Sprouts Farmers Market’s State-of-the-Art Distribution Center in Fullerton, California

Recently, I was invited to the grand opening of the new Sprout’s distribution center. Because I wear two hats - commercial real estate broker and contributing columnist for Southern California News Group - this invitation had a special appeal to me. The transaction was a high profile one and the shiny new logistics building replaced an aging paper plant. You see, Sprouts Farmers Market, the well-known grocery store chain specializing in fresh and organic products, recently made a significant move, setting up its state-of-the-art distribution center in Fullerton, California. This move not only marks a new chapter for Sprouts but also promises to have a positive impact on the local community and the environment.
 
Before its relocation to Fullerton, Sprouts Farmers Market operated out of Colton, California in a facility leased by Lineage Logistics. But the company's new distribution center signifies a strategic shift. Sprouts is dedicated to delivering fresh produce to its customers, and this new facility strengthens that commitment. According to Joe Hurley, chief supply chain officer for the firm, the operation boasts state-of-the-art cold storage rooms cooled to an ambient temperature of 34°F and 55°F. Also, transportation-related emissions are reduced by saving an estimated 725,000 annual road miles from current delivery routes due to its proximity to stores.
 
To provide the community with an inside look at their impressive facility, Sprouts held an open house event. The event was attended by Fullerton's Mayor, Fred Jung, the leadership team of Sprouts, and many of the employees that work in the location everyday with the commitment of delivering their customers the freshest produce. Attendees had the opportunity to witness the significant capital investment that went into the building, as well as explore the ripening rooms for bananas and avocados, among other highlights. Perhaps the most heartwarming aspect of the event was the generous donation of $65,000 to Fullerton schools by the Sprouts Charitable Foundation. Commonwealth Elementary received $15,000, while Maple Elementary received a substantial $50,000 donation, with a particular focus on cafeteria composting.
 
At the helm of Sprouts Farmers Market is CEO Jack Sinclair, who took the reins in 2019. With a pleasant Scottish brogue and a pedigree including stints at Walmart and 99 Cent Stores, little did he know that his tenure would coincide with the COVID-19 pandemic, which presented unique challenges to the industry. Despite these challenges, Sinclair had a clear vision for the company. Sinclair's objectives included targeting Sprouts' customer base, described as “health enthusiasts and innovation seekers”. While the U.S. grocery industry is vast, with an estimated worth of $1.2 trillion, Sprouts has dedicated itself to focusing on a $200 billion slice of that business. To achieve this, Sinclair also aimed to enhance the supply chain, a goal that has been realized with distribution centers now in Aurora, Colorado, Orlando, Florida, and Fullerton, California. Additionally, he envisioned new stores with a smaller footprint and aims to grow the company's approximately 402 stores nationally by 10% per year, primarily in the Sun Belt region.
 
Sprouts' presence in Fullerton is not just about bricks and mortar; it's about creating opportunities and giving back to the community. The 337,000 square-foot logistics building, of which Sprouts occupies roughly 250,000 square feet, has added approximately 190 full time jobs to the community. But the impact extends beyond employment. Through the Sprouts Healthy Communities Foundation, the company is making substantial donations to local schools, supporting nutrition, education, composting, and even school gardens where students learn firsthand how produce is grown and delivered to stores.
 
Standout features of the Sprouts distribution center are myriad beginning with the presence of ripening rooms within the cold storage area. These rooms allow for the precise control of temperature and humidity, ensuring that avocados and bananas reach stores at the perfect level of ripeness. Aligned with Sprouts' commitment to environmental sustainability - the facility is designed for future solar panel implementation and LEED certification, emphasizing Sprouts' commitment to green building practices. In an effort to encourage environmental responsibility among its employees, the center provides 11 electric vehicle charging stations, with plans for future expansion. Additionally, an electric vehicle terminal truck assists with daily yard operations.
 
Sprouts Farmers Market's relocation to Fullerton, California, represents not only a strategic business move but also a commitment to its customers, employees, and the local community. With its dedication to fresh produce, environmental sustainability, and community engagement, Sprouts sets an example for businesses looking to make a positive impact on both a local and global scale. As we witness the fruits of their labor ripening in the heart of Southern California, it's clear that Sprouts Farmers Market is not just a grocery store but a genuine community partner.
 
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.

Ways to FINANCE a Commercial Real Estate Purchase

I have written extensively recently about the HUGE increase in selling prices for commercial real estate in Orange County, California. Since the beginning of 2013 we have seen sales prices increase by a whopping Fifty Percent! It dawned on me that my readers might want to learn about the various ways to finance commercial real estate...which is the subject of this post.

As a buyer of commercial real estate you fall into one of three categories...an owner/occupant (your company will operate out of the building that you purchase), an investor (you don't occupy the building but purchase the building for the tenant's rent), or an owner/investor (you buy the building and partially occupy the building and have the balance as rental income). I will focus today on the financing options of the owner/occupant and the owner/investor.

Small Business Association loans: Also known as SBA loans, real property (not equipment or cash flow loans) loans through the SBA are generally one of two flavors...a 504 or 7A loan. The 504 loan is a fifty percent first loan from a bank and a forty percent second loan from the government (also known as a debenture). The 7A loan is a ninety percent government guaranteed bank loan. Each type of SBA loan (504 and 7A) has its advantages and disadvantages. The advantages include, small down payments (10%), fixed interest rates, ability to finance building improvements, and wide availability from a number of lending sources. The disadvantages are the origination fees, the prepayment penalties, the collateral and personal guarantees, and the cash flow and years in business requirements. If you would like to read about SBA loans in greater detail, you can click here.

Conventional financing: Once upon a time, before the preponderance of SBA financing, if you wanted to buy a building, you showed up at your local bank or savings and loan office and applied. What resulted was a loan of seventy five to eighty percent of the purchase price. Boom. Done. Not much as changed over the years...except of course, the savings and loans are extinct, there are fewer commercial banks, and the banks would prefer for you to originate an SBA loan because the bank's risk is less since the government is guaranteeing a portion of the loan. Hmmm, I guess a lot has changed.

Seller financing: We saw a lot more seller financing when the market interest rates bubbled above four to five percent and a borrower could not seek ninety percent financing through the SBA. There are few advantages for a buyer to seek seller financing, but if a seller of commercial real estate owns the property free and clear and is willing to finance the purchase, the buyer generally avoids the need for an appraisal and may also skirt certain origination fees.

Third party financing: Does your Aunt Barbara or Uncle Frank have a substantial nest egg earning close to zero percent in a certificate of deposit? Maybe they would like to loan you the money to buy a building for your company. They get a great return on their money and have the security of the building as collateral. Plus, you'll have something to talk about at Thanksgiving!

Purchase the building for cash: I've only seen this occur a couple of times in a career that commenced when Reagan was President, but it happens. The cool structure is to buy the building personally (or as an LLC), with personal cash, and lease the building to your company. Your company then pays you rent...Bingo!