North Bay’s SMART Way

North Bay, American Canyon, SMART, Napa Logistics Park, DivcoWest, Orchard Partners, Lombard Crossings Industrial Park, Hess Development

Train image

A rail line reinvigorates the North Bay’s industrial product.

THIS ARTICLE WAS PUBLISHED IN THE ‘Q’ – THE REGISTRY’S PRINT PUBLICATION – IN MAY 2015

By Robert Celaschi

[dropcap]I[/dropcap]mprovements in freight rail service are giving a boost to industrial development in the North Bay. From American Canyon through Napa, and along the Sonoma-Marin Area Rail Transit corridor through Marin and Sonoma counties, freight rail is taking on a higher prominence.

Historically, the North Bay has been thin on freight access, with the Golden Gate Bridge and Highway 37 as the main routes. Freight access to the Northwestern Pacific Railroad ended previously in 1999, and even then only minimal portions of the line were in service, noted Jordan Riesenberg, a research analyst for Jones Lang LaSalle.

That changed starting in 2011 after repairs to a key element in the system, the Brazos Bridge over the Napa River. At the same time, the Sonoma Marin Area Rail Transit District has been upgrading the rail line from San Rafael to the Sonoma County Airport. While SMART is strictly a passenger line project, it has agreements with the North Coast Rail Authority to run freight along the same tracks. The NCRA owns the continuation of the line from Healdsburg north to Eureka.

Freight service on the SMART tracks currently runs about three times a week, said SMART spokesman Matt Stevens. Right now it’s mostly to bring in feedstock for dairies in Petaluma and Santa Rosa. But the capacity is there for more.

Having the right buildings will be important, said Elliot Williams, Jones Lang LaSalle’s research manager for the Northern California Industrial market. Tall, clear height distribution space is hard to come by all across Northern California, he said, and “users are so constrained with existing inventory that they are looking at new geography.”

Industrial space in the Oakland-Fremont area is currently renting at about 55 cents a square foot, triple net, about in line with prices in the North Bay. The Central Valley is much cheaper, but also much farther.

“If your production is up in the North Bay, it probably doesn’t make sense for your distribution to be 90 miles away in the Central Valley,” Williams said. “Transportation is really one of the most expensive line items, whereas the cost of real estate is much further down that list. If you are able to optimize your transportation network to have a warehouse closer to your production, you are willing to pay a bit of a premium for that property.”

Already local wine storage and distribution has pushed down North Bay vacancy rates from 8.4 percent to 7.5 percent in the last 12 months, Riesenberg said. Improved freight rail eventually could help make the submarket a major distribution point for goods coming in from as far away as southwestern Oregon.

Developers already are touting their rail access. Lombard Crossings Industrial Park, a project of ICC/Stravinski Development Group and Hess Development, puts rail access at the top of its list of amenities.

Napa Logistics Park, being developed in American Canyon by DivcoWest and Orchard Partners, uses a diesel locomotive as the dominant art in its logo. The 218-acre project sits next to the Union Pacific tracks less than 40 miles from the Port of Oakland, putting it closer to the port than Tracy.

Napa Logistics Park has room for 2.7 million square feet of warehouse and distribution space, though the first phase calls for only one warehouse building totaling about 646,000 square feet. It is expected to be completed in the third quarter this year.

Rail access is a big asset said Greig Lagomarsino, executive vice president of Colliers International in Oakland, one of the brokerages handling the property. “It’s the difference between making the deal or not,” he said.

Like a lot of places that once were considered secondary markets, the North Bay is becoming a prime target, he said.

But rail is only part of the North Bay equation, said Brooks Pedder, senior managing director with brokerage DTZ in Walnut Creek. The widening of Highway 12 to a four-lane divided highway is also “a big, big deal” for shipping freight, he said.

Just having developable land is a big advantage. Wetland permits, onsite improvements and offsite improvements can be big barriers to entry in the market.

“Entitled and approved land is the key. Once you have it, the market is working for you,” he said.

Five years from now, there will be no significant empty land left, he said, and creating new industrial properties will require a bulldozer.

West Coast Commercial Real Estate News