The local office of Houston-based Hines Interests LP has partnered with Pacific Investment Management Co. in Newport Beach to buy one of the most prominent office campuses near John Wayne Airport.
Hines and PIMCO recently closed on the purchase of Quintana, a four-building, 430,000-square-foot campus at the intersection of Main Street and Von Karman Avenue in Irvine.
The complex once served as the local hub of Washington Mutual Inc. but has sat largely vacant for the past seven years.
Financial terms of the sale were not disclosed.
Real estate sources had projected a deal approaching $120 million, or roughly $275 per square foot, in the weeks leading to the sale.
The deal is one of only a handful of office sales in Orange County to top the $100 million mark this year.
Palo Alto-based real estate investor Menlo Equities LLC sold the campus, which it acquired in 2010.
Officials with the Irvine office of Hines confirmed its part in the Quintana purchase but declined to name its financial partner in the transaction. Sources familiar with the deal confirmed Pimco’s involvement as a co-investor.
The deal is believed to be Pimco’s largest commercial real estate investment in Orange County in years.
The bond investment giant, which has close to $1.52 trillion in assets under management and runs one of the world’s largest mutual funds, also has a growing real estate portfolio.
It raised a reported $5.5 billion last year for a fund that’s been used to snap up a variety of commercial and residential real estate properties, among other assets.
Rebranding, Redesign
The new ownership group is planning a major overhaul of Quintana that could add another $40 million in investments into the low-rise campus.
A $15 million capital improvement plan includes upgrades to the property’s open spaces and common areas. A new conference room and a fitness center are planned, along with new retail offerings and a name change that hasn’t been disclosed.
The capital improvement plan, combined with tenant-improvement costs of about $25 million, should make Quintana “the most unique and differentiated campus environment in the airport area,” according to Hines.
Also unique to the property: high levels of vacancy.
The campus was only about 13% leased at the time of its sale, making it the largest high-end office property in OC with that much empty space.
The available space, combined with the planned upgrades, should make it “well-positioned to attract a wide range of tenants from across Orange County and Southern California,” said Hines Managing Director Ray Lawler, who leads the firm’s OC development and investment office.
“Our intent is to make this the best campus in the area” he said.
Menlo Equities had been holding out for a single user to take up most of the vacant space at Quintana but never signed a deal in the five years it owned the property.
“They were waiting for the 360,000-square-foot whale,” Lawler said.
The new owners are planning a different approach. Lawler said his company will try to lease individual buildings to separate users and could also sign deals in the 30,000- to 60,000-square-foot range, depending on the tenants.
The local office of JLL will be handling leasing for the campus, and Hines has taken over property management responsibilities.
The campus should have strong appeal for technology companies that have recently been gravitating to South OC, according to Jeff Cole, executive director of the Irvine office of Cushman & Wakefield Inc.
Brokerage teams headed by Cole and HFF LP Senior Managing Director Ryan Gallagher sold the property.
The deal, despite the lack of leases, proved to be a big money maker for Menlo. It paid a reported $69.2 million, or about $170 per square foot, in 2010 for the then financially distressed campus.
Menlo bought the campus out of receivership following the 2008 departure of Washington Mutual during the mortgage industry’s implosion. The property was only about 30% leased at the time.
Menlo’s initial plan had been “to hold and wait” for the office market to improve, although it initially expected to find a big tenant or a buyer in about three years, not five, according to Cole.
Still, “they were able to make a nice return without having to put a lot capital into it,” he said.
‘Available Now’
The Quintana purchase boosts Hines’ OC office portfolio to about 3.2 million square feet, making it the area’s third largest landlord by square footage behind Newport Beach-based Irvine Company and Equity Office Management LLC in Chicago.
Hines already added one big airport area property to its name this year in the 4000 MacArthur office campus in Newport Beach. The two-tower complex sold in February for an estimated $120 million.
Hines’ OC portfolio is about 85% leased.
It has one big block of available space each in Santa Ana and Brea, not factoring in Quintana, according to Lawler.
Its existing airport-area offices are largely full, prompting the investor to push ahead on a new office development on land it owns on the opposite corner of Main Street and Von Karman Avenue from Quintana.
Nine-Story Building
The company has proposed a nine-story, 242,000-square-foot building at 17850 Von Karman Ave., a development site it owns with L.A.-based private equity firm Oaktree Capital Management LP.
Some early-stage work at the site, including a planned parking structure, should begin soon for the development.
The tower “is a different offering” than the Quintana space, whose buildings are two to five stories tall, so the two products shouldn’t be in competition with each other for tenants, Lawler said.
Vacancy rates for class A airport area offices are approaching the single digits, and only a handful of empty spaces larger than 25,000 square feet are available, according to brokerage data.
The lack of vacancy, in addition to favorable economic conditions projected for OC over the next few years, has other area developers—including Irvine Co. and Trammell Crow Co.—planning their own office projects in OC.
Quintana “is an alternative to that” development, Lawler said. “It’s available now.”
