Stream Realty Partners Expands SoCal Industrial Market Share

By Scott Sowanick, Senior Director, Stream Industrial Development Services Division

Stream Realty Partners (Stream) entered the Southern California (SoCal) industrial development market in 2019 and rapidly focused on creating a platform and team from the ground up to service the market. A newer entrant in a competitive space, the group has built an impressive footprint across the region and continues to expand. Scott Sowanick, who oversees the Western Region for Stream’s Industrial Development Services division, shares what’s driving current activity and company growth, its roadmap for success, and what’s ahead.

What’s driving the growth and expansion of the industrial markets, as well as Stream’s Industrial Development Services?

Ecommerce is an exponential driver of growth for the industrial sector, especially in markets like SoCal. Over the past two to three years, the Inland Empire (IE) has continued its upward trajectory in national prominence to become one of the highest-performing industrial markets in the country. Multiple reasons account for that, including the significant barriers keeping new supply in check and COVID propelling the need for ecommerce in 2020-2021.

The industrial market in Los Angeles North (LA North), where we have invested significant time and capital to date, is similarly benefiting from the growth in ecommerce, but is not predominantly dependent on the ports. The market is experiencing strong activity with regional manufacturing businesses that handle distribution functions.

Industrial markets in SoCal, like the IE and LA North, are vastly different, which in part explains the fact that we are focused on “vintage plays” across parts of the Greater Los Angeles region. This rise in redevelopment, conversions, or even new industrial construction is happening because older product—though well-located—is not up to modern standards of efficiency and function. The core of Greater Los Angeles’ two billion square feet of industrial stock is aging quickly, with a significant percentage of it nearing functional obsolescence. The vintage play is to capture value by taking well-located older product and revitalizing it.

Given the size of the existing Greater Los Angeles industrial base, we expect to see continued infill redevelopment projects move forward. For investors or developers able to find well-located properties with industrial zoning, there are opportunities to deliver functional new product today. A great example of that is Tapo Canyon Commerce Center, our office-to-industrial redevelopment project in Simi Valley, CA. We see tenants in the San Fernando Valley operating their businesses in functionally challenged space, actively seeking modern facilities with optimal clear heights that deliver cost-efficiencies. That’s a primary driver for those tenants to explore product in neighboring Ventura County—location and greater affordability.

How is Stream responding to the overall market trends in the industrial sector?

We have bolstered our Western Region Industrial Development Services team by making strategic hires that collectively bring decades of local SoCal entitlement and construction experience to our business–in addition to institutional knowledge of the market.

Talent is at the epicenter of Stream, and we make it a high priority to add the best people. That approach has been foundational to our firm since its founding in 1996. It is at the core of how Cannon Green, Executive Managing Director, leads our industrial development business nationally. We’re laser-focused on the cultural aspects of building and growing our team—consistently aligning talent with core values. We have been growing the industrial development business organically in SoCal since 2019 and have successfully assembled a critical mass of projects over the past two to three years. Our growing presence has naturally led to securing strong leaders with local expertise.

Two recent additions are Michael Gregg and Russell Fenton. Gregg brings a career focused on entitlements in SoCal—a skill set unique in the market but critical for developments to commence. Having this deep entitlement experience allows us to successfully take projects from vision to reality. The addition of this niche expertise continues to deliver high-value assets to our clients in the market.

Russell brings a proven track record in local industrial development, enhancing our business’s construction management efforts. He also brings significant entitlement expertise, working with reputable local developers and organizations like Disney and the U.S. Army.

Lastly, our strong reputation has been crucial to our expansion. Our growth in SoCal wouldn’t have accelerated as quickly without the relationships we’ve built with brokers and capital partners. They’ve seen our accomplishments in other markets around the country and understand the unique value Stream’s platform delivers.

What examples can you cite that reflect the tremendous demand and growth in the industrial sector?

We currently have five active projects with 1.7 million square feet in our Greater Los Angeles industrial development portfolio and an additional 3.1 million square feet in our current pipeline.

A critical component of our acceleration in the market was the invaluable connections that Marty Pupil, Executive Managing Director and Partner in Southern California, helped facilitate. He joined Stream around the time Cannon and I expanded our development platform into the region.

Our mandate from the start was to find and mobilize on fundamentally good deals. Given Stream’s entrepreneurial culture and agility, we could immediately capitalize on the prime opportunities in the region that others may have ignored a few years ago because they were too small or complex.

Opportunities are often overlooked because the development process for smaller projects can be just as challenging and time-consuming as larger ones. For example, we closed on a great deal earlier this year: a seven-acre site, bifurcated into two standalone parcels ideal for smaller free-standing buildings west of the 215 in the IE.

Similarly, Tapo Canyon Commerce Center called for our creative vision. Zoned light industrial, the 18-acre site located in Simi Valley has housed an office building since 1982. Because of our long operating history in industrial and office nationally, we understood every element and potential outcome that came with the opportunity. Our expertise and experience allowed us to materialize its highest and best use in today’s market.

The project is well underway in delivering 344,000 square feet of space across five new Class A industrial buildings to the business-friendly city. Stream owns, manages, and is developing the project, slated to deliver in Fall 2022, with joint-venture partner QuadReal Property Group, while Newmark is handling the leasing.

Although office to industrial conversions reflect a trend that has garnered attention in specific markets, it’s not an investment thesis that can be rolled out in every market. Timing is everything. We knew that re-leasing the office building during peak levels of uncertainty with COVID in the summer of 2020 would be challenging given remote work implementations and indefinite return to office policies for many companies.

What does all this activity mean for the industry?

Strong fundamentals in SoCal bode well for the industrial sector. The growth of new industrial product in the U.S. has historically correlated with population and GDP growth. What we can appreciate about the region and California, is the focus on the fact that more people are leaving than are arriving. Despite the recent exodus headlines and even with little to no population growth, the state has the highest population in the nation and boasts the fifth largest economy globally. SoCal represents a consumer base of nearly 24 million people, and Los Angeles County alone houses ten million people. Unless a million people leave per year for the next decade, the region’s industrial sector will be in good shape as population and density are critical contributors to industrial demand. Its dense population base will need essential services produced and distributed out of warehouses. That’s enough quantitative reasoning to invest our time in the market and industry in general.

Additionally, industrial occupiers are staring straight into the face of a period when functionally obsolete facilities become a growing concern—something owners and developers must address. SoCal has a natural tamper on supply, given the region’s high barriers to entry in securing approvals and entitlements from cities. It’s easy to see the fundamental underpinnings that support a belief that industrial in SoCal will perform or outperform nationally.

What do you see ahead for the market and the company?

With market demand outpacing supply and vacancies at historic lows, 2022 shows no signs of a slowdown. Our Industrial Development Services team will continue to utilize its strong market knowledge, build solid local relationships with regional and local brokers and brokerage firms, and execute projects with an unrivaled ability to satisfy tenants in the highly competitive market.

In the three years since we established and grew our industrial development footprint in the Western Region and across SoCal, the market has realized that we are not out-of-town developers who arrived simply because of a wave of growth. Stream operates with a long-term vision for new endeavors, and we intend to build and grow our industrial development business throughout the region. All markets go through difficult times, but the secular drivers for industrial product remain and require us to invest time in a region. Stream intends to continue dedicating time, money, and effort to add human capital to build out our business.