San Francisco-based Shorenstein Pro-perties LLC completed the largest office acquisition in Orange County for 2008 when it paid nearly $211 million for Irvine’s Main Plaza complex near John Wayne Airport—more than twice the price paid for any other local office complex that year.
Now the owner of the twin 12-story, Main Street building—a national investor that’s shown no signs of being in financial distress—is making news again in OC, with one of the more hard-hitting leases seen for a high-end office in Irvine.
SullivanCurtisMonroe Insurance Ser-vices LLC recently moved its headquarters to Shorenstein’s 1920 Main St. building, leasing 25,237 square feet of space. The insurance brokerage, which relocated from an older building down the street, also got its name on top of the building.
The seven-year lease is for $4.4 million, which puts monthly rents at a bargain-basement price of about $2.08 per square foot.
The lease is one of the most aggressive transactions to take place in the airport area in the past 18 months, according to Jake Stickel, a broker with the Newport Beach office of CB Richard Ellis Group Inc.
For similar higher-end offices around John Wayne airport, monthly asking rents have been running about $2.50 per square foot. Near the peak of the market, those rents were more than $3 per square foot.
“The rental rate the tenant was able to lock in at this class A property is comparable to the rent they were paying under their previous lease in a class B building,” said Stickel, who represented the insurance com-pany along with CB Richard Ellis Group Inc.’ Carol Trapani and Tasha Monroe.
Expect to see more eye-opening leases as existing and new property owners in OC look to weather the ongoing slow office market, tenant brokers said.
Local owners with strong balance sheets, including Newport Beach’s Irvine Company—and presumably Shorenstein—would rather fill up their buildings now at below-market rates than continue seeing their buildings remain empty during what’s expected to be a slow recovery for the local market.
Meanwhile, owners that bought distressed properties in the last year at steep discounts are hoping to leverage their cash positions to make deals that other financially-strapped landlords can’t afford.
“It’s a tenants’ market, as everyone knows,” said John Tumminello, principal for Newport Beach-based investor Greenlaw Partners.
Late last year, the company partnered with San Francisco-based Westbrook Partners and Chicago’s Walton Street Capital LLC to buy Irvine’s 2050 Main St. office tower.
The $56 million all-cash deal, which traded at about $177 per square foot, was the third-largest office sale of 2009.
Now the new owners of 2050 Main are rolling out an aggressive leasing plan to fill up the newly built, 13-story building. The tower was acquired from the lenders of the previous owner—Phoenix-based Opus West Corp.—at a steep discount to its construction price.
In addition to lease rates that are “highly competitive” with the rest of the market, Greenlaw’s executives said they have agreed to pay brokers their entire commissions at lease signing, instead of the bonus installments between lease signing and tenant move-in.
The plan appears to be working. The new owners of 2050 Main St. said they have two full floor lease deals that are close to closing. The transactions require more than $3 million in tenant improvements and leasing commissions, Green-law’s executives said.
Lower lease rates and attractive concession packages appear to be grabbing the attention of some of the very largest office and warehouse tenants in OC.
The combined 1.5 million square feet for OC’s 10 largest office leases in 2009 was nearly 50% higher than 2008’s levels, while the 10 largest industrial leases in 2009 were nearly 80% larger on a square foot basis than a year earlier.
Notable deals include a 365,000-square-foot lease signed by Lake Forest’s Western Digital Corp. to move its headquarters to Irvine’s Park Place complex—the largest relocation of a local company announced last year, as well as the second largest office lease signed in 2009.
The building it’s moving to was acquired last year at a discount by Irvine-based LBA Realty, which helped it make a deal with Western Digital at below-market rates. Other space the company owns at Park Place is listed at monthly rents of $2.15 per square foot.
The increase in large leases last year has not necessarily translated into an increase in overall leases for all OC, local brokerages said.
Office leasing activity totaled 1.8 million square feet in the fourth quarter. That’s the third quarter in 2009 where leasing has been less than 2 million square feet. The activity also was 13.1% below the market’s historical average, according to data from the Irvine office of Studley Inc.
Other than a couple of relocations, the top deals continued to be predominantly renewals, according to Studley, whose brokers worked on the Western Digital lease.
“For now, the office market does not show signs of a rebound,” Studley’s fourth quarter report said.
Businesses remain cautious and are unwilling to make aggressive moves until they see clear signs of a recovery with staying power, according to the brokerage.
Despite continued troubles in the economy, Irvine Co., OC’s largest office landlord, said it had a “productive” 2009 in terms of leasing. The company signed 6.7 million square feet of office leases in California last year, including 5 million square feet of deals in OC, it said.
Tenants signing deals late last year did so with the anticipation of improved business conditions in 2010, according to Steve Case, executive vice president of Irvine Co.’s office properties division.
Like Greenlaw and its partners at 2050 Main Street, Irvine Co.’s been aggressively offering concession packages to entice brokers. A new program launched in November, called Ready Check, aims to pay a broker’s full commission within 48 hours of a lease getting signed at one of the landlord’s offices.