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CT Realty president expresses confidence about Otay Mesa vacancies

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James C. Watson, president of Orange County-based CT Realty Investors, says if what has happened in the Inland Empire is any indication, the 3 million square feet of vacant space in Otay Mesa shouldn’t be a long-term problem.

Watson was in San Diego for Breakfast at the BMC at the Burnham-Moores Center for Real Estate at the University of San Diego on Thursday.

Watson, who formerly served as Koll Co. president, said the quick rebound of the industrial market in the Inland Empire is indicative of its strength.

Different surveys often arrive at different numbers, but all agree that the industrial absorption in the Inland Empire, after falling off a cliff in 2009, roared back in 2010 and 2011. Similar strength is projected when the numbers come out for 2012.

A year-end 2011 Grubb & Ellis (now Newmark Grubb Knight Frank) report tallied 14.63 million square feet of net absorption in the Inland Empire in 2010 and 19.17 million 2011. That survey projected about 16.5 million in net absorption this year.

“The vacancies are plummeting,” Watson said.

A second-quarter Daum Commercial Real Estate Services report found that the Inland Empire industrial vacancy rate, which had been well into the double digits as recently as three years ago, is now running at about 6.3 percent.

Although that 6.3 percent vacancy translates to about 28.59 million square feet of vacant (including sublet) space, Watson doesn’t seem too worried.

“I’m an optimist. I believe we’re headed toward recovery. It looks like we have a lot of space, but things can change really quickly,” Watson said, emphasizing that outposts once considered far away are not anymore.

“Twenty years ago people thought we were out of our minds to build in Ontario. Now, it is the epicenter of everything,” he added.

By 2011, CT Realty Investors, which also acquires and develops apartments and self-storage units, had a portfolio of more than 3.3 million square feet of industrial space in the Inland Empire alone.

Watson said some people doubted his sanity when he acquired a nearly 600,000-square-foot vacant industrial facility in the Beaumont community west of Palm Springs in August 2011. But the Beaumont Logistics Center is now fully leased to Updike Distribution Logistics and Hand Air Express.

The Beaumont complex includes a 444,455-square-foot building, and offers 84 dock doors, 32-foot minimum clear height and 445 parking stalls. The smaller 127,688-square-foot building features 14 dock doors with 32-foot minimum clear height openings and 128 parking stalls.

In addition to what already exists, there is a vacant adjacent parcel entitled for another 611,000 square feet that, considering the success of the other buildings, may be constructed sooner than later.

The Aliso Viejo-based firm also owns a four-building, 800,000-square-foot logistics center in San Bernardino.

Watson said what will continue to benefit the Inland Empire is the strength of its manufacturing base. According to inlandempire.us, the Inland Empire has more than 3,800 manufacturing firms employing about 120,000 people that help fill what Voit Real Estate Services says is a 437.17 million-square-foot industrial market. It isn’t clear just how much of this space is attributable to manufacturing, however.

“We have just under 1 million manufacturing jobs [in Southern California],” Watson said.

San Diego County has about 190.07 million square feet of industrial space and roughly 92,000 employed in manufacturing, according to the Employment Development Department. Here again, buildings that are actually used for manufacturing are just a part of the industrial base.

While CT owns property in San Diego County, the only industrial assets of any size here, according to a company website, are an 89,142-square-foot self-storage facility at 1160 Third Ave. in Chula Vista, a 57,352-square-foot industrial building at 10065 Via de la Amistad on Otay Mesa, and a 76,165-square-foot industrial building at 1530 East Grand Ave. in Escondido. The firm also owns a 20,000-square-foot office building on Mission Gorge Road in the Grantville area as well.

Past CT industrial investments in San Diego County have included the 105,000-square-foot Trolley Business Park in San Ysidro, and the 61,502-square-foot Precision Park Industrial Park in San Ysidro.

CT also formerly owned numerous apartment properties here, including the 157-unit La Jolla Canyon Apartments in the University Towne Centre area, the 240-unit Shadowridge Park Apartments in Vista, and the 89-unit Buena Vista Apartments in San Marcos.

CT may not own much property in San Diego now, but when Watson was president of The Koll Co. and Charles Abdi — now an independent broker — was working with him, Koll developed 11 million square feet of industrial and office space in San Diego County during the 1980s and 1990s.

All told, Koll developed nearly 20 million square feet of space in this county between 1966 and the early 2000s. Notable Koll properties have ranged from the 40-acre Koll Otay Mesa Business Park, the 360,000-square-foot Koll Center office building in Downtown San Diego and the 560-acre Carlsbad Research Center that spawned a whole host of developments in and outside that business park.

Since its establishment in 1994, Aliso Viejo, Calif.-based CT Realty Investors (“CTRI”) has completed more than 220 transactions with value in excess of $2.5 billion through a series of 11 independent discretionary private equity real estate funds and institutional joint ventures. CTRI continues to invest in institutional-quality industrial properties, debt instruments and multi-family properties on behalf of its affiliates in Arizona, Colorado, New Mexico, Nevada, Oregon, Utah, Washington and California.

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