Market Turns Developers Into Real Estate Buyers
By DANIEL D. WILLIAMS
Two of Orange County’s familiar real estate names,John Parker and Erik Hansen,have teamed up.
Parker, of Aliso Viejo-based Parker Properties LP, and Hansen, formerly a Southern California managing partner with Foster City-based Legacy Partners, have formed Parker Hansen, a real estate investment firm.
Russ Parker, son of John, and Lee Redmond, both of Parker Properties, also are partners in the new firm.
Parker Hansen plans to buy what it considers undervalued buildings in Southern California, the partners said. If the buildings aren’t full, they hope to lure tenants. In other cases, they’ll look to fix up buildings and sell them within five years.
John Parker is best known for developing the Summit Office Campus at Aliso Viejo. His company has built 942,000 square feet of the proposed 1.7 million-square-foot office park.
“My focus in the last 10 years has been office. Right now, the office market is suffering with many tenants moving out,” he said.
The Summit counts 300,000 square feet of empty space, and Parker’s holding off before developing the project’s next phase.
“If vacancies were low, we wouldn’t be doing this,” Parker said of the new venture. “We’d be building. But that market is not there, right now, so we’re redeploying.”
The same conditions that make for tough going at the Summit make it a good time to be buying, according to Parker.
“We’re in a certain place in the economic cycle where there will be a real impact on the real estate industry,” Parker said. “Because of the recession, you will see corporations with dispositions and other projects with financial stress that will become available.”
The firm foresees at least two years of good buys in the office and industrial markets. The partners’ two-year plan calls for investing up to $150 million.
Parker Hansen envisions mimicking the financing recipe John Parker used with Parker Properties.
Parker began the Summit with private, wealthy individual investors. After the first two buildings were developed at $25 million, Parker aligned itself with Boston-based real estate investor AEW Capital Management LP.
“I would think we’d do the same thing here,” Parker said. “We’d initially use private dollars and private institutions that have different objectives. That gives us flexibility.”
Parker Hansen has pledges from institutional investors, according to Hansen.
“Collectively, we’ve cultivated a number of relationships with brokers and institutional sources over the years and we plan to work with those sources to target transactions in the range of $5 million to $50 million,” Hansen said.
Among those investors eyeing the new partnership is Chicago’s RREEF America LLC.
“We’re in the market to align ourselves with good opportunities,we invested $3.3 billion last year, so the money is out there for the taking” said Scott Stuckman, RREEF’s vice president of acquisitions for Southern California. “We’re equally concerned with the quality and integrity of the people we align ourselves with.”
Parker Hansen’s investment “sweet spot” is between $10 million and $30 million, the partners said. They’re also open to buying property portfolios and selling off buildings separately or as a set, they said.
Development isn’t out of the question either. The firm could look at buying so-called brownfields,former oil patches or other land with some level of contamination,and building from the ground up, the partners said.
But the implosion of technology companies has left plenty of existing space available. Parker said he sees it eventually filling up, but in a different way.
“We went through a period with a focus on high-tech, and industrial improved to R & D;,” he said. “Now, we see some cases where R & D; that was refurbished will go back to industrial.”
Nearly two-thirds of Parker Hansen’s projects are set to be office, according to Parker. The firm could sell some properties as early as a year into it, he said.
One industry analyst cautioned that Parker Hansen and its investors shouldn’t expect to make a killing like some bargain hunters did a decade ago.
“During the last recession we saw a lot of this value-added investment going on due to the savings and loan debacle,” said Walter Hahn, a consultant with the Irvine office of Ernst & Young Real Estate Advisory Services.
Last time around, fire sale prices allowed some investors to double their money when the economy turned, he said.
“This time around it might be little bit tougher to make a lot of money because the recession has not been that steep,” Hahn said.
But Parker Hansen is banking that a slumping economy, albeit pale in comparison to past recessions, will yield good deals.
“This is a challenging real estate market,” Parker said. “The only way to create a better property and increase value is to apply solid experience.”
