Leasing Industrial Property in Los Angeles County Under the New Green Zone Ordinance
Green Zones are an entirely different way to look at zoning. It is an outgrowth of the Environmental Justice Movement that had its local origins addressing diesel exhaust at the Port Complex in San Pedro Bay. Properties are analyzed and graded based on their contribution to health disparities using the Environmental Justice Screening Method (EJSM). The EJSM is a new tool and strategy that is designed to correct unhealthy conditions by establishing new mitigation mechanisms. The County will use the EJSM for ongoing monitoring and annual reporting to the parcel level.
Depending on the EJSM score, Regional Planning offers four (4) different routes to approval. The simplest is Site Plan Review (SPR) and it is approved administratively in what we use to call, “over the counter”. The other three routes are discretionary and require formal application and Public Hearing at different levels of planning authority. Generally, the greater the health impact, the longer the approvals.
Move-Out and De-Commissioning
Are you to planning to retain your existing tenant during the entitlement period? Or find a new one? Green Zones provide a compliance period so you can keep your property rented. The easiest approval path is to put your buildings back into repair and lease it out “as-is”.
On move-out, hire a commercial property inspection service. They will inspect the property, identify anything that needs repair in the buildings or yard area, and estimate the cost of repair. You can use this report to settle any security deposit on hold. A local contractor can make the repairs.
Conditional Use Permit
My education about entitlements came from participating in development and CUP projects in and around the Gardena/County area. I represented the business community in the creation of West Rancho Dominguez and participated in local business matters in front of the County. Green Zones are new and the extensive red tape calls for a team approach among the architect, lobbyist, attorney, consultant, and construction. It’s necessary that a team member “know the ropes” from having a history with Regional Planning, the Departments, and the Supervisor. An important condition in the CUP is the Use Paragraph. It should be broad as possible to allow a range of uses in case tenancies change. If we find a tenant on the way with a less intensive use, the requirement can be rolled back.
If you are forced to take the long road to the Public Hearing, the initial submittal to the Planning Department will start a series of costly reports the applicant pays for. Environmental, traffic, noise, and architectural reports are customary. There are negotiations with Public Works about streetlight, fire, stormwater, and traffic. More negotiations will continue over operating hours and public (off-site) improvements. Prior to the Public Hearing, the local community is invited to critique the project often making further demands. If there is resistance, the applicant may need to undergo a second round and seek community support. Hopefully, it will not go the distance, but a legal industry has developed around fighting transportation and trucking uses. Your attorney will play their most important role by limiting and countering any objections.
The Environmental Justice Screening Method (EJSM) was recently adopted in July 2022 as part of the Green Zone Planning Ordinance. Every property in the Green Zone and on the Green Zone List is scored by its hazard to “sensitive (mostly residential) uses” and that score is weighed against the conditions the County will grant. More intensive trucking uses will have a higher score. If you are embarking on a Conditional Use Permit and not already familiar with the entitlements, I highly recommend a consultation with the experts and “game out” likely outcomes. Costs and time periods of a CUP will greatly exceed most people’s reasonable expectations.
The architect will prepare drawings for tenants and as part of the CUP application. I recommend starting soon on concepts. Once you have a survey and topo from a civil engineer, the architect can begin a site plan. Eventually you may need the architect for construction drawings. Many architects offer entitlement services but will not interface directly with the departments.
Marketing and Leasing
Start the leasing program as soon as possible. While it may take 2+ years to secure entitlements, there are tenants who may take over or “short cut” the application process because of their governmental relationship and proficiency. Other tenants will be approved “by right” after a Site Plan Review. Any advanced work can be transferred to the tenant to complete. Meanwhile, one should plan for generic uses that maximizes storage and transportation uses.
Attention should be paid to what type of asset you want to create. For instance, an institutional quality transportation facility will require a higher standard of improvement than a local tenant normally requires. If you will be selling the asset after development, success in the Capital Markets is based on tenant profile, lease terms, rental increases, and expenses. New ten (10) year leases are the most sought after. Alternatively, leasing the property “as-is” to a local credit company may not be as valuable, but the property will cashflow very generously.
For listing assignments, I use all the major outlets to advertise the property (Loopnet, AIRCRE, CoStar). I have a reputation for superior cooperation with big and small brokerage firms alike. From similar, previous assignments, I have many contacts and leads for industrial property in Gardena. We regularly use digital programs like Salesforce, Search Engine Optimization, web crawlers, html emails, and custom-made lists to get the word out. Internet and email campaigns are supported by custom U.S. Postal mailings of postcards and flyers.
Construction and Development
In several cases, we have been able to start the entitlements and during the process we secured a tenant who was willing to complete the improvements. If you will be delivering a turn-key project, it would be helpful to have estimated construction costs as part of the pre-entitlement work. Development Services are available from national and local builders. They work on a fee basis to put together estimates and timelines. Development Services include estimating, reporting, design/build, bidding, and construction.
Project Management in real estate was originally directed at big and multiple construction projects for developers and corporations. As local property values increase, more owners seek professional management services to protect their investment. Scaling is important. If the project is “As-Is, repaint and repair”, the duties for project management are less. If we find a tenant that requires a higher level of development, you can turn to construction management/development services, offered by the builder, to complete the job.
As part of the team, we will provide monthly reports and timely updates. Contractors, leasing, and entitlement consultants will normally report regularly. We can pay vendors through our real estate trust account and provide monthly accounting reports. Our fees will vary depending on the work that month. For many stretches we will be waiting for a County response. Project management fees are paid monthly.
Once the property is leased, most property owners hire Property Management to collect rents, pay expenses and taxes, distribute income to the partners, make repairs, and address tenant issues. Net leases have the least management responsibilities. Generally, the first year or two will require more property management.
CUPs are generally not needed if the work is done inside a building. However, buildings over 100,000 square feet with intensive trucking uses, some manufacturers, and operations that are conducted outside are the properties being targeted on the Green Zone list. While the Green Zone Ordinance only applies to industrial properties located in unincorporated Los Angeles County, many municipalities are putting developers and property owners through a similar entitlement exercise. If your property is on the list, you will need to be pro-active because costs and time delays will ruin your ability to collect rent. Your property will need to conform to current regulations.