Hughes Adds to Industrial Property Glut : . . . but Market’s New Burden May Sell Quickly

One unsettling side effect of the wrenching cutbacks in the manufacturing, aerospace and defense industries has been the dumping of large commercial and industrial properties on an already depressed real estate market.

In the past few years, the huge Van Nuys General Motors auto assembly plant, Stroh Brewery in Van Nuys, 380 acres in Burbank owned by Lockheed Corp., two Redken Laboratories buildings in Canoga Park and bankrupt weapons maker Marquardt Manufacturing’s Van Nuys headquarters have all come on the market.

Now the latest in this string of abandoned giant-sized properties is Hughes Aircraft Co.’s missile systems division, currently in the last stages of closing its 35-year-old West Hills complex. The once-bustling facility is where Hughes designed various missile systems, including the TOW missile--most memorable for demolishing Iraqi tanks during the Persian Gulf War. Now the 85-acre, 13-building office and industrial center is becoming a ghost town as Hughes relocates its engineering group to Tucson, where the missiles are manufactured. The remaining 1,000 workers will be gone by August and the property will be put up for sale.

But there are early indications that the Hughes site won’t turn into just another white elephant. Many observers believe that Hughes might find a buyer for the property far more quickly than others--including Hughes’ parent company, General Motors, which was trying to sell the Van Nuys auto plant even before it closed two years ago.

In fact, an aide to Councilman Hal Bernson said that a “major company” is already negotiating to buy the Hughes site. Greg Smith, Bernson’s chief deputy, would not identify the prospective buyer.

Hughes spokesman Rand Christensen declined to comment on a possible deal. “When a sale is finalized, we’ll announce that,” he said.

Sell It Off in Pieces?

The company’s real estate department is “in the final stages of evaluating the site and firming up their strategy” to market the property, and expects to list it for sale later this year, Christensen said. “We’ll talk to any interested parties before we list it formally.”

The market value of the Hughes property is probably about $10 per square foot, or $37 million, said Bill Pentz, vice president at Daum Commercial & Industrial Real Estate in Woodland Hills. That’s a little more than half the property’s 1993 assessed value of $69 million, but Pentz said the lower figure represents what the land is worth without the buildings--and is probably closer to what a buyer would be willing to pay.

“If the price is right,” Pentz said, “they can get it sold in six months.”

The Hughes property is generating interest from an eclectic group of potential buyers. Pat Hall, president of TOLD Partners Inc., a real estate broker in Woodland Hills, said that his firm is “having discussions” with an unidentified private school that might want to use a portion of the Hughes site. Unlike the GM facility, which is dominated by the 71,000-square-foot plant, the multi-building Hughes site could be easily divided into “pieces” that could be sold or redeveloped separately, Hall said.

Another organization is considering the Hughes property and other large sites in the Valley--including the GM plant--for the design and manufacture of planes, electric vehicles and rail cars. The San Jose-based Manufacturing Technology Initiative, a nonprofit consortium, has been helping companies form joint ventures that it hopes to locate at the chosen site. One venture, led by Anaheim electric-car maker Taylor-Dunn Manufacturing Co., is seeking 500,000 square feet of industrial space in the Valley to build electric cars.

A decision on where to locate will be “based upon dollars,” said coalition President Gloria Rose Ott.

Many real estate specialists say the Hughes site has many advantages over the still-empty GM plant that could make it more attractive to a potential buyer.

The Hughes property, although zoned for heavy industrial use, is a hilltop, campus-style office and industrial complex that is surrounded by upscale homes. The facility could appeal to health-care, high-tech, telecommunications or insurance companies, real estate brokers say. Although some possible buyers might be deterred by the site’s isolation from other commercial development, others might consider that a plus.

“This is a better location than GM and it’s in better condition,” said Seth Dudley, senior vice president at commercial real estate brokerage Julien J. Studley Inc. in Los Angeles.

Stumbling Blocks

Any sale could be complicated by certain factors, however.

If significant environmental contamination is discovered, Hughes would probably have to mount a major cleanup program as a condition of a sale, which can be expensive and time consuming. Lockheed has spent $55 million so far cleaning up toxic substances at its Burbank properties and expects the total remediation effort to cost $175 million over the next several years.

So far that doesn’t seem to be a problem for Hughes. The Hughes property was inspected within the past month and no soil contamination was found, said Richard Varenchik, spokesman for the state Environmental Protection Agency’s Department of Toxic Substances Control. There is contaminated ground water at the site from underground storage tanks that leaked gasoline and diesel fuel, said Elijah Hill, an engineer at the state Water Quality Control Board. But the tanks have been removed and the contamination is “pretty limited, something on the order of size of a gasoline service station,” Hill said. An ongoing cleanup is being done on the property, he said.

Hughes’ spokesman Christensen said there is a plant at the facility to treat the ground water. “Nothing would prohibit us from selling the property,” he said.

Also, one of the Hughes buildings was yellow-tagged for limited use after the January earthquake. Christensen said the building was not repaired because of the move to Tucson, but he does not expect it to hinder the sale of the property.

A bigger concern is California’s still-laggard economy and the state’s anti-business reputation, said Mike Howard, senior vice president at commercial and industrial real estate broker Grubb & Ellis in Sherman Oaks. “Unless there’s some community incentive . . . I don’t know if in the near-term we’re going to attract someone to the site,” he said.

Luring out-of-state businesses to the Hughes site would be difficult, even though many Eastern firms have been seeking manufacturing, distribution and back-office locations in the West to avoid weather-related shipping delays, said James Schriner, a partner at PHH Fantus, a New York consulting firm that advises manufacturers on selecting sites. Those companies have confined their searches to states such as New Mexico and Arizona, which are perceived to be business-friendly. “California costs are still too scary,” Schriner said.

Even local companies that real estate agents cite as likely to need more space for expansion aren’t good prospects. Fast-growing Blue Cross of California in Woodland Hills, for instance, said it has no expansion plans. Woodland Hills insurer 20th Century Industries, which had been courted by every major developer in the West Valley, has put its headquarters move on hold while it tries to recover from the devastating impact of earthquake damage claims on its financial condition.

And Cal State Northridge, which four years ago considered using part of the Hughes facility has “no need or interest in it” now, said CSUN spokesman Bruce Erickson. In 1990, the school’s enrollment reached 31,000 and was expected to grow further. Then the recession hit, along with fee increases. Enrollment is now down to about 26,000, the school is still recovering from severe earthquake damage and expansion plans are “dead and cold,” Erickson said.

Converting the property to a residential development is also considered unlikely because it would be difficult for a developer to raise the financing for such a project in today’s sluggish housing market.

Many local officials, including Mayor Richard Riordan, Councilman Bernson, Rep. Howard Berman (D-Panorama City) and Assemblyman Richard Katz (D-Sylmar), have promised to join efforts to lure buyers to the large abandoned Valley properties.

But community efforts to help sell big properties such as the GM plant so far have been fragmented and largely unsuccessful. That’s one reason the Valley Economic Development Center, the Valley Industry and Commerce Assn. and local chambers of commerce are constructing a business plan for the Valley to help attract and retain businesses.

One idea being studied is to allow sellers of large properties to donate their empty facilities to a nonprofit agency and receive substantial tax write-offs, said VEDC President John Rooney. The agency would then offer the properties for sale at prices well below their market values.

What’s needed, Rooney said, is “a thought-out effort to help market these sites more effectively.”