By Ray Haurd
San Diego Business Journal
January 25, 2024
EL CAJON – Chesnut Properties is building a 380,000-square-foot warehouse/manufacturing building at Gillespie Field in El Cajon that may well be a trendsetter by including electric vehicle charging stations for trucks and rooftop solar arrays that will produce 2.5 megawatts of electricity for tenants.
“I’m all in for the effort to build in a sustainable way,” said Lee Chesnut, CEO of Chesnut Properties. Built on a 31.5-acre site at 1756 Weld Blvd., about 40% of the building – Gillespie Field iPark – has been leased to GKN Aerospace for the manufacture of jet engines and airplane parts.
“We are in the sweet spot as far as the overall industrial development in the county,” Chesnut said. Aside from Otay Mesa, most of San Diego is built out when it comes to industrial space, and centrally located industrial property, with easy freeway access, is hard to find.
Chesnut said that his project was “one of the most strategic, large -scale industrial projects brought to East County, if not the county.”
The building has 28 feet to 31.5 feet clear heights, dock-high and grade-level loading doors and 650 parking spaces, including 34 trailer stalls.
Tricky Financing
Chesnut Properties got a $91 million construction loan on the project from 3650 REIT, based in Miami, at a time when financing for such projects is tight because of high interest rates.
The $91 million doesn’t cover the full cost of the project, Chesnut said, but he declined to give a figure for the total cost. Financing for this project was also tricky, in part, because Chesnut Properties has a 50-year ground lease on the site from San Diego County and investors typically want to see a longer lease.
“While everybody would like a longer lease, 50 years is long enough,” Chesnut said, adding that he expects to renew the lease well before it expires.
“Gillespie Field iPark was a challenging project since I began construction with my own capital in the most difficult capital markets I’ve experienced in my career,” Chesnut said. “2023 will go down as the most difficult in capital markets to do anything.”
Financing for the project was arranged by Peter Hillakas, senior director of Gantry Inc., and Drit Shoemaker, director of Gantry.
“This financing required as much tenacity as it did creativity,” Hillakas said.
Banks, which typically finance many such projects, have cut back on their lending as a side effect of high interest rates. The higher interest rates of the past year mean there are fewer property sales, which generate income for banks, giving them money to lend, Hillakas said.
Chesnut said that the Gillespie Field iPark is a special project for him, because it harkens back to when he formed Chesnut Properties in 1990. “I started out my career in El Cajon. My first project I ever purchased was a multi-tenant industrial building down the street from the county airstrip,” Chesnut said. There’s also a family tie to the project through the general contractor, C2 Building Group, owned by Chesnut’s son, Josh Chesnut.
Heading in Right Direction
Some segments of the San Diego industrial market have cooled considerably, but the outlook for warehouse products like this one, remain strong, according to James Duncan, executive vice president of Kidder Mathews.
“The vacancy rate has increased to about 5.7% for total industrial, that includes all product types. That rate is still in line with the 10-year average” Duncan said.
Excluding sublease space, Duncan said that the vacancy rate for pure industrial warehousing is an even healthier 3.3%.
The vacancy rate for industrial buildings developed with flexible space for life science companies is running higher than pure warehouse space, Duncan said.
“That’s primarily due to the softness in the life science industry, where they had a huge runup (in demand) during COVID and they saw a tremendous expansion and growth.”
As the year progresses, he expects to see renewed interest among investors in acquiring industrial property.
“Investors have been sitting on the sidelines waiting to invest in real estate as soon as they see the interest rate environment stabilizing,” Duncan said. “Everything seems to be heading in the right direction. I’m optimistic about what the market’s going to bring this year.”
Chesnut Properties
FOUNDED: 1990
PRESIDENT AND CEO: Lee Chesnut
HEADQUARTERS: Rancho Santa Fe
BUSINESS: Commercial real estate developer, ownership and management company
EMPLOYEES: 4
WEBSITE: chesnutproperties.com
CONTACT: susan@chesnutproperties.com
SOCIAL IMPACT: Company supports Alzheimer’s San Diego, South County YMCA and Southwestern College Foundation Board
NOTABLE: Lee Chesnut earned a degree in music and in the early 2000s owned his own record label, LMC Records
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