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Comeback on Track

A frenzied pace of headline-grabbing deals toward the end of the year helped make 2010 the most active year for single-asset commercial real estate sales in Orange County since 2006.

The combined total of the 10 largest sales in the office, industrial, apartment and retail sectors was about $2 billion in 2010, according to data in this week’s Top Real Estate Deals section.

As a group, those 40 top deals were up more than 60% from 2009, when hesitant sellers and tough financing made for the slowest market for commercial real estate the county and nation had seen since the 1990s

The increased volume brought 2010’s totals just below the cumulative sales figures for 2006. Not including larger portfolio sales, it even exceeded levels reported here in the peak-deal year of 2007.

The pick-up provided a needed jolt for the area’s commercial real estate brokers, who had seen three years of steep declines in sales.

“The for-sale market has definitely ramped up—for trophy buildings, to distressed properties, to corporate users, all the way to small, private firms,” said Kurt Strasmann, managing director of broker services for Newport Beach’s Voit Real Estate Services.

The pace picked up as 2010 went along. More than 40% of the total dollar volume represented in this year’s listing was for deals that closed in the fourth quarter of 2010.

Momentum

Signs also suggest that the pace of sales—for buildings of all sizes—has carried over to the start of 2011.

There’s been $1.8 billion worth of commercial real estate transactions here in the past six months, according to New York-based re-search company Real Capital Analytics Inc.

A total of 133 OC properties tracked by the research firm have changed hands in that time. Those deals have an average price of nearly $14 million.

“The wind definitely appears to be at our back, the past 60 days especially,” said Jeff Chiate, executive director for the Irvine office of Cushman & Wakefield Inc. and one of the area’s most active industrial brokers.

The problem now for investors, according to Strassman, is a scarcity of properties to buy.

“There’s too much money chasing too little product,” Strasmann said.

Return to Form

For higher-priced properties, including a number of trophy buildings, 2010 was a return to form.

There were five office and apartment deals worth more than $100 million in 2010. In 2009, there was only one such deal.

In the ensuing pages, the Business Journal has published the ten top sales and leases of 2010 in the office and industrial markets, as well as the largest apartment and retail sales.

Data was provided by CoStar Group Inc., Business Journal records and individual submissions.

Sales are ranked by dollar amount and lease deals by square feet.

The Business Journal defines a deal as one building, a multibuilding campus or an office or industrial park.

Large institutional sales of portfolios of separate buildings or properties with a large mix of uses aren’t included.

While portfolio sales aren’t included, they indirectly effect our listing of top deals.

The largest portfolio sale the area’s seen in the past decade—Maguire Property Inc.’s $2.9 billion buy of nearly 7 million square feet of properties in 2007—continues to be felt here.

Five of the top eight office sales in 2010 were for buildings once owned by Maguire, which now operates as MPG Office Trust Inc. That roster included the largest office deal recorded last year: Irvine Company’s $213 million buy of Costa Mesa’s Pacific Arts Plaza.

That eight-building complex was bought out of receivership after Maguire defaulted on nearly $270 million of loans tied to the property in 2009.

The Pacific Arts deal is the first office complex that Irvine Co. owns in the high-end area around South Coast Plaza, and was one of three big local acquisitions the area’s dominant real estate owner made in late 2010.

The Newport Beach-based landlord also paid an estimated $125 million for the Pacific Financial Plaza office complex in the area next to its Newport Center headquarters, as well as a reported $241.8 million for an apartment complex in the Platinum Triangle. Irvine Co.’s buy of the Gateway apartment complex in late 2010 was the most expensive property sale OC saw in at least three years.

Distressed Deals

Distressed asset sales remained a large source of the area’s megadeals last year. Six of the area’s 10 most expensive deals—a combination of office and apartment complexes—involved distressed properties.

The largest retail deal of 2010 was June’s $22 million sale of Mission Viejo’s Kaleidoscope Retail Center, which went into foreclosure earlier in the year.

Westport Capital Partners LLC, a Connecticut-based company known for investing in distressed real estate, paid $22 million for the distinctive 220,000-square-foot mall at the intersection of the San Diego (I-5) Freeway and Crown Valley Parkway.

The largest industrial sale reported by CoStar in 2010 was for a distressed property, with Anaheim’s Sares-Regis Group of Irvine last summer picking up the one-time home of Galleria Inc., an Anaheim-based importer of lawn and garden furniture.

CoStar lists that deal at $25 million, while Business Journal records show Sares-Regis paying a special servicer $20 million for the 281,548 square foot building.

The building, on La Palma Avenue in Anaheim’s industrial corridor, now is leased to Straub Distributing Co., which distributes beer and other beverages for Anheuser-Busch InBev SA NV.

Straub signed a 15-year lease for the warehouse and distribution building in a deal valued at $37.5 million. It was the fifth-largest industrial lease reported in 2010, based on square footage, and is likely one of the priciest industrial deals signed here of late.

While the value of the largest sales showed a sizeable gain, that didn’t translate into bigger leases, at least among the top 10 deals.

The combined square footage of the ten largest office and industrial leases reported here in 2010 came in at about 3.6 million square feet, roughly the same amount as 2009.

The largest office leases declined about 39% on a square-footage basis compared to 2009 levels, at about 900,000 square feet.

Bigger Industrial Leases

The industrial segment ran counter to the trend, with the 10 largest leases combining for an increase of about 27% year-over-year, to about 2.7 million square feet.

Brokers say the decline in square footage for the office segment doesn’t fully reflect the overall increase in leasing in the overall market over the past six month or so, especially for larger, national tenants.

“Corporate America has returned, although local business has been slower to recover,” Cushman’s Chiate said.

This month alone has seen a pair of office lease deals with combined square footage that exceeds all of last year’s 10 largest deals. Bank of America Corp. renewed a lease in Brea for 637,503 square feet of office space just off Imperial Highway, where it has a call center.

Brokers who worked on the deal for Jones Lang LaSalle said they believe it is the largest office lease signed in the U.S. so far this year.

In Newport Beach, investment manager Pacific Investment Management Co. just signed a deal for 380,000 square feet of space at a new office tower slated to be built by Irvine Co.

That 20-story building will be the first office tower built in OC in about four years.

Mark Mueller
Mark Mueller
Mark is the Editor-in-Chief of the Orange County Business Journal, one of the premier regional business newspapers in the country. He’s the fifth person to hold the editor’s position in the paper’s long history. He oversees a staff of about 15 people. The OCBJ is considered a must-read for area business executives. The print edition of the paper is the primary source of local news for most of the Business Journal’s subscribers, which includes most of OC’s major corporate and community players. Mark’s been with the paper since 2005, and long served as the real estate reporter for the paper, breaking hundreds of commercial and residential real estate stories. He took on the editor’s position in 2018.
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