An office tower in the John Wayne Airport area of Irvine has changed hands in the latest deal by a national investor bullish on the local market’s potential for rent growth.
The 230,615-square-foot building at 18301 Von Karman Ave., part of the four-building Von Karman Towers office complex, sold this month for about $69 million, or about $300 per square foot.
A venture headed by a real estate investment affiliate of Bloomfield, Conn.-based healthcare insurance company Cigna Corp. bought the building, which holds the headquarters of food supplier Golden State Foods Corp. and other tenants.
The 11-story building’s about 85% leased, according to brokerage data.
The seller was a partnership that included Newport Beach-based Greenlaw Partners, New York-based Westbrook Partners LLC and Walton Street Capital LLC in Chicago.
Greenlaw Partners is staying on as a partner in the new ownership group and will continue to manage the property. It’s the local developer’s first venture with Cigna.
Greenlaw also plans to move its offices to the building, which has had an extensive amount of renovations to its lobby, corridors and other areas over the past two years.
Airport Premium
The deal is one of three larger office sales that closed this month for a collective total of more than $170 million, but 18301 Von Karman is the only property to approach the $300-per-square-foot mark.
Chicago-based Equity Office Management LLC, the real estate arm of New York-based private equity giant Blackstone Group LP, recently closed on its purchase of the 1 and 2 MacArthur Place office towers in Santa Ana.
The buildings, which total about 410,000 square feet, sold for $82.5 million, or about $200 per square foot, in a deal Jones Lang LaSalle brokered.
Irvine-based PRES Cos. closed on AT&T Inc.’s eight-story corporate office at 200 Center Street Promenade in downtown Anaheim. The local investor and developer paid about $19 million, or $95 per square foot, for the 201,000-square-foot building, which is expected to be renovated to incorporate more ground-floor retail.
The 18301 Von Karman property’s location in the airport area—an office market that appears poised for significant short-term rent increases—helped push up its valuation, noted Jeff Cole, executive director of the Irvine office of commercial real estate brokerage Cushman & Wakefield Inc.
The building is “in one of the best locations in the submarket,” Cole said.
“Even though rents haven’t gone up much yet, investors believe that the market there is about to take off—and this (sale) validates that,” said Cole, whose brokerage team worked on the Irvine office sale, as well as the sale of the AT&T building to PRES Cos.
Monthly rents for the office, which opened in 1989, are currently about $2.25 per square foot, according to brokerage data.
Class A offices in the airport area currently have a vacancy rate of about 15% and had average monthly rents of about $2.20 per square foot at the end of last year.
Telling History
The Von Karman office has had more than its share of ownership changes over the past decade, and the accompanying ups and downs in pricing provide a good glimpse into the health of OC’s market.
Hearn Co., a Chicago-based real estate investor, bought the building in the summer of 2007 from Los Angeles-based Maguire Properties Inc. (later known as MPG Office Trust Inc.) for a reported $112 million, near the peak of the commercial real estate market. Maguire had owned the building for less than a year.
The sale to Hearn went for a sky-high $486 per square foot, more than $100 per square foot higher than most of the other individual office deals made that year. The building was nearly 90% full at the time of the sale.
A year later, an affiliate of Newport Beach’s KBS Realty Advisors bought a $76 million first mortgage and a $9 million mezzanine loan tied to the property, at a discount to their face values. KBS valued its investments in the loans at about $63.7 million.
Hearn fell behind on loan payments beginning in the summer of 2009, according to regulatory filings KBS made.
KBS received a deed in lieu of foreclosure—when a borrower returns a property to a lender to avoid foreclosure proceedings—and gained control of the Von Karman property later that year.
Greenlaw partnered with Walton Street and Westbrook Partners to buy the building from KBS in 2010 for about $41 million—or about $180 per square foot—when the office was only about 25% occupied.
Cigna Sales
Cigna has been involved in a few other local property sales over the past month.
The insurer was part of a partnership including Irvine-based LBA Realty that sold Fairway Center I in Brea in late November to Boston-based TA Associates Realty.
The 145,000-square-foot office sold for an undisclosed price.
Cigna and Newport Beach-based developer Western Realco this month closed on the sale of their Randolph Business Center in the Los Angeles County city of Commerce. The new center is a 400,169-square-foot industrial project that’s fully-leased to OnTrac.
An affiliate of Seattle’s Bentall Kennedy bought the property for more than $55 million in a deal brokered by Cushman & Wakefield.
Cole said the capitalization rate for the Commerce deal—about 4.25%—is one of the lowest on record for an industrial sale.
