Can GM Sell Van Nuys Site Despite Soft Market? : Real estate: The buyer pool is likely to be small, and there could be complications if the land has been contaminated by pollutants.
The announcement two weeks ago that General Motors Corp. would halt car production at its Van Nuys assembly plant was hardly unexpected. But in one sense, it could not have been more awkwardly timed.
Should GM decide to sell the 100-acre site when Camaros and Firebirds stop rolling off the line next summer, the auto giant will enter a market for real estate as tough as any its cars compete in, San Fernando Valley developers say.
GM will find a buyer, the experts say--if it is willing to sell cheap. But there is a limited pool of potential buyers, and the process of selling is likely to be drawn out by government regulatory procedures. And, they add, a sale could be further complicated if the land is found to be contaminated with gasoline, solvents, or any other toxic substances that have been used at the plant.
“If there were a buyer who could step up tomorrow, they would be looking at two to three years before they lay a brick,” said Mike Howard, a Sherman Oaks-based industrial properties broker at Grubb & Ellis, a commercial real estate firm. “If something has to be cleaned up, it could go longer.”
With the beleaguered U.S. auto industry continuing to downsize, other American auto makers are not in the market. And since the 44-year-old plant, with 2.2 million square feet of industrial space, is considered outmoded by today’s standards, it’s unlikely a Japanese car maker would be interested. Meanwhile, other local manufacturers such as Lockheed Corp. are moving operations out of the state.
What about turning the GM plant into a commercial real estate site? That market is in a slump and banks are shunning speculative office development. A big shopping mall? Not likely, say local developers, since it’s just as hard to get financing for retail developments. Besides, the neighborhood surrounding the Van Nuys Boulevard plant--with its liquor stores, fast-food joints, body shops and pool halls--would hardly turn the heads of executives at Nordstrom or Saks Fifth Avenue.
Nonetheless, local real estate professionals say there would be some buyers for the Van Nuys site if GM decides to sell. “Even in today’s marketplace, there are buyers,” said Encino commercial and industrial developer George Moss. “I’d say it’s a function of price.”
GM announced July 19 that it would close the Southland’s last auto plant next summer, eliminating up to 2,600 high-paying factory jobs in another blow to heavy industry in Southern California.
Many observers speculate that GM has probably already begun a low-key marketing effort to sell the property. According to Los Angeles tax records, the property was appraised last year at $61 million, but at current market values, the land alone is probably worth about $80 million, Howard said
Don Hinton, senior credit officer at Imperial Bank’s real estate division, said the GM plant might appeal to investors or large developers who have the financial strength to wait for the market to rebound. “There are not a lot of parcels of land that are located in heavily populated metropolitan areas that are available for development,” Hinton said. “There will come a time when that land is at a premium.”
Some real estate specialists suggest that GM might be willing to unload the site for a low price because it has owned the land since 1945. Indeed, after GM closed its South Gate plant in 1982, the auto maker sold the 90-acre site in 1985 to the city of South Gate for $12 million--less than half its then-appraised value of $32 million. The city then sold the property to a development group that subdivided the land and is building smaller industrial facilities there. Two 175,000-square-foot buildings are finished and fully leased.
Some local real estate observers suggest a developer or a group of investors might buy the Van Nuys property and, similar to South Gate, form a long-term plan involving tearing down the existing facility and constructing an industrial park with smaller buildings suited to different uses.
The property might also attract developers interested in building one or more large warehouse-style discount stores such as Home Depot or Home Club--a segment of the retail market that is doing well despite the lackluster economy. Others suggest that the plant--which has railroad tracks leading to the property--might appeal to a big manufacturer for use as a warehouse or distribution center. Another suggestion is for the city to offer incentives to a manufacturer to retool the Van Nuys plant for production of rapid transit cars.
Councilman Joel Wachs, who represents Van Nuys, said it’s too soon to tell what role the city might play in redeveloping the property, but he’s heard several suggestions that the city try to interest a Hollywood studio in the site.
A big question mark, however, is whether the site is contaminated with toxic substances--a major issue in many real estate transactions today. Buyers of commercial property and their lenders routinely require testing for toxic contamination. If extensive contamination is found at the GM site, “it could sit around for a awfully long time,” said Seth Dudley, vice president and Encino branch manager of the real estate firm Julien J. Studley Inc.
When the South Gate plant was sold, for instance, some gasoline and solvents were found in underground water tables and a cleanup--paid for by GM--is still under way, said Ruben Lopez, South Gate’s deputy director of redevelopment. Jona Goldrich, a Culver City-based developer and general partner of the South Gate development, said building on the property has gone slower than expected because of the cleanup and the recession.
Contamination problems have recently complicated the sale of other property in the Valley.
Burbank Airport is mulling whether to buy some of Lockheed Corp.'s so-called “Skunk Works” property, but the site and nearby ground water are contaminated with chemical solvents such as perchloroethylene (PCE) and trichloroethylene (TCE), both thought to cause cancer. Estimates for the cleanup cost at the site where the F-117A Stealth fighter was developed range as high as $100 million.
Airport officials have said they won’t buy the land if it’s not clean. Lockheed has said it intends to clean up the property, but so far it hasn’t elaborated on its plans.
Meanwhile, Walt Disney Co. has entered escrow on the 38.5-acre site of the former Stroh’s brewery in Van Nuys. But the plant has been found to be heavily laden with cancer-causing asbestos and Disney has said it is evaluating the site before it decides whether to proceed with the purchase.
Richard Varenchik, a spokesman for the California Environmental Protection Agency’s Department of Toxic Substances Control in Burbank, said GM’s Van Nuys plant has had no major toxic violations to date, but he said there’s no way to know what might be discovered through the kind of extensive testing that would be done if the land were sold.