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Business and Beaches

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by Tony Cordi

Commercial vacancy rates in Manhattan Beach are impossibly low. Demand for space downtown has become so high that we are seeing $10 per square foot lease rates, double what they were just six years ago. This sounds enticing for an investor, but good luck finding a property to add to your portfolio.

Sales of commercial properties here are almost as rare as Strand home sales.  In fact, the most heavily trafficked online commercial real estate site, LoopNet, did not have a single commercial property listed for sale in Manhattan Beach at the time of this writing. Many properties have remained with families for generations, some for over 60 years. This has investors looking elsewhere and the Sepulveda corridor has become the new mecca. 

We are in the midst of a serious transformation from Marine Avenue on south into Hermosa Beach.

What is somewhat surprising about this is that just a few years ago the lease rates on Sepulveda were curiously consistent along the entire axis, from LAX through the Riviera Village on PCH, including Manhattan Beach. However, we have seen commercial lease rates in Manhattan Beach along Sepulveda double in just the past two to three years. Given that the value of most commercial property depends on a multiple of net income, it’s like winning the lottery.

Maryl Binney of Highland Partners Corp. cites the “limited opportunities in downtown Manhattan, the repositioning of the Sepulveda corridor, and strong traffic counts” as key factors driving this jump. She adds that “desirable demographics and high disposable incomes make the area increasingly attractive, to retailers in particular.” 

However, Binney emphasizes that it is really the “repositioning and increasing availability of larger parcels” that has created the opportunity for major retailers to enter the market. Binney should know. She represented the developers in leasing the Gelson’s project, which consists of 34,000 square feet of retail space, while her colleagues at Highland Partners represented the seller of the El Torito Grill property last month, to longtime investor Stuart Sackley.

The classic definition of the capitalization rate, or cap rat, is the rate of return on a real estate investment based on the income that the property is expected to generate. All things being equal, it remains a fair way to gauge the relative merit of opportunities in different locations. Yet, “all things” are rarely equal. Lease rates can increase at different paces in different areas. The concept of the repositioning of Sepulveda, as alluded to by Binney, has manifested in a significant increase in the demand for space, which in turn has resulted in the rapid increase in lease rates. 

Sackley has been buying up properties on Sepulveda for 20 years and has amassed close to 200,000 square feet of land. He likes the “high car count” and his ability to “keep his spaces leased without much effort.” It’s that simple. No investment models or cap rate calculations are required for him. The fact that Forbes recently placed Manhattan Beach in the top one-tenth of 1 percent out of 29,500 zip codes tracked nationwide certainly doesn’t hurt.

The substantial investments being made on Sepulveda from the Manhattan Village Mall to Walgreens, Manhattan Toyota, Target, Gelson’s, and the Skechers expansion, among other projects, continue to transform the corridor and yield impressive returns for investors there.

Tony Cordi can be reached at tony@theinnategroup.com ER

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