California’s largest swath of private land taps municipal bond market

Tejon Ranch, the largest stretch of private land in California, is tapping the municipal bond market for $61.6 million to expand the commercial center roughly 83 miles north of downtown Los Angeles.

Encompassing roughly 270,000 acres, or about 420 square miles, the mixed-use property owned by the publicly traded Tejon Ranch Co. has long been at the center of a debate over wildfires and urban sprawl. The latest financing is for a project that would more than double the size of the Tejon Ranch Commerce Center, a complex that currently houses distribution centers for IKEA, Caterpillar, L’Oreal and other retail giants.

Tejon Ranch Public Facilities Financing Authority is expected to issue the bonds for the center on Thursday. Proceeds will be used for what’s anticipated to be a 20 million-square- foot development, according to bond documents. Construction is already underway on an apartment community slated to add 228 housing units by next year.

The offering comes as California, one of the nation’s most expensive states to live in, faces a housing crisis pitting developers against environmentalists as the state endures increasingly persistent heat waves, droughts and wildfires. Earlier this month, severe weather in Southern California spurred a wildfire within Tejon Ranch. It burned through nearly 10,000 acres of grass and brush and forced evacuations in the nearby communities, according to the Kern County Fire Department. Against that backdrop are hungry muni investors searching for rich yields.

Given the lack of high-yield issuance, “the things that do come will get a decent amount of attention,” said David Mann, senior investment analyst at Manulife Asset Management. “There should be some good demand for this.”

The commerce center is a part of the company’s vision to develop real estate throughout the private land. The Centennial project, a planned community with nearly 20,000 housing units and over 10 million square feet of commercial real estate in Los Angeles County, is also part of that vision. 

But two decades after it was first proposed, a judge ruled that Tejon Ranch would have to revise its plans and complete an additional environmental impact analysis, following a 2019 lawsuit challenging the project.

“It was conceived over 20 years ago, at a time that we didn’t really understand the environmental cost of building these areas, the wildfire risk and just the value of these grasslands and wildlife habitat,” said J.P. Rose, a senior attorney with Center for Biological Diversity, the organization that filed the suit.

“The investment is incredibly attractive,” said David Spier, an equity investor in Tejon. The property sits on both sides of Interstate 5, the most used of the two major north-south routes on the entire coast. 

“Every day, hundreds of thousands of people have to go through it, commerce has to go through it,” Spier, a portfolio manager at Nitor Capital Management, added. “That gives Tejon the ability to take advantage of demand in the area.”

The property was initially amassed through Mexican land grants in the 1800s and used for raising sheep and cattle. It still houses a working ranch, though the farms and vineyards it encompasses take up just 2% of its 270,000 acres.

Stifel Financial Corp. is the sole underwriter on the deal. Representatives for the bank didn’t respond to requests for comment on the deal. It’s set to price on Thursday.