The purchase of a medical office and retail property in Mission Viejo appears to have gone a bit smoother for Laguna Beach-based Combined Investments LLC than a notable hotel deal it has in the works in its home city.
This month it completed the purchase of La Paz Plaza, a 51,766-square-foot mixed-use property on La Paz Road a few blocks north of the San Diego (5) Freeway in Mission Viejo.
It paid nearly $32.4 million for the three-building property, which houses 80% medical offices, the remainder retail. La Paz is about 96% leased.
The deal works out to $625 per square foot and a 5.75% capitalization rate, according to Marcus & Millichap, whose Newport Beach-based First Vice President Paul Bitonti represented the buyer.
The seller was Newport Beach real estate investor Flinn West, which was represented by Matt Berres and G. Ryan Smith of JLL Capital Markets.
Combined Investments is headed by Joe Hanauer, former head of Coldwell Banker’s Residential Group who now invests in commercial properties, including several deals in his hometown of Laguna Beach.
He’s helped revitalize a number of other prominent buildings in Laguna Beach, including the Old Pottery Place and 580 Broadway.
Last month, the Business Journal broke the news of another Hanauer involvement in a separate big deal there: the city’s iconic Hotel Laguna.
Hanauer is reportedly part of an investment team that includes another local real estate executive, James ‘Walkie’ Ray, and Laguna Beach filmmaker Greg MacGillivray, to take over operations of the 65-room hotel, which is one of the oldest and best-known properties in the city.
Whether the deal represents a sale or something else remains a matter of contention. The hotel’s longtime operator, Anderson Hotels Inc., claims in a lawsuit filed last month that it was illegally deprived of the opportunity to buy the property from the current owners, Porterville-based E.W. Merritt Farms.
Anderson Hotels’ complaint alleges that Hanauer, Ray and MacGillivray, rather than buying the hotel outright, may have agreed to operate it under a 99-year lease. Such a structure “is legally equivalent to a sale,” the company argued in its complaint. It claims to have a right of first refusal to buy the hotel.
The locals have been “marketing themselves as the new ‘owners’ of Hotel Laguna” in recent months, the suit alleges.
After the Business Journal reported on the suit, the defendants disputed most of Anderson Hotels’ claim in court filings. The allegations are “wrong and the plaintiff knows it,” the response said.
Among other points, the plaintiff’s belief that a 99-year lease is legally equivalent to a sale is “nothing more than a legal conclusion, not a factual allegation,” the response said. It didn’t specify whether the local group had in fact reached a deal to take over hotel operations or buy the property outright.
A conference on the lawsuit is scheduled for late December.
Other Workings
Combined Investments’ La Paz Plaza buy had its own complexities. The buyer is assuming in-place commercial mortgage-backed securities debt as part of the deal.
Flinn West took out about $27 million in debt in 2014 for the property and two other local buildings it owned, according to prior news reports.
The CMBS loan’s rate is about 4.75% and has seven years remaining on its term, according to Marcus & Millichap’s Bitonti, who said Combined Investments is acquiring the Mission Viejo property through a 1031 exchange.
Medical office properties generally outperform traditional office and retail properties in terms of price per square foot. That said, the nearly $625 per square foot in the La Paz Plaza deal “is a very good price for a mixed-use property,” Bitonti said.
It’s nearly the same per square foot as a recently completed midsize office deal for property in Newport Beach that was snapped up by a law firm (see real estate column, page 19).
