Kilroy Realty Corp. has put its 40-property Orange County industrial portfolio on the block in a move that looks likely to be the largest industrial sale the area has seen in years.
The Los Angeles-based landlord recently began marketing for sale its entire OC industrial portfolio, which runs close to 3.5 million square feet and is about 93% leased.
Most of the properties—a mix of warehouses, business parks and light industrial buildings—are located in Anaheim, Brea or Garden Grove. A few are near John Wayne Airport and elsewhere in the county.
Prominent buildings in the portfolio include the roughly 200,000-square-foot headquarters for Anaheim-based Targus Group International Inc., one of the country’s largest makers of bags for laptop computers. Targus is estimated to have more than $500 million in annual sales and 200 employees in OC.
QSC
Also on the sales block is a nearly 51,000-square-foot building in Costa Mesa that’s home to QSC Audio Products LLC, a maker of amplifiers, speakers and sound systems. QSC has an estimated $150 million in annual sales and about 300 employees here.
Kilroy hasn’t announced prices for any of the buildings. Real estate sources familiar with the sale estimate the portfolio could fetch close to $400 million or more, thanks to a relatively tight industrial market here, with a countywide vacancy rate of about 5%.
Well-leased industrial buildings of good quality in OC have been trading at capitalization rates—the expected initial return from rents—in the 6% to 7% range of late, according to area brokerage data.
An aggressive investor looking to buy into OC’s tight industrial market could push that rate closer to 5% on the Kilroy portfolio, according to sources.
Executives of Kilroy, which also owns about 541,000 square feet of office properties in OC, said last month that they expected to sell between $500 million and $700 million in assets across its entire portfolio over the next year or so. The OC industrial buildings now on the block are expected to make up the largest portion of the total.
Kilroy’s best-known building in OC is an office—the 2211 Michelson building in Irvine, which it acquired in 2010 for $103 million. That 12-story building isn’t on the sales block, nor is any of its other four OC offices.
Office Focus
A sale of the industrial properties had been expected.
Kilroy owns nearly 15 million square feet of properties along the West Coast, but it has emphasized growth in its office portfolio in recent years. The OC buildings now for sale are the last in its industrial portfolio.
Executives with the company alluded to a potential sale of the OC buildings last month during a quarterly call with analysts.
“We’re seeing tremendous interest in our industrial portfolio and expect to complete a transaction later this year,” Chief Executive John Kilroy Jr. said during the conference call.
Brokers with Eastdil Secured have the listing for the portfolio. Marketing materials for the offering suggest that Kilroy would consider selling individual assets or a group of buildings in addition to entertaining bids for a sale of the entire portfolio to a single buyer.
“There has not been a Southern California industrial portfolio offering of this scale since 2006,” according to Eastdil’s marketing materials.
There hasn’t been a portfolio sale topping $100 million here in several years, either. The last big deal here took place in 2007, when Chicago-based Walton Street Capital LLC paid nearly $400 million for a 19-property portfolio of buildings (see related story, right).
Orange County’s nearly 250 million-square-foot industrial market is a scattershot affair, with a large number of landlords in the market. Newport Beach-based Irvine Company is believed to be the largest industrial owner here.
Kilroy’s OC industrial portfolio includes 16 warehouses totaling about 2.2 million square feet, 14 light industrial buildings totaling another 801,000 square feet, and 10 business parks making up about 426,000 square feet.
The portfolio counts more than 70 tenants, whose leases run on average another 30 months, according to marketing materials.
Monthly rents at the buildings average about 57 cents per square foot, according to Kilroy’s most recent annual report.
The largest building in the OC industrial portfolio is a nearly 310,000-square-foot property on Towne Centre Drive in Foothill Ranch that’s primarily leased to logistics company Guthy Renker Fulfillment Services LLC, which until last year was known as CPU2 LLC.
The smallest buildings up for sale are a pair of properties on Industry Street in Garden Grove that total 45,000 square feet.
