L.A.’s Energy Supply No Lure for Firms

A stable electrical supply and low rates should give Los Angeles an edge as a home for power-hungry industrial users, say real estate brokers and economic observers. Yet few if any firms are expected to relocate to the city, where high taxes and shortages of both large facilities and open space offset its energy advantage.

“Yes, the power is available with no problem. But are you going to be able to find the land you need,” said Jack Kyser, chief economist at the Los Angeles County Economic Development Corp.

The reliability and price of electrical power is one of many factors--such as rental rates, availability of labor and transportation links--that companies consider when shopping for real estate. But spiking electricity prices and the threat of more rolling blackouts have moved the power-supply issue much higher on the list.

Industrial customers served by Southern California Edison and Pacific Gas & Electric Co.--the two investor-owned utilities hard hit by the state’s energy crises--were dealt an average rate increase of 49%. As a result, the electric bill for a large manufacturer served by Edison is about twice as much as that of a similar company in Los Angeles, according to the Los Angeles Department of Water and Power.

“Companies are definitely taking into consideration the increased cost of power,” said property broker Darla Longo of CB Richard Ellis. “They are asking ‘what’s the power source?’ and are looking into buying a generator.”

Frequent headlines about power disruptions and energy shortages have prompted some brokers and property owners in Los Angeles to tout the city as an oasis of reliable energy.

“We’ve actually integrated it into our marketing program,” said Greg Dyer, one of the brokers in charge of sales and leasing at the Port of Los Angeles Distribution Center, a nearly 2-million-square-foot warehouse development in San Pedro.

“Whether it’s a short-term or a long-term problem, it doesn’t matter because here you are going to be guaranteed power,” said Dyer, who works for CB Richard Ellis.

Energy was not a hot topic last year when project developer Overton Moore Properties signed its first major tenant, a freight distribution company. But electrical supplies could play a bigger role as brokers begin to market the second phase, which is under construction, Dyer said.

A few firms have focused on areas with stable energy supplies. The owner of a 70,000-square-foot assembly plant is looking only in Riverside because that city’s municipal power supply--like Los Angeles’--has remained stable, said Larry Harmsen, Southern California manager of Prologis Trust, which operates distribution centers.

“They’re not looking at Ontario, which Edison serves,” said Harmsen, who declined to reveal his client’s identity. “They are looking specifically in Riverside to ensure [reliable] power.”

But Harmsen and other industrial real estate experts say few firms have acted on their energy fears. One large firm served by Los Angeles’ power utility is on the verge of moving into an area of the San Gabriel Valley where Southern California Edison is the electrical supplier, said Elaine Cullen, regional manager for the LAEDC. Cullen declined to identify the firm, but said it has met numerous times with Edison about how to mitigate any potential energy irregularities.

Cullen said the firm and others view it as a short-term problem that could be resolved by the time the new plant is up and running in 18 months to two years.

The power crisis did not have any visible effect on developer Trammell Crow’s new Irwindale Business Center, a 120-acre industrial and office park served by Edison. About 60% of the project’s first phase has been leased or sold and the second phase is about 45% spoken for, said leasing and sales agent Phil Lombardo.

The power supply may not be as reliable as in Los Angeles, but the new tenants at the Irwindale site are guaranteed to save money on rent. Leasing rates in Irwindale are about half what they would be for a comparable building in the San Fernando Valley.

“They’re not underestimating the impact of the power crisis but users are still looking at occupancy costs and the availability of labor,” Lombardo said. “There are other things beyond power that will contribute to the success of a business.”