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North Bay Business Journal

Monday, December 16, 2013, 6:30 am

Commercial Development Guide 2013: Rebounded wine business drives new Napa County construction

Industrial, retail, hospitality projects underway

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    The resurgence of the luxury wine business following the economic recession plus capital and marketing investments in downtown Napa to make it more of a tourism destination have supercharged demand for wine-related warehousing, retail space and lodging.

    The market for industrial space in Napa Valley is quite limited, according to local experts.

    “Whether you are looking for small or large spaces, there is very little available,” said Michael Moffett of Coldwell Banker Commercial Brokers of the Valley.

    Collotype Labels on Dec. 5 said it is expanding its Napa wine label printing plant by 20,000 square feet to accommodate growth and consolidation of another California plant. The company signed a 10-year renewal of its lease of 51,000 square feet of industrial space at 21 Executive Way in south Napa, ending up with 71,237 square feet after an expansion.

    “The wine market industry is growing, and all signs are that it will continue to grow,” said David Buse, president of Collotype Labels, the area’s largest wine label printer. “We’re growing with the market and needed additional equipment and people, and the additional space to accommodate that growth.”

    Collotype Labels’ expansion at 21 Executive Way in south Napa is indicative of activity that has rapidly reduced available industrial space in Napa Valley and spurred further construction.

    The company had outgrown its existing Napa space and is accommodating the consolidation of a label-printing plant in El Dorado Hills near Sacramento.

    “This market is extremely active right now, and the vacancy is very tight — under 4 percent,” said Glen Dowling, leader of the San Rafael-based Cushman & Wakefield team. “I have been working in this market for 29 years and have never seen it so tight. The largest availability right now is approximately 25,000 square feet.”

    That’s generating tenant demand and prompting construction at several new industrial projects, according to Mr. Dowling. For example, E&P Properties’ 103,000-square-foot second south Napa warehouse is set for completion in April.

    “There are at least five projects teed up behind it, and several of them should be under construction next year,” Mr. Dowling said.

    E&P Properties, led by Dennis Pauley, owner of Benicia-based Metropolitan Van & Storage, in early September broke ground on a second 103,000-square-foot warehouse, going up on 5.8 acres of vacant land on Technology Way at Airpark Road in Napa Valley Gateway Business Park. E&P built the first warehouse, finished in spring 2012 at 1560 Airport Rd., to accommodate growth of Metropolitan Van & Storage.

    A San Francisco-based investor for construction trade union pension funds is making a big statement on prospects for building wine warehouses in Napa Valley. MNCVAD-Ind Greenwood CA, managed by McMorgan & Company and New York Life Real Estate Investors, on July 30 purchased the 18-acre former Greenwood Commerce Center project at 1535 Airport Rd. near Napa County Airport from a lender for an undisclosed amount. An institutional investor on a speculative Napa Valley project is unusual, according to real estate agents involved in the deal.

    It’s the first investment for the Northern California Value Add/Development Fund, launched in June with $91 million from six pension funds, according to Mark Taylor, a McMorgan partner. Attractiveness of the deal came from a lack of uncertainty in a project with entitlements and clearances for zoning and wetlands in place along with the tight marketplace for wine warehouse space, he said. The first phase would have 228,000-square-foot building and be finished next year. A second 75,000-square-foot building is planned. The projected cost of the project is more than $20 million.

    Sacramento-based Panattoni Development plans to start construction soon on a nearly 91,000-square-foot light-industrial building, with the goal of completion next year, according to Chris Neeb of Cushman & Wakefield, which is marketing the project. It’s the first of seven light-industrial and high-cube warehouses, ranging in size from 20,000 square feet to 271,000 square feet, approved for the Napa Airport Corporate Centre project at Devlin and South Kelly roads in American Canyon.

    Napa Commerce Center Industrial Park, south of Devlin Road at South Kelly Road, American Canyon, is 218-acre joint venture between Headwaters Development Co. and Deutsche Bank’s RREEF group. It would provide up to 2 million square feet of commercial space in buildings ranging in size from 50,000 to 400,000 square feet.

    The first 646,000-square-foot warehouse was put on hold in 2010, but an overpass across the railroad tracks was completed and Devlin Road was extended onto the property. A draft environmental impact report was circulated for comments in 2012, and city officials started negotiating a development agreement early this year.

    Tourism drives retail, hospitality projects

    Like for Napa Valley industrial space, demand for retail and hospitality properties has been brisk in the county.

    The renovation of the former Napa Town Center and surrounding buildings as well as a planned new luxury hotel there plus properties changing hands are reflective of a wave of new restaurants and other food- and wine-related tenants driving retail property activity in Napa Valley, according to Gary Van Dam, broker for Strong & Haden in Napa.

    “Everything right now is about downtown Napa,” said Mr. Van Dam.

    Zapolski Real Estate, LLC, on Dec. 5 said it entered into another joint venture with Trademark Property Co. for significant rework of downtown Napa commercial space, this time to help fund the $25 million renovation and redevelopment project underway at the former Napa Town Center.

    Set to fully open in fall 2015, the project, now called Napa Center, is set to create a shopping and lodging district with 153,000 square feet of space for 40 stores and restaurants plus a planned Archer Napa four-star luxury hotel.

    Zapolski, which has offices in Durham, N.C., and Napa, in November announced a joint venture with Fort Worth, Texas-based Trademark to buy and rehabilitate the 20,000-square-foot Gordon Building on First Street. Earlier this year, Zapolski inked a deal with LodgeWorks Partners, LP, to develop and run the hotel.

    The estimated project cost is $140 million — $70 million for the retail and as much for the hotel.

    “We are very pleased to partner with Trademark, one of the country’s most recognized retail and mixed-use developers with an award-winning track record of creating and operating dynamic shopping and hospitality experiences,” said Todd Zapolski, founder and managing member of Zapolski Real Estate. “Like LodgeWorks, our hotel development partner, Trademark is a leasing and development partner that understands our project’s significance as a key driver in the evolving resurgence of downtown Napa. We now have in place a powerful team to achieve our shared vision of an active downtown urban center for Napa residents and visitors seeking to shop, dine and celebrate unique wine country experiences.”

    Napa is a notable among major U.S. tourist destinations for its lack of a large venue for fashion and specialty stores, according to Tommy Miller, managing director and chief investment officer for Trademark.

    “Our project will deliver the critical mass of upscale shopping and dining that the Napa Valley very much wants and will capture a significant portion of resident retail sales currently leaving the market, as well as unmet tourist demand,” he said in a statement.

    Napa Center is now set to me composed of the hotel, the shopping center, which was originally built in 1989 and purchased last year, the 9,300-square-foot Dunne Building, purchased in 2011, and the newly acquired Gordon Building.

    Started in 1992, Trademark has invested in or developed more than 10 million square feet of such projects, valued at more than $1.25 billion.

    There is a lot of development and redevelopment activity at the southern end of Napa.

    Construction on a $6 million family-focused In-Shape Health Club at Peter & Vernice Gasser Foundation and Hearn Construction’s South Napa Century Center project could begin in early 2014 and be completed later in the year. The club is set to offer 45,000 square feet of space and more than 300 exercise machines.

    This club, with capacity to handle 1,000 member visits each day, would join the year-old all-digital, 12-screen Cinemark complex and 60,000 square feet of planned retail and restaurant space at the new 163,000-square-foot shopping center along the east side of the Napa River at Gasser Drive and Imola Avenue.

    Also planned for the center are a 115-room Hampton Inn & Suites hotel, secured in May 2012 via a ground lease to Spartanburg, S.C.-based OTO Development. The goal is to open the hotel in mid-2015.

    The work would kick-start Gasser’s 21-acre Napa Tulocay Square project to the north of South Napa Century Center. It’s a joint venture with BLT Enterprises. The project would have 110,000 square feet of retail and commercial space plus 500 high-density housing units.

    And across Soscol Avenue from that site, the former Napa Ford dealership is being redeveloped by Chico-based Pacific Properties Group as the 84,000-square-foot Napa Crossings South retail center. The project is under construction. Anchor tenants HomeGoods and Marshalls are set to occupy the center in spring.

    City Winery, which has blended wine, food and music in New York and Chicago venues, is taking the show to the Napa Valley Opera House in downtown Napa.

    With newly acquired private equity funding, New York-based City Winery International, LLC, signed a 10-year lease, with an option for a five-year renewal, for the opera house building at 1030 Main St. and plans to purchase a building in downtown Nashville, Tenn.

    Just like at the New York and Chicago sites and the one planned for Nashville, the planned Napa venue would have a new Meyer Sound audio system plus tables and seating for 340, according to City Winery founder and Chief Executive Officer Michael Dorf. Other parts of the building would be renovated for an 80-seat restaurant and accompanying commercial kitchen.

    Existing raked seating in the concert hall would be removed to restore the ballroom feel from before the renovation a decade ago. That previous work on the building, such as installing infrastructure for a kitchen, greatly reduces the estimated cost of the project to $2 million-plus, according to Mr. Dorf.

    Also envisioned for the building are outdoor seating for 30 as well as finishing the nearly completed upstairs deck for access from the planned dining room. Construction started in mid-November, and it is set to open as City Winery in spring.

    Napa Redevelopment Partners, LLC, made up of Rogal + Walsh + Mol and Farallon Capital Management, acquired the former Napa Pipe factory property in 2005. It’s the most significant project to add housing stock in the North Bay and is expected to be developed over 10–15 years.

    The project has undergone a number of revisions to scale back the planned number of homes and commercial space. It underwent a major revision in May 2012, reduced from nearly 2,600 dwellings to 2,050 and adding a 154,000-square-foot Costco Wholesale store, 150-unit continuing care retirement center and 150-room hotel.

    The number of homes was cut by more than half last fall before the Planning Commission approved the project in October. Other changes included trimming office space to 100,000 square feet and warehouse space to 75,000 square feet. The Napa County Board of Supervisors in June approved General Plan and zoning changes that aids commercial and residential development.

    Office market improves

    While the most market activity in the valley has been in retail and industrial space, the market for offices has been improving, according to Mr. Moffett.

    “The office market, in general, continues to trend down in vacancy slightly throughout the year,” he said. “In multitenant buildings, the vacancy rate has gone from may 20 percent — 25 percent at one point — to maybe 15 percent or lower.”

    Napa Square, one of the newest buildings, is nearly fully leased, and the 28,000-square-foot 1040 Main St. building now is full, he noted.

    That’s spurring demand for office space investment. Extensive renovation of the 48,000-square-foot Financial Plaza office complex just started — attracting UBS, Westamerica, Bay Area Surgical Center, Caymus and Darioush — and it is set to be done at the end of the first quarter, according to Mr. Van Dam.

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