A cautious buyer pool contributed to a drop-off in commercial real estate sales activity in Orange County last year.
Total transaction volume for the area’s top 10 office, industrial, retail and apartment sales in 2019 was down 19% from 2018, according to data provided by CoStar Group Inc.
Call it an effect of the record-breaking economy of the past decade, local CRE execs say.
“This has been one of the longest recovery periods in history, and there’s been a disconnect between the prices that sellers are expecting for their property, and what buyers are wanting to pay,” said Greg May, regional executive vice president of Newmark Knight Frank in Irvine.
The Business Journal’s annual listing of the top 10 commercial sales in each of the office, industrial, multifamily and retail sectors here in 2019 covers about $2.6 billion worth of dealmaking (see individual listings, this section).
This marks the first time since 2014 that total transaction volume hasn’t surpassed $3 billion.
Still, brokers are optimistic for 2020, noting that there’s been a resurgence in new listings and a larger pool of interested buyers.
“We have quite a few assets on the market, and our team is very busy,” May said. “We think the first half of the year will be very strong.”
Office Slowdown
Office sales once again represented the largest commercial real estate product type sold here in 2019, despite seeing a drop in sales volume.
The top 10 office deals in 2019 totaled $893.2 million in sales, down 26% from the $1.2 billion handled in 2018.
“Sellers want the price they got in 2018, and buyers are waiting for a better deal,” May said.
Only the top two local office sales traded at a price above $100 million in 2019.
Compare that with 2018, when eight of the top 10 deals cracked the $100 million benchmark.
“Transaction volume in 2019 was definitely lower than expected,” said Kevin Hayes, managing partner of Irvine-based Pendulum Property Partners.
Pendulum’s last big local deals were at the end of 2018, when it paid $83.1 million for the 301,000-square-foot Axis campus in Anaheim next to Angel Stadium, and another $124 million for the One Pacific Plaza office complex in Huntington Beach.
The company paused its dealmaking last year to prepare for internal growth; Hayes noted that it was good timing to not be as active.
“It was a great year to take a timeout to focus on our platform,” Hayes said.
“Buyers weren’t seeing the same fervor in activity that they would like to see, and sellers were holding on to their properties.”
A lack of value-add properties also contributed to the lull in activity, May said.
“Many buyers are looking for buildings with an upside, and there wasn’t a lot of that product for sale,” he said.
“A lot of those properties have already been repositioned and leased.”
Local Players
The buyers that did step up to the plate in Orange County didn’t need to look far.
Local investors shelled out $449 million for OC offices in 2019, representing 50% of the total sales volume in that product type.
Irvine-based Greenlaw Partners was part of two notable office purchases, both for Irvine office properties near the airport.
In October, a new holding company backed by the local investor paid $116 million for 2211 Michelson Drive, one of four buildings at the Von Karman Towers office complex near John Wayne Airport.
The 12-story tower was sold by Los Angeles-based Kilroy Realty Corp. for $425 per square foot, among the five top deals for a larger-sized office in the airport area the past 10 years on a per-square-foot basis, brokerage data indicates.
Greenlaw now has a stake in every building at Von Karman Towers.
Greenlaw was also part of the group buying 2040 Main St., the Irvine office that holds the local headquarters of law firm Knobbe Martens. It sold in September for a reported $130 million.
Greenlaw paired with Hilrod Holdings, a private real estate investment firm owned and controlled by the two top executives of Corona-based Monster Beverage Corp., for that deal.
Other OC office investors in 2019 include Alere Property Group and the local hub of Lincoln Property Co.
Industrial Gains
It wasn’t all doom and gloom for sellers in 2019; the industrial sector had a blockbuster 2019 and helped to buoy the market.
“Industrial is the shining star in the Orange County market,” May said.
It was the only product type to report an increase in sales from the prior year, with total sales of $688 million up 41% from 2018.
“It was a strong showing from a variety of industries within the sector, with many companies in expansion mode,” said Clyde Stauff, senior executive vice president at the Irvine office of Colliers International.
Demand for e-commerce logistics and distribution sites drove strong sales and leasing activity locally, with Amazon.com Inc. leading the way (see story, page 22).
Another growing sector: construction.
“Construction for both residential and commercial products was strong, driving demand for manufacturing companies,” Stauff said.
The top industrial transaction in 2019 was the $278 million sale-leaseback deal for Albertsons Cos.’ sprawling Irvine distribution center at 9300 Toledo Way.
Oak Brook, Ill.-based industrial investor CenterPoint Properties paid $230 per square foot for the 1.2 million-square-foot property, one of two 1 million-square-foot layouts it now owns in the area.
Diverse Buys
Investment from the industrial sector even crossed over into other product types.
The second-largest office deal in our listing was the sale of a 17-building office and industrial park in Los Alamitos, which industrial investor Alere Property Group bought for $128.5 million.
The Newport Beach company paid about $187 per square foot for the buildings, which range in size from 11,400 to 134,200 square feet and count a mix of small offices, R&D space and industrial buildings.
Similarly, the Cypress campus that held the headquarters of Mitsubishi Motors counts a mix of office space and industrial; the $57.5 million sale is listed in our top industrial deals section. Greenlaw Partners bought that site, too.
Industrial also intersected with retail, when the country’s largest industrial property owner bought an Anaheim site home to electronics retailer Fry’s Electronics.
San Francisco-based Prologis Inc. (NYSE: PLD) paid $53 billion for the 12-acre site along La Palma Avenue, and is in the process of converting the site into an industrial property.
Amazon is said to be the future tenant of the site, just north of the Riverside (91) Freeway.
Mixed-Use Focus
On the retail front, Gary Jabara’s shopping spree along Pacific Coast Highway was tops.
An entity run by the founder and chairman of Newport Beach-based Mobilitie LLC, the country’s largest privately held wireless infrastructure firm, paid $65 million for Surf City’s 5th & PCH property, a roughly 96,000-square-foot mixed-use development.
He also paid $57.6 million for Aliso Creek Shopping Center, a nearly 50,000-square-foot mall also along Coast Highway in Laguna Beach.
Location drove these investments, Jabara previously told the Business Journal.
Across the sector, food and beverage is driving investment, according to CBRE Group Inc. Senior Managing Director Jeff Moore.
“Retailers have to provide a consumer experience, and those projects that can do that will hold their own against the rise in e-commerce,” Moore said.
Retail investors are looking for value-add opportunities to create unique mixed-use environments, which can be seen in the redevelopment of malls in Laguna Hills and Brea.
“Developers are looking to create retail environments that include all property types, including multifamily, office and hospitality aspects,” Moore said.
Overall, the $337.2 million total for the top 10 top area retail sales represented an 8% dip from 2018.
The top 10 multifamily deals totaled $653.3 million, down 35% from 2018.
The top apartment transaction was Kort & Scott Financial Group LLC’s $113.5 million purchase of Baker Block, a 240-unit Costa Mesa project that’s about 2 years old.
At nearly $473,000 per unit, it’s the highest per-unit price seen for a larger-sized rental complex in OC in over two years, according to CoStar data.
