Tejon Ranch Development Takes Shape in Northern L.A. County

It's been three years since TPR last interviewed you, so please share with us the status of the Tejon Ranch developments.

We've made great progress.

First, at Tejon Industrial Complex (TIC), which is located near the base of the Grapevine at the junction of I-5 and Highway 99, we have added a world-class partner, the Rockefeller Development Group from New York. We are in the final stages of gaining a foreign trade zone designation for the TIC, which will add to its appeal. This is significant progress that is due to the money and expertise that Rockefeller has brought to the partnership.

Second is Tejon Mountain Village, our resort community planned in the mountains. One question with a development like this is its financial feasibility, and we are pleased that we closed a joint-venture partnership this spring with DMB Associates of Scottsdale, Arizona, as our development and financial partner.

The third leg of our development, Centennial, is moving, albeit methodically, through the Los Angeles County Planning Department process. We are in the same partnership as originally intended with three homebuilders. We're close to wrapping up the EIR for that project and hope to have it available for public comment early next year. All three of our developments are fully financed with sound partners-we really weren't in that position three years ago.

What growth trends are leading you to develop this industrial complex? Will passage of the state infrastructure bonds on the November ballot affect your plans?

Interstate 5 is still the main corridor for goods movement north and south in California. We're in an ideal location near the northern edge of Los Angeles County at the intersection of I-5 and State Highway 99 depending on which direction intrastate goods are moving. We're seeing continued interest by both big distribution users and smaller users. And it's not only distribution; it's also manufacturing. A 140,000-square foot manufacturing facility is about to close escrow and break ground, for example.

I don't think the infrastructure bond initiatives have any great impact on what we're doing. We have the responsibility in our development agreement with Kern County to rebuild and reconfigure the interchange at Laval Road, the main off ramp at the industrial complex. The improvement of that interchange will be funded through both federal money and Tejon Ranch's own money.

There has been a great deal of discussion in the business community of Los Angeles about goods movement, the harbors, and the logistics industry, much of which has moved to the Victorville, eastern part of San Bernardino and L.A. counties. What, if any, is the market in northern L.A. County and in Kern County for the logistics industry?

A significant amount of goods movement is moving east and west, which might take them east of L.A. County if they are going to Las Vegas or Phoenix. But, there is still a huge market for goods going north and south.

Ikea's facility at Tejon Ranch started at 800,000 square feet. They added an additional 800,000 square feet several years later for about 1.6 million square feet under one roof. Just last year, they leased an additional 350,000 square feet from us. Now, they're talking about another 500,000 square feet by the end of 2007 or 2008. Their distribution model covers Southern California, but it also goes from this location to all points north, covering the 13 western states.

Finally, I've spent some time with our industrial people in Shanghai and Beijing over the past year. We were invited to join the governor's trade mission to China. We've been in touch with several Chinese companies that are already distributing their products into the United States but using third parties to do so. They are now looking at direct distribution by warehousing here at Tejon Ranch and then distributing their products throughout the United States. So, a number of factors make TIC a great location.

As far as the next several years are concerned, we're entitled for about 20 million square feet of building space. Over the last three or four years, we've built just a little less than 3 million square feet. We have plans for another 500,000–600,000 square foot building that we expect to bring online in 2007. I think it is going to continue to grow from there. We are very likely going to build a second large travel plaza on the east side of I-5 that will be similar to the one we have now on the west side of the freeway.

Let's turn to Tejon Mountain Village. What is the size and scope of that development?

The Tejon Mountain Village planning area is a very large master plan. It's about 28,000 acres. Within the 28,000 acres, barely 5,000 will have any disturbance, meaning roads, buildings, golf courses, hiking trails, and the like. The remaining 23,000 acres, or 80 percent, will be left in its current condition as fully preserved natural open space. We describe it as a 23,000-acre nature reserve made possible by a sensitively planned 5,000-acre mountain retreat.

The plan includes a maximum of about 3,400 units, probably several small resort hotels, and several golf opportunities. Right now we are in an intense internal review period with DMB reviewing all the planning we've done over the last four or five years. We want to ensure that all partners are comfortable with where we are going before we submit the EIR to Kern County to begin the public review and entitlement process.

Who comprises Tejon's professional consulting team for this project?

There are almost too many to list, but at the risking of leaving someone out, these are the companies doing the primary work on Tejon Mountain Village: Jones & Stokes, EIR and biology; FORMA, planning and GIS management; RGP Development Services, policy planning and specific plan. Several companies are working on the golf courses: Fazio Golf Course Designers; Jay Morrish & Associates; and Schmidt & Curley Design. And several on site planning and architecture: EDSA, Hill Glazier; McLarand, Vasquez & Emsiek; and many others.

What is the status of Tejon's Centennial project?

Centennial is our new master planned community in partnership with Pardee Homes, Standard Pacific Homes, and the Lewis family-Lewis Investment Corporation. The project is designed at about 23,000 new residential units.

It is intended to be a self-contained community, with a balance of jobs and housing. It's not intended to be a bedroom-type community. We have been working for the past couple of years perfecting our transportation and water strategies and making sure all of the technical reports in the EIR fully address all the issues required by CEQA. We expect that EIR to be completed early next year.

And which companies are and involved with Centennial?

You're putting me on the spot again. But again, at the risk of leaving someone out-and if I do, my apologies, here are the companies taking the lead on the project: BonTerra, EIR and biology; The Planning Center, land use planning; Psomas, engineering; Austin Foust and Planning Company Associates; and Bookman Edmonston, water.

When TPR last interviewed Steve Soboroff, he offered that Playa Vista was more of a "public policy project" than a real estate project. Can the same be said about Tejon Ranch's developments?

I don't believe so because the public policy that Steve is referring to relates to an urbanized area with intense pressures on the land to accommodate large populations. That's certainly not our situation.

Our land holding is so substantial, we're only developing about five percent of our land. And when the public sees the amount, the level, and the detail of our conservation planning-the sustainability of the proposed developments in terms of water conservation, recycling, green building techniques, and so forth-I think that we can show that these are well-planned, 21st century real estate projects that we are all going to be very proud of.

Economic forecasts out this summer suggest a slowdown in the housing market. How does that prospect affect the plans of Tejon Ranch?

It really doesn't have much of an impact. Centennial is intended to be a 20-year build-out. We think Tejon Mountain Village will be a 10–12-year build-out. We think Tejon Industrial Complex is a 10–12-year build-out. Given those horizons, we couldn't stop and start based upon market swings. That's one of the reasons why we wanted to ensure that we had strong financial backing.

As we sit in 2006, Tejon Ranch is in the strongest financial condition in the history of the company. For a company of our size, we have a large amount of cash in the bank. And for each of our projects, we have substantial financial and development partners that are in for the long run. We're not really making any short-term adjustments for market cycles.

What challenges do large-scale development projects face when going through the governmental and environmental review processes?

It's no surprise to TPR that entitling land in California has become extremely complicated. It's both a planning process and a political process. It takes a substantial amount of risk capital. With each of the projects, particularly Tejon Mountain Village and Centennial, there are tens of millions of at-risk dollars out there prior to gaining entitlement. I think that one certainly needs strong planning, financial resources, and, frankly, patience and tenacity to keep working with advocacy groups as well as government agencies to ensure that the plan is not only economically viable, but is sustainable from an environmental standpoint.

Lastly, is Tejon Ranch the breakout development that releases growth pressure from L.A. County into the Central Valley?

No, I don't believe so. I think a large part of the housing in Los Angeles is going to come from quality infill development, which is appropriate in an urban area the size of Los Angeles. But infill development can't handle all the need for new housing. At Tejon Ranch we're surrounded by something like 2.5 million acres of national forest that isn't going to be developed.

We're also surrounded by hundreds of thousands of acres of highly productive agricultural land, some of which we own and intend to keep for agriculture. We are simply preparing to handle a portion of California's growth that currently is coming more from the South than it is from the North, but it's growing from that direction as well.

Also, Kern County still has challenges with its high unemployment rate and if we can create employment centers like Tejon Industrial Complex that provide careers in industries other than agriculture and oil, we can help to diversify the economy and raise the standard of living for everyone.