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O’Donnell Group Back as Buyer

John O’Donnell: UCI honors coming as fund takes shape

O’Donnell Group Inc., a Newport Beach real estate developer and property manager with a prominent history in Orange County, is looking to make a billion-dollar, nationwide push into industrial buildings.

The company and John O’Donnell, its founder and managing general partner, have been running area real estate companies since the early 1970s.

O’Donnell Group recently announced plans to raise up to $1 billion from individual investors through a new fund, O’Donnell Strategic Gateway REIT Inc.

The non-traded real estate investment trust recently filed a registration statement with the Securities and Exchange Commission.

The fund intends to focus on investments in industrial properties, mainly warehouses, in U.S. markets that serve as regional distribution hubs.

Targeted areas are set to include Southern California, Chicago, Atlanta, Dallas and New York. About 80% of the fund’s buys will be in those markets, with deals expected in the $5 million to $50 million range, according to O’Donnell Group.

The new offering comes as John O’Donnell is getting accolades from the area’s real estate community.

O’Donnell—who’s been involved in large developments in OC and other parts of Southern California as well as in Alaska and Mexico—is due for honors this week from the University of California, Irvine’s Center for Real Estate, part of the Paul Merage School of Business.

He’s picking up a lifetime achievement award at the center’s annual gala on Tuesday.

The award’s overdue, longtime area developers said.

“He was a winner from the day he came into my office,” said John Parker, chairman of Aliso Viejo developer Parker Properties, who hired O’Donnell in the 1960s for the local operations of commercial real estate brokerage Coldwell Banker (now CB Richard Ellis Group Inc.).

“He’s been behind a great number of projects in Southern California,” including industrial complexes in and around Irvine, Parker said of O’Donnell.

Track Record

O’Donnell Group and its predecessors have developed or bought close to 25 million square feet of industrial and office properties since 1972. Most were in California, Washington, Alaska and Mexico.

Those businesses also have raised nearly $625 million since the early 1970s from institutional investors, including Newport Beach’s Irvine Company and major pension funds, according to regulatory filings.

Good timing has played a key part in the business, John O’Donnell told the Business Journal.

Developers survive in tough markets like today’s by “getting buildings up and by knowing when to get out,” said O’Donnell, whose company now is headed up by son and Chief Executive Douglas O’Donnell.

Douglas O’Donnell also is heading up the new fund. John O’Donnell is listed as a director of the fund but won’t be too involved in day-to-day operations, he said.

Another son, David O’Donnell, heads up a separate real estate development company that builds industrial buildings in Mexico.

O’Donnell Group officials declined to talk more about the new fund, citing SEC restrictions.

The plan for the fund is to focus on buying warehouses leased to stable tenants. The company is considering other types of commercial properties and real estate-related investments, such as mortgages or mezzanine loans, according to the registration statement.

Growth in industrial buildings is set to remain stagnant this year with demand outpacing construction next year and in 2012, according to the company’s projections.

“We believe opportunities currently exist to acquire quality commercial real estate properties at a discount to replacement cost and with significant potential for appreciation,” the company said in its registration statement.

O’Donnell is the latest local real estate investor to start up a non-traded REIT, offerings that fix the price of shares sold to investors and continue to raise money beyond an initial offering.

Local companies have raised close to $4 billion from such offerings in the past few years.

Newport Beach’s KBS Realty Advisors has been the most active local operator of non-traded REITs, raising close to $3 billion alone. Those offerings have turned the company into one of the country’s most active buyers of office towers and other buildings of late.

Others include Santa Ana-based Grubb & Ellis Co. and Thompson National Properties LLC and Steadfast Cos., both of Irvine.

Like most non-traded REITs, O’Donnell’s fund is set to raise money on an ongoing basis and can start buying properties once it raises $2 million from investors.

Reaching the $1 billion maximum would allow for a big jump in investment activity for O’Donnell Group. The company hasn’t been too active buying buildings in the past few years and largely avoided big-dollar deals during the peak years of the last commercial real estate boom.

Its last major purchase was in 2007, when it paid $9.6 million for a 36,000-square-foot office building in Irvine, according to regulatory filings.

The company and its partners spent about $91 million on a total of 14 industrial, land and office deals between 2000 and 2007, all in California.

John O’Donnell founded O’Donnell Co. in the early 1970s

In addition to taking part in several big land deals in Southern California, his company made its mark by developing what’s said to be the prototype of the modern industrial park in Anchorage to take advantage of growth from the building of the Alaska Pipeline.

He sold off those Alaska developments in the late 1970s before a drop in oil prices pushed down the value of real estate there.

More Good Timing

A similar piece of good timing came in the 1990s, when O’Donnell sold off another portfolio of buildings to institutional investors prior to the savings and loan crisis.

In addition to development, O’Donnell made a big mark locally through property management.

In 1986, John O’Donnell founded O’Donnell Property Services. By the early 1990s, the company had grown to become the county’s third-largest commercial real estate manager, with more than 7 million square feet of local industrial space in its portfolio.

Its total portfolio counted about 24 million square feet of office and industrial space at its peak.

In 1995, the property management business was sold to a unit of Insignia Financial Group for undisclosed terms.

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Mark Mueller
Mark Mueller
Mark is the Editor-in-Chief of the Orange County Business Journal, one of the premier regional business newspapers in the country. He’s the fifth person to hold the editor’s position in the paper’s long history. He oversees a staff of about 15 people. The OCBJ is considered a must-read for area business executives. The print edition of the paper is the primary source of local news for most of the Business Journal’s subscribers, which includes most of OC’s major corporate and community players. Mark’s been with the paper since 2005, and long served as the real estate reporter for the paper, breaking hundreds of commercial and residential real estate stories. He took on the editor’s position in 2018.
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