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“ It won’ t be the 100,000 square-foot buildings … but it appears there are a lot of companies that need 5,000, 15,000, 20,000 square feet, and those buildings just aren’ t available,” says Sammy Cemo, head of Cemo Commercial, who in 1983 began developing what became the El Dorado Hills Business Park.
But the market is stuck in mid-cycle: rents are rising fast but still aren’ t high enough to justify building.“ Right now you can rent warehouse [ space ] for 50, 60, 70 cents a square foot,” says Cemo.“ But to put up a new building that has a 5,000 to 10,000-foot warehouse component, you’ d have to get a dollar for it. When you throw those numbers out there, [ developers ] who think they’ re interested just go away.”
Labor, market and regulatory conditions are making it tough for those financial projections to work. Since the 2008 crash, banks are less willing to finance speculative versus build-to-suit projects that are pre-leased before the first shovel goes in the ground, says Cemo. Also, a labor shortage in construction is driving up costs. And fees that municipalities charge developers to deal with the impact of their projects, like traffic mitigation, are rising, he says. For example, in the last 20 years development fees for office construction have gone from below $ 5 a square foot to $ 15 a square foot today, he says. Developers have to add that to their sales or lease prices to recoup their costs.
Kuhl thinks there’ s another, lesserknown problem— the graying of the construction workforce, and that of many other industries, has come to commercial real estate.“ I’ d speculate that in the last 15 years most of the guys who made a living being real estate developers got burned, just said screw it and retired— the market took such a long, deep dive,” says Kuhl.“ I’ m not seeing a lot of young developers coming into the field.”
But Kuhl’ s long history makes him an optimist. Given developers’ inability to build on spec because of banks’ reticence to lend, he thinks the solution in El Dorado Hills, Folsom and elsewhere is for builders to start leasing up properties before they launch.“ You build a couple and sell a couple— there have got to be ways to do it,” he says. Despite the obstacles, he thinks it will happen:“ I’ m pretty bullish on what we’ re seeing out here.” •
Steven Yoder writes about business, real estate and criminal justice. His work has appeared in The Fiscal Times, Salon, The American Prospect and elsewhere. On Twitter @ syodertweet and at stevenyoder. net.
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November 2017 | comstocksmag. com 83