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South Coast Metro Office Sells to SD Investor

One of the high-end office buildings in the Hutton Centre mixed-use campus in Santa Ana has been sold to an investor from San Diego.

Cypress Office Properties LLC, a real estate investment and operating company with a portfolio of about 2 million square feet in Southern California and Arizona, last week closed on the purchase of 3 Hutton Centre, a 10-story building next to the Costa Mesa (55) Freeway just off MacArthur Boulevard.

The 198,161-square-foot office in the South Coast Metro area traded hands for about $50.5 million, or $255 per square foot, according to real estate sources.

It was about 90% leased at the time of the sale. Tenants include engineering firm Psomas, software company Yardi Systems, law firm Callahan & Blaine, Compwest Insurance, and a few government agencies.

The seller was TH Real Estate, a division of New York-based TIAA Global Asset Management, which bought the property in 2003 for a little under $40 million, according to CoStar Group Inc. data.

The sellers “saw an opportunity to exit a secondary submarket at an attractive price per square foot, and plan to redeploy gains in more core locations,” said Ed Hernandez, director of the capital markets team at the Irvine office of Cushman & Wakefield Inc.

He and colleagues Jeff Cole, Nico Napolitano, Robert Lambert, and Rick Reeder represented TH Real Estate in the deal along with John Weiner of CBRE Group Inc.

The building is the only Orange County asset Cypress owns, although the firm has bought and sold a handful of area offices since its 2009 founding, according to the real estate firm’s co-founder and principal, Mark Wayne.

The company’s on the lookout for other area deals, said Wayne, who described OC as “a very solid market to be buying in, if you can identify quality properties at the right price.”

Cypress deals tend to range from $20 million to $40 million, although the company can partner with others to buy assets as large as $200 million, Wayne said.

It partnered with a fund managed by Birmingham, Ala.-based Harbert Management Corp. on the 3 Hutton Centre buy in the investors’ fifth deal together.

Cypress’ other core markets are San Diego and Phoenix. It also recently bought the 114,355-square-foot Willow Creek Corporate Center in the Scripps Ranch area of San Diego from Irvine-based LBA Realty in a deal local news reports estimated at about $20 million.

Rental Uptick

The near-term upside in rents at the building played a large part in Cypress’ interest, according to Cushman & Wakefield’s Cole.

Rents in the South Santa Ana office market have increased more than any other in Orange County in the past 12 months, according to the brokerage’s latest quarterly data. Monthly rents there are about $2.78 per square foot for high-end space, up from $2.13 per square foot a year ago.

Cypress plans to spend a couple of million dollars more to renovate 3 Hutton Centre’s common areas, Wayne said.

The building was built in 1985. It sports a black glass facade, a penthouse health club, and a six-level parking structure.

Office buildings in the 46-acre Hutton Centre campus still appear to be trading at prices below the peak of the last real estate cycle. Pricing of high-end offices on Hutton Centre Drive topped out at a little under $300 per square foot prior to the recession before falling as low as $150 per square foot in the downturn, according to CoStar records.

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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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