Institutional fund manager BKM Capital Partners purchased an entertainment-focused industrial campus known as Backlot Burbank for nearly $85 million this week in one of the priciest industrial sales in Los Angeles County this year.
A joint venture of Shubin Nadal Associates LLC and Penwood Real Estate Investment Management LLC sold the12-building, 302,869-square-foot Burbank property, which sits next to the Hollywood Burbank Airport on Vanowen and North Valley Streets in the San Fernando Valley.
Greg Geraci, senior vice president at Los Angeles-based real estate brokerage CBRE Group Inc., who represented the seller, said the property was particularly attractive because there are not many business parks of this size in the city.
"Burbank mainly has one-off buildings, so it makes it hard for an investor to come in and buy something en masse if they’re only buying individual buildings," Geraci said. "So this was an opportunity to buy an entire park."
In total, the sales price is only surpassed by three other industrial properties in the county in the past 12 months, according to CoStar research. On a square foot basis, the price amounts to about $281 per square foot, a premium to the Burbank average industrial sale price of $262 a square foot, according to CoStar data.
Shubin Nadal Associates purchased the property three years ago from Young Industrial Properties for $56 million, or about $188 per square foot, according to CoStar records.
See CoStar COMPS #3467624.
Lonnie Nadal, principal and cofounder of Shubin Nadal Associates, said the property was not fully leased at the time, but the owners put in a great deal of capital to improve the park and take it "to a higher-end use than when we purchased it," he said.
Today, Backlot Burbank is fully occupied by 16 businesses, primarily in the entertainment industry. They include Luka Grip and Lighting, Hollywood Sound Systems, MusclePharm Corporation and Hutchinson Aerospace & Industry, which as the largest tenant, leases nearly one-third of the business park, according to Geraci.
As a result, the seller felt it had completed its transformation of the property into a creative industrial business park, Nadal said.
"It was an appropriate time for our ownership to sell the property to a longer-term owner," Nadal said.
Newport Beach, CA-based BKM Capital Partners, which focuses on value-add, multi-tenant light industrial properties, has plans for capital improvements on the property with a new paint job, new rooftops and signage.
"The fact that the asset is fully leased will provide immediate stabilized cash flow, allowing us to simultaneously enhance value for investors through our comprehensive value-add approach," Brian Malliet, BKM Capital Partner chief executive and co-founder, said in a statement.
He added that the tenants' diversity of industries and their staggered lease expirations over the years give this property an advantage over industrial parks with single tenants that could leave a whole property suddenly vacant when a lease expires.
Even when leases do expire, the new owner of Backlot Burbank may continue to have luck renewing or landing more creatively-focused firms. Backlot Burbank is also unique in that it consists of brick buildings, and that has helped attract many of the entertainment firms.
"They really like the creative environment of having brick buildings," Geraci said.
Los Angeles is one of the most desirable markets for industrial, according to CoStar Market Analytics. Industrial rents have been growing by more than 6 percent since the beginning of 2014. The same is true in Burbank, where vacancy is dropping even as rental rates are increasing.
"We’re below 1 percent vacancy rate," Geraci said. "There’s not much inventory at all available."
For the Record: CBRE brokered the latest sale on behalf of the sellers, a joint venture between Shubin Nadal and Penwood, through its fourth value-add investment vehicle, Penwood Select Industrial Partners IV LP. Please see CoStar COMPS #4470841 for additional information on this transaction.