INland Econ - Industrial Land Economics

First Quarter 2011 Los Angeles Industrial Market Reports Now Available

noreply@blogger.com (Thomas Galvin) — Wed, 13 Apr 2011 20:33:00 +0000

Check the heading for links to the new industrial market reports. Basically, the first quarter saw positive industrial demand in all markets. So the recovery that started with Fortune 500 companies a year ago in the Inland Empire has finally worked its way into all markets. I expect rents to start going up and development to continue this year. Fuel prices, inflation, stagnant job growth, and a changing regulatory climate, you can expect these too.

10,000 Shipping Containers Lost at Sea a Year

noreply@blogger.com (Thomas Galvin) — Thu, 07 Apr 2011 01:22:00 +0000

Right now, as you read this, there are five or six million shipping containers on enormous cargo ships sailing across the world’s oceans. And about every hour, on average, one is falling overboard never to be seen again. It’s estimated that 10,000 of these large containers are lost at sea each year. I had no idea lost containers were this prevalent. Source: MBARI

What a long strange trip it has been

noreply@blogger.com (Thomas Galvin) — Tue, 01 Feb 2011 21:20:00 +0000

About two months ago I purchase a couple of sinks from a company in Georgia. These sinks were held at their industrial building (or an industrial building managed on their behalf by a third party logistics provider). Upon my purchase they were sent to the trucking carriers warehouse, where they were assembled with other goods headed in my direction and sent to the West Coast.

When arriving, the long haul shipment was taken to the carriers receiving warehouse for short distance delivery. It was then taken to my store.

I just found out that these sinks were actually manufactured in one of the industrial buildings I track in El Monte (http://www.allstrong.com/), not 30 miles from where they would eventually end up.

You would be surprised what is made here.

Twilight Landing At LAX (Cockpit View)

noreply@blogger.com (Thomas Galvin) — Tue, 01 Feb 2011 00:10:00 +0000

I enjoyed this video of Los Angeles at night. A different way to see my market.

Egyptian Riots & You

noreply@blogger.com (Thomas Galvin) — Thu, 27 Jan 2011 22:22:00 +0000

"The desire to protest has overwhelmed a large sector of society"

Egypt is going through the most significant political upheaval in over 34 years. The reasons are multi-faceted, but have to do with rising food prices and people feeling disenfranchised.

The same thing is happening in Tunisia and now Yemen.

Egypt is a bigger worry for me, the reason being that it controls (controlled?) the Suez Canal.

The Suez Canal is one big choke point for world trade and most importantly, oil. Along with the canal is the Sumed Pipeline, which crosses the northern region of Egypt.

Why is this important? Because nearly all the northbound oil shipments out of Saudi Arabia, 2.3 million barrels a day, goes through that pipeline.

Basically, if you are trying to ship oil out of the Middle East to Europe or the United States, you go through Egypt.

As events unfold, I will be watching the price of oil more closely, as it will greatly effects the profitability of the transportation industry and the general economy as well.

Fourth Quarter Reports Now Available

noreply@blogger.com (Thomas Galvin) — Fri, 14 Jan 2011 17:40:00 +0000

Industrial market reports for the region are now available.

The fourth quarter is a magical time when year over year assessments make a lot more sense in that you have a full years worth of info to work with.

If I was to sum up 2010, it was an incredibly successful year in terms of industrial demand. Los Angeles returned to positive net absorption for the year and rents as a whole bottomed out.

There really is nowhere left to go but up.

When that happens will largely be based on where you are and the building class of your building. For office space, buildings are neatly categorized into Class A, Class B and Class C based on rents. Location, desirability of the building are reflected in that.

For industrial space, building class is measured on how functional the space is, meaning how efficient will a company be when it moves there. If you have low ceilings and it is far away from the freeway and is hard to get a truck into, it is not an efficient building. Landlords of these buildings should not place great hope in an economic recovery, since their building will be overlooked by any serious company.

That is not to say some sucker will not come along and overpay for their building like they did when rents increased like they did. Just one should not count on it. That was dumb money then, and we would like to think that we have learned something about the abuses of the past.

Markets with a great deal of Class A space, modern buildings with ample truck doors, high ceilings and great truck depth, will see high demand from users. This will drive up the prices as this space becomes scarce. This is where the rental rate growth and absorption will come from. It just happens that a lot of this space is in the Inland Empire.

What happens next is any ones guess but I can tell you how I see it playing out. In 2011, rents will increase for this Class A space. Developers and "investors" who have been sitting on these massive entitled land plots will again resume construction. Spec space will be constructed again.

For someone like me this seems dangerous. After all, the spec space is what got us into this mess to begin with. A lot of the investment sales that occurred in the downturn were developers who overpaid for spec space selling their buildings at a significant discount. Why would you want to relive that nightmare, especially when economic fundamentals remain so weak?

When you look at it in the context of who is going to be doing the building, institutional investors and REITS, Los Angeles does not seem risky. Many of these companies got out of what they perceived to be the risky markets and doubled down on much of the "core" LA buildings.

These REITS now have the expectation to make some money, their stock has been rising and investors are going to start demanding that action be taken in order to justified further share price growth.

This will lead to less risky development, which means to favor LA over say Atlanta or Dallas.

The desire for safety stands against every great and noble empire, and I think after three years of shrinking, we will see the empire building start again.

How Its Made

noreply@blogger.com (Thomas Galvin) — Mon, 03 Jan 2011 17:33:00 +0000

The Science Channel has a video series called "How Its Made" which basically takes you inside the factory to see how the goods we use everyday are made.

This is fascinating to me, since it is a behind the scenes look at the production process, something most people never really get to see.

How something is made and what it is made of will largely tell you where it is made. Things are produced usually where they can be produced the cheapest, and proximity to suppliers & to labor will tell you where the industrial space should go.

Biggest New Port in the World Will Be In...?

noreply@blogger.com (Thomas Galvin) — Mon, 20 Dec 2010 17:36:00 +0000

Not the US. Not even China.

Wait for it.

Brazil.

Wait, what? Brazil? Why?

China is expected to overtake Japan as the world's second largest economy this year and may already be the world's greatest energy consumer. Now it is set to become Brazil's top foreign investor, with its companies plowing $20bn into the country in the first six months of 2010, compared with $83m in 2009. A recent study by Deloitte predicted that Chinese investments in Brazil could hit an average of about $40bn a year between now and 2014, with companies throwing money at sectors ranging from telecommunications, infrastructure and farming, to oil, biofuels, natural gas, mining and steel manufacturing.

China will need raw materials, and Brazil is eager to export those same materials. So the expansion of the Panama Canal will lead to increased trade between China and Brazil, something I did not think about.

Ghost Cities of China

noreply@blogger.com (Thomas Galvin) — Thu, 16 Dec 2010 18:27:00 +0000

If this is real, it is both amazing and rather depressing.

These are satellite images of huge developments in China. Developments in the middle of nowhere, meant to house people that don't live there and parking lots for businesses that don't exit.

How do you know there is no economic activity? No cars, empty roads, no trucks bringing goods to stores, no smoke from the factories, no trash in the streets, no children in the schools.

We saw this kind of thing in Soviet Russia, where towns were built not because of economic necessity, but because of central planning. The result was that after the fall of the Soviet Union, these towns were abandoned as people left to pursue a life elsewhere. Will the same fate fall on China or are they just setting the stage for massive future growth?

Time will tell, but the market will direct economic activity better than any city planner or government bureaucrat.

Panama Canal Reopens

noreply@blogger.com (Thomas Galvin) — Thu, 09 Dec 2010 19:54:00 +0000

From CNN:

The Panama Canal reopened Thursday after heavy rains and flooding prompted its closing for only the third time in its storied 96-year history.

Officials closed the canal around noon Wednesday after heavy rain in the Chagres River area, caused water behind the Gatun Dam -- which creates Lake Gatun, a significant part of the canal -- to rise.

The canal was reopened 17 hours later.

The last time the canal closed was in 1989, after the United States invaded Panama to topple strongman Manuel Noriega.
Landslides forced the canal to close for several months from late 1915 to mid-1916, just months after it opened.

The 48-mile canal is a key conduit for shipping between the Pacific and Atlantic oceans. The canal was built from 1904 to 1914 by the United States, which had sole control over the channel across the Panamanian isthmus until 1979. Then, after 20 years of joint U.S.-Panama control, the Panamanian government assumed administration on December 31, 1999.

3 times in only 96 years? What a hard working canal! These heavy rains would be very infrequent, only once in a hundred years or so. But you have to wonder if they would become more common in the future.

If it wasn't funny, it might be scary

noreply@blogger.com (Thomas Galvin) — Wed, 08 Dec 2010 21:57:00 +0000

The Daily Show With Jon Stewart

Mon - Thurs 11p / 10c

The Big Bank Theory

www.thedailyshow.com

Daily Show Full Episodes

Political Humor & Satire Blog

The Daily Show on Facebook

Jack Kyser Dies

noreply@blogger.com (Thomas Galvin) — Tue, 07 Dec 2010 00:38:00 +0000

RIP: Economists never die, they just lose their equilibrium.

Jack Kyser, the longtime “guru” of the Los Angeles economy, died over the weekend after a long illness. He was 76.

For 25 years as chief economist with the Los Angeles County Economic Development Corp., Kyser was the go-to person for the media, business leaders and elected officials who needed information and analysis of the local economy.

200 Countries over 200 years in 4 minutes

noreply@blogger.com (Thomas Galvin) — Tue, 07 Dec 2010 00:01:00 +0000

Beige Book

noreply@blogger.com (Thomas Galvin) — Wed, 01 Dec 2010 23:26:00 +0000

Just released from the Federal Reserve.

Some highlights from the 12th District (the entire West Coast).

1. Wages and prices are down. This means that inflation is not an issue. Some exceptions were raw goods such as aluminium and some materials sourced from China, namely apparel.

2.Retail trade for this holiday season will be better than last year by 3-7 percent.

3. Manufacturing demand was up for aircraft and metal fabrication, down for wood products.

4. Agriculture and raw goods extraction demand were up due to the low dollar and strong export demand for corn and livestock.

5. Real estate and construction were down.

6. Financial institutions were down due to consumers continuing to deleverage and the struggling credit quality of some banks.

Overall, this is what the recovery will look like.

If you want to get really depressed, look at the 11th District, where high cotton prices, beef prices and energy prices look more like a "real" recovery.

Why it is hard to start a small business

noreply@blogger.com (Thomas Galvin) — Wed, 17 Nov 2010 19:10:00 +0000

This pretty much sums it up.

Hotel built in 6 days

noreply@blogger.com (Thomas Galvin) — Sun, 14 Nov 2010 20:06:00 +0000

Only in China. Of coarse. I am thinking of all the limitations that would prohibit this same feat from occurring in the US. Labor cost would be a major one, as well as the ability to work 24 hours a day. Or meeting all the various construction codes, this would be especially important in terms of what you could and couldn't construct something with. You can't even get an LA building inspector out to the job site in less than 3 days for a preliminary inspection, and then it would be 3 more for a final inspection. Even a single story large concrete box takes 6-8 months out here.

One step I felt was missing, I didn't see them lay the foundation, just drying the concrete would take a day at least.

Data Visualisation

noreply@blogger.com (Thomas Galvin) — Tue, 02 Nov 2010 21:06:00 +0000

This is a pretty fun presentation, I liked the peak break-up times.

LA to Annex Vernon?

noreply@blogger.com (Thomas Galvin) — Thu, 28 Oct 2010 17:19:00 +0000

Worst. Idea. Ever.

From LA times:

Los Angeles City Councilwoman Janice Hahn on Wednesday introduced a motion calling for Los Angeles to annex Vernon, the small industrial city that has come under fire for the salaries and benefits paid to its top officials.

Hahn is the latest in a growing group of city and state officials pressing for drastic action in Vernon. Her motion was referred to the city's Planning and Land Use Management Committee and will be voted on in the next weeks, her chief of staff said.

Here is the story behind Vernon. It is a dictatorship. It may be a corrupt little fiefdom in the middle of Los Angeles. But it is a business friendly fiefdom, it is a wonderful industrial playground where the bureaucracy, the politics and basically all the BS associated with the anti-business practices of Los Angeles are avoided.

If LA annexes Vernon, I can almost guarantee it will kill businesses that operate there. They will move to Commerce, Irwindale, Industry or the Inland Empire because doing business in LA COSTS MONEY relative to these other options.

Kosmont does an analysis that compares the cost of doing business in various cities.

Here is what the rating of LA is: $$$$$ - 5 dollar signs, the highest possible rating of cities to avoid.

Here is some of what it costs to do business in LA:
Utility Tax Rates: Electric: 10%, Telephone: 5%, Cellular: 5%, Gas: 10%, Water: 0%, Cable: 5%

Development impact fees, public facilities fees, traffic impact/ trip fees, art in public places fee.

For wholesale sales, for every $100 in receipts you need to pay $1.09

Now compare that to Vernon:

Kosmont has a rating of $$, which is among the lowest in Southern California.
Utility Tax Rates: Electric: 0%, Telephone: 0%, Cellular: 0%, Gas: 0%, Water: 0%, Cable: 0%

There are no misc fees, unlike in Los Angeles.

For wholesale sales, for every $100 in receipts, you need to pay $0.06

The City of Vernon has its own light and power department, which basically subsidizes heavy power users.

No contest,

If LA were to annex Vernon, the only jobs it would create would be government jobs. Existing businesses would most likely relocate to other areas because the taxes and regulation of doing business in LA is outrageous.

I really wouldn't have such a strong opinion, except that I am trying to start a business in LA and I know first-hand the costs of such fees and red tape.

Truck MPG

noreply@blogger.com (Thomas Galvin) — Mon, 25 Oct 2010 22:53:00 +0000

The Obama administration is looking to make the nations trucks more efficient, requiring a 20 percent cut in emissions in model 2018 trucks. (Source: Bloomberg)

The work trucks covered by the proposal make up 4 percent of U.S. vehicles while
accounting for 20 percent of the oil consumed, according to the Union of
Concerned Scientists, a Cambridge, Massachusetts-based environmental group.
Long-haul tractor-trailers get about 6.5 mpg, the group said

MGP measure how FAR a truck can go on a gallon of gas, but a much better metric is how many ton-miles (or how MUCH) a gallon of gas will produce.

This study has the following:

Trucks: 250 Ton Miles
Rail: 437 Ton Miles
Barge: (local waterways) 545 Ton Miles
Ocean Cargo: 574 - 1050 Ton Miles (depending on the size of the ship).

Since trucks account for about 70% of all cargo shipment volume, minor increases to the ton-miles of trucks will greatly reduce oil consumption and CO2 gasses.

City Planning As Masturbation

noreply@blogger.com (Thomas Galvin) — Mon, 18 Oct 2010 16:43:00 +0000

There was a conference here downtown this past week entitled "Downtown 2020: Continuing the Renaissance" where planners views of Downtown L.A. 10 years in the future, with more housing, more jobs, improved infrastructure etc.

I am staring out my window at 2 completed EMPTY skyscrapers that were meant for luxury condo's, so I am not sure that more housing is really the problem. I am not really sure who they were expecting to live there but I would wager the price point would be out of reach of the average family. That and I would bet that their marketing was geared towards "Young Urban Professionals (without children)" or "Empty Nesters".

Panelist Christine Essel, CEO of the Community Redevelopment Agency of L.A.,discussed the need for more housing. “We would like to see another 5,000 units come online in this decade,” she said. “It is important for families to live downtown and not feel like they need to move out.” In order to accomplish that, she pointed to things like infrastructure and transportation needing some upgrades, in addition to bringing in an elementary school.

Well, have I got a broker for you to talk to about bringing more schools downtown.

Both Michael LoGrande, director of planning for the City of L.A., as well as Bill Witte, president of Related California, pointed out that connecting the different neighborhoods that have grown organically into one neighborhood is an important step. “I think there is potential for L.A. to break down the barriers that separate it, and blend it with the rest of the city,” said Witte.

What bothers me is that these people know what is best for everyone. Why not mix K-Town and MacArthur Park, why wouldn't these two groups of people love living together? Why not destroy the culture that makes these regions unique into one giant MonoCulture? They "grew organically" that way, and you think, Mr. City Planner, that you know better than the 1000's of people whose individual choices created the world the way it is?

However, a weakness in the transit system, according to Leahy, are the visuals such as dead landscaping, potholes and debris that transit riders see on their way into L.A. “If you come into L.A. on a bus or train on a freeway, you would not be impressed,” he said. “You need to look at this place through the eyes of a visitor and enhance the beauty of the wonderful things that are happening here
in L.A.”

Really? I think the weakness of the transit system is that it take 40 freaking minutes to get anywhere, the bus drives so slow and erratically that you are in many cases better off driving or even walking, plus you get to sit next to smelly homeless people and many times it is more expensive than actually driving? And you are worried about dead landscaping? Way to deflect criticism there.

Downtown remains the city’s economic engine, said Carol Schatz, president and CEO of CCA. “The current renaissance has transformed Downtown Los Angeles from a nine-to-five business center to a residential, cultural and entertainment destination, bringing 27,000 new residents, 93,500 new jobs, $180 million in tax revenues to the city and county and $10.9 billion in business revenues,” she said. She added that “It is critical to Los Angeles' economic future that this renaissance continue.”

Downtown as the "Economic Engine of LA?" Have you ever even seen the Port of Los Angeles, which is responsible for 1 in every 7 jobs here in LA? But hey, at least they are trying, right? So why not hold a self-congratulatory conference to talk about what a great job they have been doing?

Africe is really big

noreply@blogger.com (Thomas Galvin) — Wed, 13 Oct 2010 21:55:00 +0000

Here is an interesting graphic that overlays some of the largest countries with Africa. I had no idea that you could fit all of China, the United States, India AND ALL OF EUROPE into Africa.

One Hot Listing

noreply@blogger.com (Thomas Galvin) — Tue, 12 Oct 2010 18:00:00 +0000

So one of our retail brokers buildings made the news last night. In a bad way, it caught fire. I am sure things like this happen all the time, but it really sucks when it happens to someone you know.

Well, you know what they say, there is no bad publicity. And I am sure the landlord will probably come down on his asking price a bit, otherwise this deal may end up in smoke.

We are not talking fire-sale prices here, but this property is priced to move ... everyone in a two block radius.

Ok, enough for now.

FIFA in LA?

noreply@blogger.com (Thomas Galvin) — Mon, 11 Oct 2010 23:31:00 +0000

Looks like LA is in the works for the World Cup in 2018 or the 2022 games.

Possible sites would be the City of Industry.

That would be one big economic impact for the region.

MGA Entertainment Sued Again!

noreply@blogger.com (Thomas Galvin) — Tue, 05 Oct 2010 17:47:00 +0000

MGA Entertainment - the maker of the Bratz! dolls, and who has a 700K SF warehouse in Redlands, is being sued by a toy maker in Texas. Here is the article.

Here are the Legand of Nara bugs that MGA makes:

And here is the Hexbug made by the company in Texas:

On the surface, these two things do not appear all that much alike. But I would wager that the suppliers for these two toys are probably the same people. And the companies shipping the toys are likely the the same people. When your entire supply chain is outsourced all that remains is product development and marketing.

I would wager that in other areas of the world, your intellectual property rights are not as enforceable and any kind of leak can occur anywhere along the supply chain.

I have often wondered about this phenomenon in movies, why very similar movies are released by different major motion picture companies at the same time.

Think of the movie AntZ and A Bugs Life. Why are the odds of similar movies being released independently by two companies? Chances are that the people that work at these companies talk to each other and they get sold on the same idea. There are informal channels of communication and good ideas tend to get copied.

Oktoberfest Inflation

noreply@blogger.com (Thomas Galvin) — Wed, 22 Sep 2010 22:54:00 +0000

Thought this was an interesting graph: The price of a basket of goods (at Oktoberfest) Vs. the official inflation rate of Germany.

It could be that since the demand for Oktoberfest has steadily increased, so too have the prices.