Developers See Importance of Truck Terminals

*Courtesy of Los Angeles Business Journal, (Source Article)

Seeking Parking: Developers See Importance of Truck Terminals

June 17, 2024

By Brynn Shaffer

When Harbor Associates LLC purchased a 126,000-square-foot industrial real estate portfolio in the South Bay for $55 million back in November, the team saw a redevelopment opportunity.

The portfolio, made up of four adjacent properties ranging in size from 17,000 square feet to 45,000 square feet, sits at 690-760 W. 190th St. The 7.5-acre site is adjacent to the 34 million-square-foot Gardena industrial submarket, which boasts a vacancy rate of less than 1%.

Recognizing the property’s proximity to both the ports of Los Angeles and Long Beach, as well as the 405/110 freeway interchange, Harbor eyed the upside in converting the space to accommodate truck parking – which over time has become one of the most promising economic drivers of the South Bay.

“The opportunity to acquire 7.5 acres of prime industrial land in this very tight and important industrial submarket is rate,” Harbor principal Rich McEvoy said at the time of acquisition. “We are contemplating several possible options for the property including a class A industrial outdoor storage facility for trucking and container uses.”

“This submarket is incredibly dense and is one of the few in the area that allows for trucking and shipping container uses,” added Harbor co-founder and principal Paul Miskowicz. “This has super-charged the demand as third-party logistics and logistics companies compete for a diminished supply of truck yards.”

Truck terminals refer to transshipment facilities for unloading and reloading products. Typically located by the ports in infill markets, truck terminals play an essential role in the movement of goods, acting as a pitstop between transfers. They are considered a type of industrial outdoor storage, an asset class that has risen in popularity.

“The demand for third-party logistics and logistics users to operate these types of industrial outdoor storage facilities is really strong,” Miskowicz said. “Most of the activity that happens in the South Bay marketplace is to facilitate transloading operations.”

In addition to the adjacent Gardena site, Harbor Associates recently acquired two industrial facilities – one in Carlsbad and another in Santa Ana – which they also plan to convert into trailer parking.

Rise of truck terminals

Although experts agree that truck yards have historically been sought after due to the vital role they play in the transfer of goods, the attention they have garnered in recent years has spiked.

“It’s been an asset class and it’s existed in and operated in the South Bay for as long as the port complex has been around, but it’s become I would say a more than institutional asset class in the last five to 10 years as land values have increased and as operations have been pushed to their capacity,” Miskowicz said.

Spurred by the rise of e-commerce – particularly in a post-Covid world – as well as the amelioration of same-day delivery, the sum of consumer imports has surged.

In the first quarter of this year, the Port of Los Angeles registered container volume increases up 30% year-over-year in 20-foot equivalent units handled, while the port of Long Beach saw a 16% increase, according to a report published by Cushman & Wakefield. This has resulted in an increased demand for truck storage and waiting yards, a necessity when it comes to fueling the supply chain.

“2020 was probably when that trend started as almost all of the third-party logistics providers, retailers, etcetera were bringing on more inventory to support the consumer needs that were basically just stockpiling,” Jace Gan, a vice chair and industrial broker at Colliers, said. “In turn, there were a lot of trailers, a lot of containers and really not many places for those to be stored.”

Jon Reno, a managing director and industrial broker at Jones Lang LaSalle Inc., added that e-commerce companies were big influences in the infill truck terminal space.

Big appeal for developers

And although experts share that there’s not necessarily any premium in owning industrial outdoor storage properties compared to traditional industrial assets, from a developer’s standpoint, the supply and demand imbalance is reason enough to want to tap into the marketplace.

“People are attracted to these investments because there’s an acute need for the product. And then, from an investor standpoint, they like it because investments are very low in capital,” Miskowicz said, calling the business a “recurring cash flow stream.”

Take Dedeaux Properties, a Santa Monica-based developer which specializes in logistics real estate, for example. The company, which has a pipeline worth roughly $1 billion, has been developing truck terminals since shortly after its inception in 2006.

“I started diving into understanding this kind of sub-asset type of industrial and recognized that the vast majority of the inventory of what was existing in the marketplace was very dated and functionally obsolete,” founder and principal Brett Dedeaux said. “The design and amenities that the much older products, which comprised the vast majority of the existing inventory, weren’t serving their needs anymore and I felt was overlooked by my larger competitors.”

Dedeaux Properties continues to see value in acquiring and developing truck terminals – a business Dedeaux says it has grown in response to meeting the demands of its clients, including the likes of FedExJB HuntPenske Corp.AmazonRoadrunnerRyder Logistics and more.

“There’s a quicker turn of goods and inventory in today’s world,” Dedeaux said. “And these facilities allow our customers to more quickly turn inventory.”

The average plot of land for one of Dedeaux’s truck terminals is 10 acres with a low-coverage 50,000-square-foot building, usually only about 80 feet wide. The terminal is designed with multiple dock heights, leaving lots of loading and excess trailer parking spots, which facilitates the rapid transfer of goods.

“We have found it to be a profitable business. That’s why we continue to lean in and do more,” Dedeaux said. “Industrial as an asset class has been very solid because it’s a very growth-focused asset type. It’s done well, and we feel that we’ve outperformed the industry in our returns.”

High barriers to entry

But despite their strong appeal, truck terminals are not as easy for developers to get their hands on as one might hope.

“Most of the time, demand activity is tied to the ports,” Harbor’s Miskowicz said. “And most of the supply and demand imbalance is tied to the lack of land that’s zoned for shipping container and trucking uses.”

Within the South Bay, amid 16 municipalities, only unincorporated Los Angeles County accepts shipping container and trucking-related uses. In an already-tight industrial marketplace, that intolerance only fuels exclusivity when it comes to developers wanting to capitalize on the trend.

“I think most of these municipalities have now taken on this stance that they don’t want truck traffic and trucking and industrial (product) in their neighborhoods,” Gan said. “When in reality, these neighborhoods have been able to thrive more economically based on the fact that there is industrial in the neighborhood.”

And while some people think online shopping will subsidize amid a brick-and-mortar rebound, others disagree, insinuating the demand for truck terminals will only increase over time despite market difficulties.

“We’re seeing a little bit of softness in the market that’s leading to some additional vacancies and some lower rental rates,” Miskowicz said. “Long term, the South Bay serves a critical role in the supply chain and logistics chain for the movement of goods so we know inherently that things will bounce back.”

Harbor Associates and Dedeaux Properties both plan to continue to invest in truck terminals in the meantime, taking advantage of some of that current market softness by acquiring properties for lower values.

“We’re looking and evaluating additional industrial outdoor storage truck yard business plans,” Miskowicz said. “We’re still in the market trying to acquire additional product and additional inventory and we’re also looking at trying to buy traditional industrial buildings.”

“I think they’ll continue to rise in popularity. From a supply chain perspective, they’re needed and they’re not going to go away,” Reno said.