Maguire Properties Inc. still is making news in Orange County’s office market.
Dallas-based Lincoln Property Co. and New York-based private equity firm Angelo Gordon & Co. completed a $90 million acquisition of Maguire’s two-building Griffin Towers in Santa Ana last week.
It’s the biggest office sale in Southern California so far this year and the largest seen in OC for the better part of a year.
The twin 14-story towers, which total 547,230 square feet, traded hands for about $164 per square foot.
The sales price is less than half of the debt that was held on the property, which was re-financed for about $200 million in 2007 by Los Angeles-based Maguire.
Griffin Towers is the latest sale of a large, local property previously owned by Maguire, by far the most active seller of OC offices the past few years.
Sales of properties previously owned by Maguire were responsible for 45% of all the large office transactions in an otherwise stagnant Southern California market last year, according to brokerage data.
That’s not expected to slow down this year.
A handful of local buildings were placed in special servicing last year after the landlord defaulted on debt payments, including Costa Mesa’s Pacific Arts Plaza and the bulk of Irvine’s Quintana office campus. Those could be sold this year, although the timing will depend on individual lenders.
Other than distressed sales, the number of office buildings on the market isn’t high.
“The supply’s not overwhelming,” said Kevin Shannon, vice chairman for the Torrance office of CB Richard Ellis Group Inc., who worked on the Griffin Towers deal.
The cash buy of Griffin Towers essentially was finalized late last month, but lender issues kept the sale from being completed until last week.
Maguire still owes its lender, Royal Bank of Scotland Group PLC, $22 million due to a recourse loan previously tied to the property. That debt was converted into an unsecured loan as part of last week’s transaction.
Cap Rate
Griffin Towers traded at a capitalization rate—the expected initial return from rents—of about 8.1%. At the peak of the market, local office deals were trading at cap rates closer to 5%, leaving buyers with less chance to make profits quickly.
It’s the first local acquisition that Lincoln has made since 2006, when it paid $36 million for the Oakbrook Plaza office building in Laguna Hills, although the investor’s on the lookout for more deals, according to Kevin Hayes, senior vice president for Lincoln’s Irvine office.
It was also the first deal that the commercial and residential real estate investor has made with Angelo Gordon, according to Hayes.
Lincoln had eyed the Griffin Towers for the past 20 months and previously attempted buying the debt on the property directly from the lender.
The complex is at the intersection of the San Diego (I-405) and Costa Mesa (55) freeways and holds the headquarters of Santa Ana-based Corinthian Colleges Inc. and the local office of engineering firm CH2M Hill Inc., among other tenants.
The two buildings are approaching 80% full. That’s good compared to other high-end offices in the area, but with 100,000 square feet of vacant space, there’s still plenty of room for improvement, according to Hayes.
Leasing in today’s environment is “a hustle game,” said Hayes, who joined Lincoln about two years ago from tenant brokerage Cresa Partners LLC and previously was an Irvine Company leasing broker.
Lincoln will be moving its local operations into the buildings and will be handling property management duties for the complex. CB Richard Ellis’ Newport Beach office will have the leasing assignment for the offices.
Leases for the building are being quoted at monthly rents of about $2.20 per square foot.
Good News
Despite the discounted price, the sale is good news for OC’s investment market, which has seen several years of slow deal-making, although transactions here still outpace what’s happening elsewhere on the West Coast.
There was about $3.1 billion of office sales on the West Coast in 2009, according to New York-based Real Capital Analytics Inc., which tracks deals larger than $10 million. OC and Los Angeles were responsible for about 35% of those 2009 sales.
Maguire’s the main reason OC’s sales have outpaced those of other markets.
Including lender-driven deals, such as LBA Realty Inc.’s acquisition of offices at Maguire’s Park Place campus in Irvine, the under-fire landlord has been involved in close to $900 million worth of individual property sales in OC since late 2007, including $500 million of deals in the past year alone.
The company’s still working its way out of the debt it amassed when it bought close to two dozen office properties in OC and Los Angeles in early 2007, for $3 billion.
The good news for debt-burdened office sellers like Maguire, and their lenders, is that there are a growing number of potential buyers entering the market, said Shannon.
Of the more than 30 bids that were made on the property, about half the potential buyers weren’t in the market a year ago, according to Shannon. Most of the bidders offered to pay cash for the buildings, he said.
The large number of bidders helped push the price for the deal above other comparable properties. A nearby Santa Ana office sold for $125 per square foot last September.
