C ALIF OR NI AONTARIOI NTELLIGENCE REPOR T204 NOVEMBER 2018 SI T E S E L E C T IO NINTRODUCTIONONT ARIO , CALIFORNIA | INTELLIGENCE REPORTIn Ontario, California, an economy set for takeo is driven by smooth landings and long-range vision.When Canadian brothers George and William Chaff ey founded the city of Ontario, California, in , they named it after their home province, forcing everyone from the California city to henceforth clarify that they’re from “the other Ontario.” But both territories can claim to be major drivers of the “CA” economy.Yes, California is just a state, but what a state: million residents, and a $. trillion gross state product that, if it were a nation’s, would rank as the world’s fi fth largest, just behind Germany. Ontario, California, is quickly rising to the stature of its home state’s capital city for logistics and e-commerce, with tens of millions of sq. ft. occupied by world-leading brands, tens of millions more sq. ft. under development and a business-friendly environment that helps companies navigate state requirements while also keeping quality of life in mind. at’s catching the attention of international business leaders.“Our reputation in California and across the globe continues to spread and become more well-known, as national and global corporations alike continue to invest in our region to meet the needs of their logistics and supply network,” says Ontario Economic Development Executive Director John Andrews. “ e growth of Ontario International Airport is helping to accelerate this positive reputation.” at’s the airport that, to most area leaders’ relief, shifted back to local control in . As one CEO told me, “Now that it’s back in the hands of the city, it will continue to grow and expand as it should.”What stands out, however, is not just movement of goods, but migration of people. Ontario and the Inland Empire are growing their population and workforce base. By , the city is projected to grow by nearly percent to reach a population of more than ,, making it one of the largest cities in the U.S. All the more reason why the city’s master planning and long-range vision make so much sense.Andrews points out the area’s convention center, sports and entertainment arena and other community assets (including the Chaff ey Community Museum of Art named for the city’s founders) are “transforming Ontario into a regional destination,” i.e. a place for people as well as packages. e next chapter? “We are putting renewed emphasis on our historic downtown core, and expect to see multiple new and adaptive reuse projects happen downtown over the coming years,” Andrews says. Concurrently, the master-planned Ontario Ranch development, complete with the same gigabit-per-second fi ber-optic conduit unspooling in other parts of the city, will off er a full menu of housing options. And the airport truly is just getting started.“ e evolution of Ontario International Airport and surrounding land development opportunities will shape the region for decades to come,” says Andrews. “We see the airport becoming a major domestic and international gateway for business and tourism-related travel for all of Southern California.” Adam Bruns, Managing Editor, Site SelectionDESTINATION AND DESTINY S I T E S E L E C T I O N NOVEMBER 2018 205HOT AND GETTING HOTTEROntario is the beating heart of a nation-leading region in goods movement and e-commerce. LOGISTICSONT ARIO , CALIFORNIA | INTELLIGENCE REPORTIn September 2018, CBRE Research and CBRE Labor Analytics declared California’s Inland Empire No. 2 in the nation in transportation and warehousing (T&W) employment growth rate from 2013 to 2017, at 46.8 percent. The report also noted that the region — which includes municipalities such as Ontario, Riverside, Temecula, San Bernardino and Rancho Cucamonga — has experienced large population growth since 2010.More products moving through the region and more people moving to the region make for a promising scenario for industrial development. At least that’s what two major forces in the sector think.In October 2018, Ivanhoé Cambridge — the real estate arm of Canada’s second-largest pension fund that has invested upwards of $60 billion — joined California-based industrial real estate investment and development firm CapRock Partners to mark the start of construction on Phase I of Colony Commerce Center in Ontario: 1.3 million sq. ft. of space in two Class A buildings with 36-ft. clear heights. Phase II will include a 1-million-sq.-ft. LEED-certified building with a 40-ft. clear height that anchors eight additional small-box buildings, for a total of approximately 1.7 million sq. ft. Construction on that phase is set to commence by year end.The overall $450-million project heralds Ivanhoé’s first U.S. project development investment, but the firm has invested more than US$2.5 billion in the North American industrial real estate market this past year. CapRock Partners is building more than 4 million sq. ft. of Class A industrial product in the Inland Empire in 2018 — a big chunk of the 11 million sq. ft. it’s been involved with since its founding in 2009.‘Perfect Opportunity’In interviews with Site Selection, Mario D. Morroni, Ivanhoé Cambridge executive vice president, Industrial, North America, and CapRock CEO Patrick Daniels shed light on the market dynamics behind this location decision.“Our strategy for North America is to focus on land-constrained coastal markets as well as those markets with strong growing population bases, good and efficient infrastructure and well-diversified economies,” says Morroni when 206 NOVEMBER 2018 SI T E S E L E C T IO NMario D. Morroniasked about Ivanhoé Cambridge’s approach to site selection. “When selecting a development site we like markets that offer strong demand for industrial logistic product with constraints that may keep supply in check like lack of land availability or more challenging entitlement and permitting processes. The Colony Commerce location definitely met those requirements and was a perfect opportunity for us to add exposure to the Inland Empire market, one of the hottest markets at the moment. The irreplaceable Ontario/Chino location in the Inland Empire West offers strategic proximity to Orange County, Los Angeles County and the ports, as well as access to 10 million people within a 60-minute drive.”Colony is “ideally positioned to capitalize on the market’s strong user demand and rising rental rates,” he says. “We continue to consider various locations for potential development sites, but our choice was also influenced by the strength and the timing of the relationship we have developed with the CapRock team, as local knowledge, expertise and site availability was key” in terms of coordination with an array of constituents and navigating the regulatory environment to obtain the necessary approvals and permits.Ivanhoé Cambridge until recently has been focused on mixed use, residential, retail and office. Asked to place this new project in context, Morroni says, “The industrial/logistics sector is in fact newer for us in North America than some of our other sectors, that is true. However, from CA$500 million four years ago we now have CA$4 billion in that space globally ... The industrial/logistics sector is a key theme of our overall investment strategy and we continue to seek interesting opportunities, especially in the stronger growth markets here and abroad.”‘Lot of Runway’CapRock’s Patrick Daniels has been watching the strong growth in Ontario for a few decades.“Most cities either plan their growth or don’t,” he says. “Some kind of pick a middle path. But Ontario has always been a forward-thinking, master-planning type of community,” ever since the 1970s when it became the next destination for industrial requirements moving out from Los Angeles/Orange County.Daniels says the Inland Empire is arguably the leading industrial market in the country, due in large part to proximity to the Ports of Los Angeles and Long Beach. End users want to get as close as they can to reduce the cost of drayage, and the Colony project will be the first in the western portion of the Inland Empire to become available for new development.Yes, California can be a difficult regulatory environment compared to others, but the tradeoff is the state’s 40 million residents. That’s why, says Daniels, corporate inquiries are already pouring in about building delivery dates, given what he calls the “historically unbelievable” vacancy rate in the area, hovering between 1 and 1.5 percent.“I’ve been in this business for almost 35 years, and I’m still shaking my head,” he says.The scale of growth continues to stun observers, but not enough to keep them from getting in on the action. Kidder Matthews’ Q3 report on the Inland Empire noted net positive absorption reported for the 37th consecutive quarter, on the strength of major leases signed by Ross Stores, Hanesbrands and Nordstrom. “While nearly 18.3 million square feet of industrial space has been completed and delivered to the market year to date, an additional 21 million square feet of industrial space remains under construction,” the firm said.September 2018 analysis by CBRE of the 100 largest industrial and logistics leases during the first half of 2018 found that the Inland Empire led all U.S. metro areas in share, with 14 transactions. Fifty-six of those 100 transactions were e-commerce.“Everyone is now buying into this transition of how all of us as consumers are acquiring things,” Daniels says, meaning a promising shift of institutional-quality investor focus from the traditionally easier sell of office buildings. Most factors point positively in the direction of Ontario and the Inland Empire — including the fact that its total T&W employment cohort of nearly 130,000 (9 percent of jobs in the region) is next door to the No. 1 T&W labor market in the nation, Los Angeles/Orange County, with 314,510 jobs. The Inland Empire’s average wage in the sector of $13.52 puts it square in the middle of 37 leading U.S. industrial and logistics markets.“There’s a lot of runway for the shift to industrial over the next decade,” Daniels says, and the highways and tarmac in Ontario appear ready to welcome it. S I T E S E L E C T I O N NOVEMBER 2018 207ONT ARIO , CALIFORNIA | INTELLIGENCE REPORTINFRASTRUCTURERaytheon is among the companies taking advantage of what Ontario International Airport and an array of infrastructure improvements have to o er.The Inland Empire has become one of the fastest growing metro areas in California due to its aff ordable home prices, new construction, and a growing nightlife and cultural scene,” said Rob Land, senior vice president government aff airs & associate general counsel, JetBlue, when Ontario International Airport in September became the airline’s th city served in California and rd nonstop destination from New York-JFK. “ e San Bernardino-Riverside-Ontario metro area is on track to grow by some million people over the next three decades, and Ontario International Airport has demonstrated it is committed to supporting that growth.” e announcement came nearly years to the day after the founding of the airport in . But there was no stopping to celebrate. In addition to the fi rst transpacifi c fl ight from ONT launched earlier in to Taiwan by China Airlines, the airport in October welcomed Delta’s new nonstop service to Atlanta. It’s all part of a -percent year-over-year surge in passenger volume to more than , in September . In the fi rst nine months of , cargo tonnage grew by nearly percent over the same period in to , tons.JetBlue previously served Ontario between and and is returning a decade later, encouraged by the surge in customer demand in the Inland Empire, “as well as the airport’s leadership position on smart growth in Southern California,” the airline said. Ontario was originally JetBlue’s sixth overall destination and the very fi rst on the West Coast. But in , control of ONT 208 NOVEMBER 2018 SI T E S E L E C T IO Nwas transferred to the Los Angeles World Airports, where the focus was more on development at LAX, much to the chagrin of local leaders.“It started out as a great amenity and asset, with UPS a huge presence there,” says Patrick Daniels, CEO of developer CapRock Partners, of the return of ONT to local control. “But in commercial growth and expansion, it lagged under the Los Angeles authority’s management. With the transition, it will continue to grow and expand as it should.”Evidence of latent demand came before the China Airlines fl ights to and from Taiwan even took off . Ontario International Airport Authority CEO Mark orpe told this magazine’s Ron Starner in July , “Even before the fi rst day of service back in March, China Airlines increased its scheduled fl ights from four to seven days a week.”The Flying LaboratoryBut that’s not the only business going on at the airport.In May, leaders from Raytheon Company, the global defense and cybersecurity company with , employees and sales of $ billion, joined with offi cials from Raytheon joins a vibrant aerospace sector in Ontario that has already seen tremendous growth in both commercial and private aviation.” —Eric Ditmars, Vice President, Secure Sensor Solutions, Raytheon Space and Airborne Systems S I T E S E L E C T I O N NOVEMBER 2018 209the Ontario International Airport Authority to break ground on a hangar that will house Raytheon’s flying testbed platform. The RMT, a modified 727 airliner, conducts airborne test and evaluation on a variety of technologies.“I’m delighted Raytheon, one of our country’s premier defense contractors whose work is vital to our national security, has decided to be an important part of fulfilling the airport’s extraordinary potential,” said U.S. Rep. Ken Calvert (CA-42), a lifelong resident of Riverside County who fought hard to see the airport transfer back to local control.The hangar, expected to be complete in 2019, will staff 25 full-time employees, and at maximum capacity staff approximately 50 people for project-related work. Economic impact associated with the project ranges between $10 to 15 million a year.“The Raytheon Multi-Program Testbed is a modified 727 jetliner,” explains Eric Ditmars, vice president of Secure Sensor Solutions for Raytheon’s Space and Airborne Systems business.“Raytheon modified it to perform real-world, in-flight testing of sensor solution technologies. Nearly every airborne sensor or technology in service today first flew aboard the RMT. It is a unique asset not only for Raytheon, but within the broader aerospace industry.”Asked why Raytheon needed the new location, Ditmars says, “With ongoing expansion and construction at LAX, Raytheon pursued a new home for the RMT. Ontario has made great strides toward becoming an aerospace hub, and when we began looking for a new RMT home, Ontario was an ideal candidate.“Raytheon joins a vibrant aerospace sector in Ontario that has already seen tremendous growth in both commercial and private aviation,” he adds. “Adding defense-related activities rounds out the range of aerospace services and capabilities this part of Southern California has to offer. We are especially impressed by how quickly the facility will come together and be ready to support aircraft operations. The RMT is one of our most high-demand assets, and completing the hangar on schedule will be a major accomplishment.”Next >