Developers find profit in old industrial buildings

Jay Visconti, a El Segundo, Calif., developer who makes a living converting old industrial buildings in new uses, looks at hundreds of buildings across the country before buying one and starting work.

Like others in the business, Visconti sees opportunity in Reno and Sparks.

His Northwood Properties is taking an older 100,000-square-foot industrial building at 10 E. Greg St., cutting openings in concrete walls to accommodate new doors, reworking everything from electrical supply to landscaping, and slicing the building into 36 spaces of 2,300 to 3,500 square feet.

Even with the money Visconti's company is putting into the project, he figures the cost will be about 65 percent of new construction.

And that gives Northwest Properties room to maneuver with leases that will run well below those on new buildings, says Dan Buhrmann, an industrial broker with Grubb & Ellis|NCG.

But it's anything but easy money, despite the strong demand for small industrial spaces think contractors or distributors who want facilities near their customers and the plethora of aging industrial space in the Truckee Meadows.

"Every building we've bought has some history," says Jason Quintel, a partner in Panattoni Development in Reno. "No matter much due diligence you have done, you can't take a building apart before you buy it."

That means that Panattoni is particularly careful to buy at a good price as it continues to aggressively seek older industrial, office and retail properties in the market.

A big challenge, Quintel says, is bringing old buildings up to modern-day building codes especially if they're repositioned in a way that means more parking will be required on sites that often are cramped.

But the right deal on the right building brings a sparkle to Quintel's eye.

About 18 months ago, a Panattoni tenant Slakey Brothers, a building products distributor was looking for space. Panattoni ended up buying a 160,000-square-foot, building built for a single user at 650 Innovation Way near Longley Lane in south Reno, dividing the building into three units and completely leasing the building within two months.

Since then, Panattoni has taken on other repositioning projects including an aging 170,000-square-foot building on Parr Boulevard that's now a Red Cross distribution center and other companies are in the market as well.

JP DiNapoli Companies of San Jose, for instance, is reworking a 76,000-square-foot building on Greg Street, and other potential buyers are scouting the market.

The biggest single factor bringing a fresh look to old buildings is the lack of land for industrial development in the Truckee Meadows, says Mike Hoeck of the brokerage firm Alliance Commercial.

That means that big new warehouses which usually are taller as well as larger than existing facilities are developed at Stead, Tahoe Reno Industrial Center or other outlying areas.

But small industrial users, whether they're construction service companies or snack-food distributors, want to be close to their customers in town. And often their owners want business locations close to their homes as well.

But some choke at the asking rents on newly constructed small industrial spaces, says Alliance's Dan Oster. The combination of high land prices and rising construction costs push lease rates beyond the comfort zone of small users. That creates a hole in the market for renovation projects.

At the same time, however, small industrial spaces those of less than 20,000 square feet usually command rents per square foot nearly double those in big boxes of more than 100,000 square feet. That provides some incentive for developers to break big boxes into small spaces.