BKM Recapitalizes San Diego Light Industrial Assets
To help unlock the full potential of its assets, BKM Capital Partners recapitalized three San Diego business parks from its BKM Industrial Value Fund II LP, with Tokyu Land US Corp. for $76.9 million.
It is the first joint venture between BKM and Tokyu Land US Corporation, a real estate investment and operating company owned by Japan-based Tokyu Fudosan Holdings Group.
These small-bay facilities, aggregating 342,073 square feet, are in the active industrial submarket corridor of Otay Mesa. BKM acquired them five years ago and invested $1.4 million in upgrades.
Otay’s strategic location along the U.S.-Mexico border positions it as a critical hub for cross-border trade, nearshoring and warehouse distribution.
Borderpoint Business Park at 6754, 6774 and 6794 Calle de Linea comprises 16 units totaling 173,330 square feet across three buildings. It features 22- to 24-foot-clear ceiling heights, 104 dock-high loading doors and 14 grade-level loading doors.
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Otay Crossing Business Park has three units within two buildings at 2340 Enrico Fermi Drive and 10025 Siempre Viva Road. The 64,833-square-foot property features 24-foot warehouse clearance, 27 dock-high loading doors and three grade-level loading doors.
Otay Distribution Center includes eight units totaling 103,910 square feet in two buildings at 6987 and 6995 Calle de Linea. The park features 24-foot-clear ceilings, 63 dock-high loading doors and a single grade-level loading door.
The assets are all that’s left of BKM’s Otay Mesa industrial portfolio, a six-park package that BKM acquired from Stockbridge Capital Group in 2018 for $71.6 million.
These properties were also individually reorganized to create better functionality and efficiency. The efforts resulted in an 86 percent increase in the portfolio’s weighted average in-place rental rate.
The three parks are leased to 21 tenants with 2.2 years of WALT and rents approximately 17 percent below current market rates. BKM, which will serve as the joint venture’s domestic operating partner, is leveraging upcoming expirations to implement improvements and secure market rental rates in early 2025.
Light industrial space market remains tight
The South County San Diego small bay, multi-tenant industrial leasing market will remain robust through 2024, according to Jackson Childers, JLL associate.
“Unlike the 10 million square feet of larger block product (50,000+ square feet) delivered in Chula Vista and Otay Mesa in the past five years, the supply of multi-tenant industrial space has been stagnant,” Childers told Commercial Property Executive.
“While developers have focused on maximizing coverage and thus built larger warehouse units, the robust tenant mix in the 5,000 to 15,000 square foot range has been neglected. Thus, 25-year-old buildings offering smaller suites achieve rents 25 percent higher than brand-new ‘big box’ construction.”
As warehouse vacancy climbs toward 15 percent in South County, for owners of small bay, Childers said multi-tenant projects are largely insulated from the difficulties of competing against a set of five, and sometimes 10, similar spaces.
“Looking toward 2025, we expect resiliency within this product type, as the pipeline for new multi-tenant industrial is empty as usual,” he said.
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Recently, the San Diego industrial/flex market has seen increases in vacancy at 10-year highs, according to Eli Randel, Crexi COO, told CPE.
“Those rates could potentially increase from new deliveries and from proposed tariffs and their impact on trade,” Randel said. “However, the San Diego industrial/flex market generally remains healthy and tight, even at these higher vacancy levels, and had previously experienced good rental rate growth.”
Given the relative health of this market, it’s unlikely there was severe asset-level distress associated with the recap, Randel explained.
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