emand for McClellan sites spurs new development plans
Former air base may add retail, high-density housing to office, industrial
Sacramento Business Journal - August 3, 2007
by Michael Shaw
Staff writer
Dennis McCoy | Sacramento Business Journal
McClellan Business Park LLC president Larry Kelley: "We're pretty much on target with our initial predictions."
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McClellan Business Park's most accessible buildings are being leased and sold at such a brisk pace that its owners have started to plan the former air base's next phase -- construction of office, industrial and retail space and housing.
They want to open the former fence line along Watt Avenue to shoppers by adding big-box stores and strip developments, tearing down former military homes in favor of high-density condos or apartments, and ripping up an unused taxiway to make way for industrial users.
The owners have picked sites for new development, but it might be years before construction starts.
The immediate goal is to keep marketing vacant buildings, which total about 3 million square feet. Users have snatched up space at a fast clip this year, with about 1.2 million square feet in existing buildings sold or leased in 45 transactions. That includes the sale of 231,000 square feet to the Sacramento Regional Transit District for maintenance of its bus fleet and a 115,000-square-foot lease to a builder of high-end modular homes.
The activity brings the amount of former military property that has been converted into private use to more than 5 million square feet since investors bought the park in 2001.
"That's a good snapshot of what we've been doing all along," McClellan Business Park LLC president Larry Kelley said. "We're pretty much on target with our initial predictions."
McClellan doesn't look like some former military bases where metal-clad roofs are rusting and grounds are deserted. Tenants have brought in 13,000 employees, almost the number of military personnel and civilian employees during its peak as an air base, Kelley said.
Ron Blakeslee, vice president of leasing and marketing at McClellan, said there are discussions with a large retail user for an unused portion of the base on the southern end, a site that had been considered by Bass Pro Shops before that store decided to locate in the downtown railyard.
Other future plans include:
* Construction of another 4 million to 5 million square feet of commercial space, most of it light industrial, at various points of vacant land around the park
* Another 800 to 1,000 units of housing to replace 150 existing homes that are currently being leased. Blakeslee said Sacramento County wants high-density housing options.
According to an industrial market report by Grubb & Ellis, available space in the Sacramento region's market dropped in the second quarter, largely because of the leases signed at McClellan.
Other areas posted higher vacancy rates.
But the park's most generic -- and therefore accessible -- space might already be leased, making it harder to find a perfect fit for users shopping the market, said Kevin Jasper, a broker with Cornish & Carey Commercial in Sacramento. Jasper represented JC Penney, which leased 130,000 square feet at the park last year because the space was "just right" for the company.
"I think McClellan is chewing through that available generic space," he said. "Most brokers want to put McClellan on the list because you might find that perfect fit. On the other hand, you might not."
Jasper said that might be why McClellan's owners are looking at building new space that could accommodate a wider variety of tenants.
Bill Niethammer, an industrial broker at Colliers International, said the size of McClellan's 80,000-square-foot warehouse bays is unusual and some are fortified much better than any new construction. There are very few users who are in the market for that much space, he said.
The park has strategic advantages, such as two rail lines -- Burlington Northern and Union Pacific -- to attract more industrial users, Blakeslee said.
It also has liabilities, such as awkward office footprints.
"Office has been our toughest mission," he said, noting that many of the offices are designed for 20,000 square feet and can't easily be subdivided for the 5,000-square-foot user. Building Class A office space might attract tenants reluctant to use the former military offices there.
In 2001, McClellan Business Park LLC -- consisting of Kelley, Stuart Lichter and Morgan Stanley Real Estate Fund -- bought the almost 3,000- acre base at a fire-sale price of $85 million, getting 8.5 million square feet of existing buildings in the transaction. Since then, the park has leased or sold more than half of the buildings.
There are also big deals in the works.
"We're going to try to capture a sizable state deal," Blakeslee said, noting an unused portion of the base that has easy access to Interstate 80.
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