Income Characteristics: Lower Tier Rental Rates & Occupancy Established Tenancy, M-M to 3 Year Leases

6 LEASE STRUCTURES Triple Net (NNN): Tenant pays all operating expenses to the property such as taxes, insurance, tenant utilities and janitorial, common area maintenance and utilities, building repairs and maintenance, security, parking and sometimes management (or portion of management). However, the landlord would still be responsible for management (collecting the check and watching over the property), miscellaneous expenses such as those incurred between tenancy (taxes, insurance, common area maintenance and utilities, etc.), accounting, legal, etc., and reserves for the replacement of short lived items such as the roof, air-conditioning units and exterior walls. This lease structure primarily applies to retail properties or single-tenant industrial and office. Industrial Gross (IG): Tenant pays for their own utilities and janitorial, minor repairs and maintenance to their unit, plus an additional common area maintenance (CAM) charge which includes expenses for grounds maintenance, outside electric, and water/sewer to project. The landlord is responsible for taxes, insurance, management, miscellaneous expenses and reserves. Trash removal can either be included in the CAM or paid for directly by the tenant, depending upon the municipality or management practice. Capital improvement expenses such as the make ready of vacant units for occupancy with carpet, paint, clean-up and minor repairs are sometimes also reflected as repairs and maintenance expenses to the landlord. Expenses for new tenant improvements, and commissions are generally bore by the landlord, but are referred to as capital improvements rather than operating expenses. This lease structure primarily applies to industrial projects, but can relate to retail. Modified Gross (MG): Tenant pays for their own utilities and janitorial, minor repairs and maintenance to their unit, however, no CAM charge. The landlord pays for taxes, insurance, common area expenses, repairs and maintenance, management, miscellaneous expenses and reserves. Some different variations of leases may exist and would most likely fall within the category of modified gross. This lease structure could apply to industrial, office or retail properties. Full Service Gross (FSG): Landlord pays for all expenses to the property such as taxes, insurance, utilities, trash removal, janitorial, grounds maintenance, repairs and maintenance, management, security, parking, miscellaneous and reserves. The tenant in many instances is responsible for expenses over the base year of the lease or above a set expense stop amount. This lease structure primarily applies to office properties.