Santa Ana’s Skyline at MacArthur Place condominium towers could be converted into apartments if a pending sale of the twin 25-story buildings closes as expected.
Palo Alto-based Essex Property Trust Inc., an apartment developer and owner, is nearing completion of an acquisition for the Skyline development, according to sources.
Essex is said to be completing its analysis on the project—Orange County’s tallest condo towers—which remains unoccupied nearly a year after most construction on the two-buildings was completed.
A deal could be done by March, according to sources familiar with the transaction.
Officials for Essex declined to comment on a possible buy, citing confidentiality agreements.
Essex officials said last week during a quarterly call with analysts that they were currently under contract to buy two large projects, for a total of $175 million. The company didn’t disclose the names of the projects.
Apartments
Turning the condo project into luxury apartments appears to be the likely strategy for Essex. Last year, Santa Ana’s City Council approved an application by the high-profile property’s developer, Santa Ana-based Nexus Cos., to allow rentals at the project.
Nexus has been managing Skyline for the past year. The sale is being overseen by the project’s main financier, New York-based iStar Financial Inc.
A sales price hasn’t been disclosed. Other busted condo developments in OC that have been reworked as apartment projects have traded at about $235,000 per unit lately.
Observers think iStar could fetch $350,000 per unit or more for the high-end Skyline, which would place the value of the 349-unit project at about $125 million.
That price—if accurate—would be a nearly 50% drop in value for the high-rise project, which sits along the Costa Mesa (55) Freeway in Santa Ana’s Hutton Centre.
In 2006, Nexus lined up a $215 million loan from Brea-based Fremont General Corp. as well as a $32 million mezzanine loan from Lehman Brothers Holding Inc. for the project. Fremont and Lehman filed for bankruptcy in 2008.
In 2007, Fremont’s commercial real estate lending business was bought by iStar, which since has been plagued by a real estate portfolio that counted a large amount of condo construction loans.
Late last year, iStar’s executives said they would look to sell off a large portion of its portfolio assets to repay debt.
Second Deal
A deal for Skyline would be the second large OC condo development that Essex has bought this year with an eye on converting to apartments.
In January, the company paid $27 million for Dupont Lofts, a 115-unit condo project in Irvine that sits a few blocks from John Wayne Airport.
Like Skyline, Dupont Lofts initially was eyed as condos by its developer, Los Angeles-based West Millennium Homes Inc. Construction on the project was halted about a year ago and Dupont Lofts eventually was taken back by its lender, which oversaw last month’s sale.
Essex plans to complete construction of the Irvine project in about six months. The higher-quality finishes put into the Dupont Lofts when it was still eyed as condos should allow the company to get “premium” rents once the site opens, officials said at the time of the deal.
Essex, a real estate investment trust, owns about a dozen apartment complexes in OC and has about 27,000 apartments in total on the West Coast.
A conversion to apartments would be the latest blow to OC’s nascent high-rise condo market, which has been battered by the real estate downturn.
Beginning with the 2006 opening of Bosa Development Corp.’s Marquee towers in Irvine’s Park Place campus, about 1,100 condo units have been built in four high-rise developments, including Skyline. About half of those condos have been sold.
Last year, some 30 high-rise condos were sold at Geoffrey Edmunds & Associates’ 3000 the Plaza project on Jamboree Road and at Intergulf Development Group’s Astoria Project in Irvine, according to data from the Costa Mesa office of Washington, D.C.-based Hanley Wood LLC.
Nexus had presold fewer than 100 of Skyline’s condos, before opting to halt sales in 2007 and return deposits amid the down housing market.
