Here's why Richmond is a favorite with Sacramento's industrial developers
Mar 29, 2016, 1:12pm PDT
Ben van der Meer

Staff Writer Sacramento Business Journal

Richmond has been reaping the benefits of a tight industrial market in the capitol, as several Sacramento-based developers have looked east to begin projects in this city by the Bay.

Panattoni Development Co., LDK Ventures and Schaal Realty Advisors are among those pursuing new industrial projects there, some on spec. All said the market for new construction simply isn’t as strong here as it is in the Bay Area, particularly the East Bay.


LDK Ventures has purchased this 42-acre site in the Pinole Business Park in Richmond
Courtesy of LDK Ventures

“Richmond is a little bit of a sleeper, but it’s really coming into its own,” said Tom Schaal, president and owner of Schaal Realty. A commercial property developer and management firm, Schaal Realty is working with a New York life insurance company on developing a 10-acre site in Richmond. The first project is a 170,000-square-foot spec building, he said.

Land broker John Troughton said across from Schaal’s site, Sacramento firm MarketOne Builders has also been active. That company recently turned a former 60,000-square-foot packaging building into a 120,000-square-foot warehouse for a tire company. Troughton, of Kennedy Wilson, has been the broker for many of the deals that led to the current developments.

According to Troughton, Panattoni Development is planning a 450,000-square-foot building on Richmond Parkway. And Davis-based hotel developer Ashok Patel is considering converting a shuttered hospital in Richmond into a boutique hotel.

He said the trend may have started when LDK Ventures bought a shuttered 42-acre steel plant in Richmond two years ago. LDK principal Denton Kelley said it’s taken two years to tear out the steel plant and redevelop the site, but a 700,000-square-foot distribution building should be done this summer.

“Unless we were confident in our ability to fill it up, we probably wouldn’t be building it,” he said. He and others said the East Bay has a vacancy of around 2 percent, virtually full. Richmond in particular benefits from good access to both freeways and the nearby Port of Oakland. When vacancy is that tight, even developers building on spec can be confident in the rents they’ll get.

Up Interstate 80, Sacramento is improving but still a ways from that kind of market strength. Vacancy here is about 9 percent, a good spot for landlords but not good enough for many developers.

“Sacramento has definitely lagged in adding companies,” said George Condon, a partner concentrating on Northern California and Nevada for developer Dermody Properties. At his since-closed firm, Sponsor Properties, Condon worked with KTR Capital Partners to buy land near LDK’s purchase. Since then, the companies have built a 250,000-square-foot building leased by Williams Sonoma, and have a pending lease for a 225,000-square-foot building, he said.

Rising rents are making some companies look for options outside the Bay Area, he said. But often, they’re going to the Tracy/Lathrop/Manteca area in San Joaquin County instead of Sacramento. The former region has good access not only back into the Bay Area, but is closer to Southern California, he said.

Ben van der Meer covers real estate, development, construction, water issues and the business of sports.