It hasn’t been pretty for office owners in the past few years, but two Central County landlords are getting downright “ugly.”
Anaheim’s Milan Capital Management and Los Angeles-based Hudson Capital LLC are dropping rents to attract tenants to larger buildings in Orange that they bought in the past 18 months—and it seems to be working.
Milan President Chris Nichelson describes his company’s strategy as “going ugly early” to win deals.
Deals Milan has made in recent months have been at monthly rental rates in the $1.75 to $1.85 per square foot range, the company said.
For higher-end offices in Central County, monthly rents now average about $2.15 per square foot, according to data from Voit Real Estate Services.
Milan’s Orange Financial Center, which runs 312,000 square feet, is now about 93% full, following more than 50,000 square feet of deals and renewals made in recent months.
Similarly, Hudson Capital’s City Plaza tower—which was gutted a few years ago by the departure of defunct subprime mortgage lender Ameriquest Mortgage Co.—will be nearly 92% full once a large lease takes effect next month.
Milan, which bought the Orange Financial complex in 2008 for a reported $72 million, or about $230 per square foot, can afford to lower the rents, Nichelson said.
Can’t Compete
Competing buildings bought or refinanced near the peak of the market can’t go below $2 to $2.25 per square foot, given their debt levels, he said.
Hudson is using the lure of lower rents and sizable concessions to fill its 19-story City Plaza building, which faces the Garden Grove (22) Freeway, next to the Block at Orange.
At the time of its acquisition in 2008, the property was only about 38% full. Once lender Kondaur Capital Corp. has expanded into a 122,425-square-foot lease that begins next month, the tower will be about 92% full.
New deals being signed at the building are at monthly rates close to $1.95 to $2 per square foot, about 25% below some of the tower’s older existing leases.
For recent transactions, including Kondaur’s three-year lease, the landlord has sweetened the deal with six and half months of free rent, according to Hudson’s regulatory filings.
Milan started dropping rents in earnest in mid-2009, anticipating other buyers of distressed space would do the same.
Abbey Co. of Long Beach is offering rents of $1.95 per square foot for a Central County complex it picked up at a discount last year, according to the company’s Web site.
It paid about $35 million, or $76 per square foot, for the three-building, 460,000-square-foot City Parkway complex, which had been owned by embattled landlord Maguire Properties Inc.
City Parkway was another former hub of Ameriquest, and it was about 30% full at the time of its sale.
Other Plans
Abbey also planned to offer substantial leasing concessions, tenant improvement packages and brokerage incentives, the company said at the time it bought the building in an all-cash deal.
“Our concern was that competitors would be thrilled to do deals that we were lukewarm on,” Nichelson said.
Dropping rents isn’t the only thing office owners are doing to grow in this economy.
Hudson last week filed a registration statement with the Securities and Exchange Commission to turn itself into a publicly traded real estate investment trust, called Hudson Pacific Properties Trust Inc.
The company’s looking to raise $265 million in its initial public offering, which will be used to take over ownership of Hudson’s existing offices and acquire more properties.
City Plaza is Hudson’s only Orange County office for the time being. The company—whose executives include Victor Coleman and Howard Stern, both formerly of Arden Realty Inc.—acquired the building from Maguire Properties for $53.3 million.
