The 2600 Michelson tower in Irvine has hit the sales market, the latest local office property expected to sell for more than $100 million.
The 16-story building, which has had a major makeover in the past three years, was listed for sale earlier this month by brokers with the local offices of CBRE Group Inc.
A sale price for the 308,000-square-foot building, which is currently owned by a venture headed by Santa Monica real estate investor Ocean West Capital Partners, is expected to be around $105 million, or roughly $340 per square foot.
That’s a big step up from the roughly $70.2 million that Ocean West and New York-based Dune Real Estate Partners paid in June 2011 to New York-based Torchlight Investors, a special servicer for distressed commercial loans.
The building has gotten a major revamp to its two-story lobby and landscaping, among other improvements, in the three years since that deal.
It’s also seen a big boost in occupancy, from about 50% to more than 80% since the current ownership group took over.
New tenants include Seattle-based real estate data company Zillow Inc., which has its Southern California operations based there, as well as Coldwell Banker Commercial Alliance, a New York-based commercial brokerage.
The most recent signing for the building is Santa Ana-based Meritus Payment Solutions, which is taking over a floor after recently signing a nearly 20,000-square-foot lease.
Monthly asking rates at the building now run about $2.25 per square foot, according to CoStar Group Inc. records.
Existing lease rates average about 7% below market, according to marketing materials for the building.
Allergan Interest?
The building’s largest tenant is drug maker Allergan Inc., which occupies nearly three floors at 2600 Michelson. The company’s expansive headquarters are on the same block as the building, which is about half a mile from John Wayne Airport.
The 2600 Michelson building is the only office on the block Allergan doesn’t own.
In addition to its own primary campus, the maker of Botox and other drugs has snapped up a number of smaller offices and land adjacent to the campus over the past 10 years.
Those purchases, totaling more than 200,000 square feet, were valued at more than $50 million.
Allergan is now said to be in escrow to buy another four buildings across the street from its headquarters on the opposite site of its campus from 2600 Michelson, near the intersection of Von Karman Avenue and Dupont Drive.
The four low-rise offices combine for about 68,500 square feet and were listed for sale last year for a combined price of $15.4 million, or about $225 per square foot.
It’s not known whether Allergan would be interested in purchasing 2600 Michelson to round out its holdings on the block. The drug maker—Orange County’s largest public company, with a recent market value of roughly $39 billion—could certainly afford the property.
Allergan was rumored to be a potential buyer of 2600 Michelson when it was put up for sale in 2011 by Torchlight Investors, which took over operation of the building after its prior owner, Los Angeles-based Maguire Properties, defaulted on about $110 million of debt tied to the office.
Real estate sources said Allergan could have been put off at that time by complications stemming from the nearly $67 million in debt it would have had to assume for that deal.
The office tower is being offered free of existing debt this time, according to marketing materials from CBRE, whose Kevin Shannon, Paul Jones and Robert Smith have the listing for the building.
Brokers involved in the new listing declined to comment on whether Allergan would be a prospective buyer of 2600 Michelson this time.
Active Market
There appear to be plenty of potential investors that could end up taking an interest in 2600 Michelson, the largest class A office on the market for sale in the airport area.
More than $1 billion in large office sales have been completed in OC so far this year, the most active period for investment sales seen here since 2007.
Institutional investors appear confident that sizable rent hikes are in the cards for area buildings.
Vacancy rates for higher-end buildings in the county are slowly approaching levels seen at the peak of the last commercial real estate boom, but rents still are only about 70% as high as they were then, according to brokerage data. n
