William Huston, chairman and chief executive of Los Angeles County's biggest industrial development company, is the first to admit that building warehouses and similar facilities isn't the most exciting job in the real estate business.
"If you want glamour, you ought to build a high-rise office building," says Huston, who heads Carson-based Watson Land Co. "Office building has got to be glamorous, because it sure isn't profitable anymore."
Building warehouses, on the other hand, is highly profitable--at least for Watson Land. The company's revenue topped $20 million last year, and sources say its profits totaled several million dollars. Not bad for a firm that has only 32 employees and is owned by only 90 or so people--most of them descendants of the Southland's fabled Dominguez and Watson families.
Making millions in the industrial-development business isn't the only reason why Watson Land refuses to dabble much in other types of ventures.
Build for Their Ego
Consider Huston's assessment of developers who are still erecting office structures in a market already sagging from overbuilding and high vacancy rates: "The only reason people are building office buildings today is for their own ego. The market is terrible. We won't go back into that business until it's good again, and that business won't be good until all the doctors and lawyers (seeking tax write offs) get out of it."
Or Huston's thoughts about the market for new research-and-development facilities: "Demand isn't anywhere near where people thought it would be five years ago. The big market everyone expected hasn't really materialized."
Watson owns, leases and manages more than 9 million square feet of space--almost all of it industrial--in Los Angeles County. Most of its structures are large, the biggest being a 430,000-square-foot warehouse leased to K mart Corp. (The K mart structure has about 10 acres of clothing under one roof, which even Huston will admit is a mind-boggling amount of polyester.)
Spanish Land Grant
The bulk of the company's industrial space is in the 750-acre Watson Industrial Center South in Carson; the 135-acre Watson Corporate Center, also in Carson, and the 175-acre Watson Alameda Industrial Center in Rancho Dominguez.
Its Watson Lakewood Corporate Center in Lakewood contains 287,000 square feet of office space, but Huston says it's nearly 100% leased and the company doesn't plan to enlarge it.
Most of Watson's buildings sit on part of California's first Spanish land grant, a 75,000-acre spread the King of Spain gave to soldier and pioneer settler Juan Jose Dominguez in 1784. The original grant stretched from the ocean to the Los Angeles River, and south from what is now Rosecrans Avenue to the southernmost tip of San Pedro.
Watson Land's founder, George Alexander Watson, married Maria Delores Dominguez in the mid-1800s. Maria received 3,700 acres of land in 1884, when the property was divided among her and her sisters. Watson Estate Co. incorporated in 1912, and changed its name to Watson Land Co. in 1927.
Watson Intermodal Center
One of Maria Watson's sisters married George Carson, the man who eventually founded what is now known as Carson Estate Co. Although both of those companies do most of their work independently, they are also partners--along with several Dominguez heirs--in a third firm known as Dominguez Properties.
Watson Land is currently focusing most of its efforts on developing the new Watson Intermodal Center in Carson. The $35-million, 30-acre project will eventually provide 700,000 square feet of build-to-suit facilities for cargo-warehousing and distribution companies that use the ports of Los Angeles and Long Beach.
Huston figures the project will benefit from the growing trend of "intermodalism," the use of two or more types of transit to move freight. The new center is located three miles from the Los Angeles and Long Beach harbors, and is adjacent to Southern Pacific's sprawling Intermodal Container Transfer Facility, a transportation hub. The project also is only a few minutes away from four major freeways.
The location of the new center, plus the growing number of Pacific Rim companies, should mean tenants for the new development won't be hard to find. Huston said as much as 35% of Watson's space in its other projects is leased to foreign-linked firms. Japanese companies, including toy maker Tomy Corp. and Honda Motor Co., are among the firm's long list of existing tenants.
Work in Other Areas
Although Huston says he doesn't expect to begin aggressively diversifying into other types of real estate development, he does expect to begin working in areas outside Los Angeles County. The Inland Empire is the prime candidate for expansion, he says, but California's Central Valley and the Phoenix area are also in the running.
The company would also like to begin doing more build-to-suit projects, with the client buying the property as soon as it's completed. By building the structure and then selling it rather than building and holding it, says Huston, "you get your money in one big chunk instead of getting a little bit each month" from rentals.
Huston says 1987 "will be a hum-drum year" for the real estate industry as a whole, in part because so much of the nation is overbuilt and tax reform will reduce incentives to build. But while the tax legislation is expected to hurt many office builders, Huston says it should help firms that specialize in the construction of industrial space.