Amazon’s departure surprises landlord
Amazon’s decision to move its fulfillment center from Fernley to Reno came as a surprise to Fernley City Manager Chris Good and the owner of the building at 1600 E. Newlands Drive that Amazon has called home since 1999.
Good says the City of Fernley had been in contact with Amazon executives in recent months, and the online retailer’s decision to move its northern Nevada operations — and workforce of 700 to 900 full-time employees — west to Reno was a shock.
“We did not see this coming,” Good said late last week.
The decision also blindsided the building’s owner, Investment Grade Loans. The firm headquartered at Los Altos, Calif., had retained industrial specialist Dave Schuster of Avison Young to market and list the property for lease in April since Amazon had not exercised an extension on its lease. Investment Grade Loans has owned the 588,560-square-foot building for more than a decade.
Schuster, senior vice president of industrial properties for Avison Young, says that after he placed the listing on LoopNet, a national multiple listing service, he fielded a host of inquiries from across the U.S. from investors wanting to purchase the building.
But he fully expected Amazon to renew its lease — Investment Grade Loans had even drafted a new lease extension agreement and sent it off to Amazon for signatures.
“We were heading down the path of fully expecting Amazon to renew; it was a big surprise to the landlord,” Schuster says. “This came from left field to them. My marketing efforts were hindered by the more than likely expectation by Amazon to renew.”
Repositioning the building for a new tenant is paramount to Fernley’s workforce. Lyon County’s average 2014 unemployment rate of 11.3 percent through July leads the state and is 3.1 percent higher than the state average, the Department of Employment, Training and Rehabilitation reports.
The site originally housed Stanley Tools. Panattoni Development Company purchased the facility in the late 1990s and expanded it from 304,000 square feet, Schuster says.
Good is searching for a silver lining in Amazon’s departure.
“I just hope that it turns out for the better,” he says. “This is an opportunity to attract a new employer, and when all is said and done perhaps it will end in a net gain of job opportunities in Fernley.”
Finding a new tenant largely depends on when Amazon clears out, Schuster says. Since Amazon’s announcement Schuster has drafted new marketing literature listing the building for sale or lease at current market rates. It’s difficult to offer the building to a new user, he notes, since Amazon has not yet set a definitive date for its departure from Fernley. Amazon company representatives have stated “early 2015” as a move-out date.
Since leases on large industrial buildings typically are drafted for a minimum of five years, and industrial space has become the hottest sector of regional commercial real estate in the past two years, Amazon was paying an above-market rate for the space, Schuster says.
“Rents have recovered from 2007 levels, and competing properties in TRIC have asking rates in the 32-cent range, plus or minus a penny-and-a-half. We can come close to that mark,” he says. “Right now there aren’t very many big properties on the market and I think we should have some pretty good interest from those who need large space. I think we have got a reasonable chance at attracting new tents for the building in a reasonable time.”
Per the agreement, Caesars will continue to operate Harrah’s for the first half of 2020 before it’s redeveloped into a non-gaming hotel and mixed-use development.