Intersect, one of the largest high-end office complexes near John Wayne Airport, has a new financing deal in place but is no longer up for sale amid a choppy and uncertain investment market for commercial real estate properties.
The local office of Houston-based office investor Hines and Newport Beach-based Pacific Investment Management Co. said last week they had refinanced a loan for the four-building property at the intersection of Main Street and Von Karman Avenue in Irvine.
The new three-year loan totals $182 million; the interest rate wasn’t disclosed. It was financed by MetLife Investment Management and arranged by JLL Capital Markets.
The new financing deal replaces an existing $108 million loan secured in 2018, and will “fund future leasing” at the 452,000-square-foot complex, according to JLL.
Intersect is home to the headquarters of franchise owner Xponential Fitness and gaming company Allied Esports Entertainment Inc. (Nasdaq: AESE), among other tenants. It is nearly 80% leased.
“Identifying a new lender, going under application and closing during the COVID-19 pandemic provided some challenges, but a team effort and great relationships got it across the finish line,” said JLL Executive Managing Director Kevin MacKenzie, who helped secure the deal along with colleagues John Chun and Nick Lench.
Upgrades
Hines and Pimco paid $121.5 million, or nearly $270 per square foot, for the campus in 2015. It was about 15% leased at the time.
The campus was previously home to Seattle-based Washington Mutual, but the lender vacated the office in 2008 during the mortgage industry’s implosion. It was previously known as Quintana prior to Hines and Pimco buying it.
A reported $27 million investment was subsequently made by the new owners, including a redesigned 2-acre courtyard, and a wealth of indoor-outdoor workspaces and related features, among other upgrades.
Notable amenities at Intersect include a shipping container converted into a beer garden, a new coffee shop, a game pavilion, fire pits, food trucks, a chicken coop and aviary, and a 4,200-square-foot gym with Peloton bikes and an outdoor yoga lawn. It also counts private tenant terraces, a 40-plus seat stadium-style conference center and a 16-person boardroom.
Much of the amenities aren’t being used now amid social-distancing rules and stay-at-home employee edicts.
Like most large office campuses in the vicinity of the airport, the property is now only being used by a fraction of its normal tenant base.
Once OC gets back to work en masse, the recent health-focused upgrades will prove to be a welcome addition, according to Hines.
“Intersect’s vision of creating a next-generation office environment that promotes a balance of work and wellness is critical in today’s environment,” said Tom Lawless, director in Hines’ Orange County office.
Sales Hiatus
JLL, whose OC office is based at Intersect, listed the property for sale on behalf of Hines and Pimco in the latter half of 2019. A $260 million asking price, or about $575 per square foot, was reported at the time, which marked a 114% premium to the previous sale of the complex.
At the time, Intersect’s less-than-full occupancy—then around 75%—was expected to help draw aggressive investors, who were likely to see potential upside from leasing the remainder of the property at higher rents.
With recession and COVID-19 issues now putting a question mark over the value of office buildings, that leasing risk isn’t seen as attractive.
The largest office campus deal of the past quarter in Orange County—Aliso Viejo’s three-building Element property—features a fully leased property with a long-term tenant committed to the site, device maker Glaukos Corp. (NYSE: GKOS).
The June 15 print edition of the Business Journal was first to report on that $73.5 million sale to Irvine’s IRA Capital LLC, which paid $460 per square foot for the one-time home of technology firm QLogic.
