Office sales and pricing steadily have risen since 2009. But the market still has a way to go to reach levels seen in the peak year of 2007, according to one of the area’s top investment property brokers.
“There clearly are signs of recovery,” said Jeff Cole, executive director at the Irvine office of Cushman & Wakefield Inc. “The fundamentals have started to see signs of stability (since 2009).”
In last week’s profile of top commercial real estate deals for 2010, Business Journal data showed the 10 largest Orange County office sales for the year trading hands for about a combined $840 million. That was up about 70% from 2009 levels.
On a more general basis, the number of office sales here valued at $10 million or more was up nearly 65% from 2009’s levels, according to Cole, whose team was involved in close to $150 million worth of the office deals profiled in our recent Top Deals special report.
Among other deals, Cushman & Wakefield handled December’s receiver-driven sale of Irvine’s Quintana office campus—onetime center for Washington Mutual Inc.’s regional operations—to Palo Alto-based Menlo Equities LLC.
CoStar Group Inc. reported the largely empty, 415,000-square-foot campus to have traded hands at about $69 million, or about $167 per square foot.
In general, larger offices have sold for close to $220 per square foot in the past year, according to Cole. That’s up from about $188 per square foot in 2009 but still below pre-crash prices seen in 2007, when buildings here regularly traded at more than $300 per square foot, he said.
Capitalization rates—the expected initial return from rents—for large office deals struck here last year ran about 7.7%, compared to about 8.1% in 2009.
During the peak years of 2006 and 2007, cap rates of 5% to 6% were common.
The relatively low prices and higher cap rates seen here of late is drawing a wide range of investor interest, according to Cole. In addition to Menlo Equities, the Quintana campus drew the attention of offshore investors and pension funds, he said.
“Savvy investors feel like it is a great time to buy,” said Cole, whose team has a few area properties in the market that are expected to trade in the $20 million-plus range shortly.
Land Fight
A development once planned by Irvine’s SunCal Cos. is facing legal issues, according to court documents.
An involuntary bankruptcy petition was filed against SunCal and its SCC/Harmony Grove affiliate earlier this month, according to filings made in Santa Ana’s federal bankruptcy court.
A group of investors or creditors can file an involuntary bankruptcy petition if they contend a company has failed to pay debts or may be about to.
In the case of the SCC/Harmony Grove petition, two Fallbrook-based creditors, Ray and Tesla Gray, claim they are owed a combined $38 million from SunCal. Court documents don’t disclose the nature of their claims.
SunCal once had proposed several hundred homes at Harmony Grove, a sparsely populated area near San Marcos and Escondido in northern San Diego County. Plans were put on hold during the downturn.
Irvine’s Standard Pacific Corp. last year said it secured the option to buy land in the Harmony Grove area from a group of 13 landowners for $150 million. It’s planning some 700 homes in the area.
The Harmony Grove project also is near another site, called University Heights, where another 1,200 homes have been planned.
Ray Gray was the manager and prior owner of the land for the University Heights project. That land was foreclosed on last year and sold for $6 million. The prior owners—who are involved in their own bankruptcy proceedings—said it was worth at least $55 million, according to court records.
Avanir Move
Aliso Viejo-based drug maker Avanir Pharmaceuticals Inc. is moving its headquarters a few blocks up the road at the Summit Office Campus, taking a bigger space.
Avanir, whose Zenvia drug is designed to treat uncontrollable crying or laughing episodes, will relocate in July from 101 Enterprise to 20 Enterprise, a 118,000-square-foot building that opened in 2008.
It will be leasing 29,790 square feet at 20 Enterprise, which was built by Aliso Viejo’s Parker Properties. About 60 employees will be moving to the new space.
Avanir had been taking up about 17,000 square feet under a lease slated to end in June. Officials said they were looking for a larger space following October’s Food and Drug Administration approval of its core product Nuedexta, which Avanir is exploring as a potential treatment for chronic pain in diabetics.
Avanir moved its headquarters from San Diego to Orange County in 2006.
UGL Services’ Drew Netherton and Justin Hodgdon represented Avanir in the lease, while CB Richard Ellis Group Inc.’s Carol Trapani, Ted Snell, Jake Stickel and Allison Schneider represented Parker Properties.
