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Friday, Dec 9, 2022

Rare Run on PCH

It’s rarely a bad time to sell a waterfront commercial property in Newport Beach, home to some of the most desirable—and expensive—real estate in California.

With four notable waterfront deals reported to have closed in the area since late November at a combined price approaching $140 million, it appears now’s as good a time as ever for local property owners to cash out.

“Everyone knows that now’s a good time to sell,” said Russ Fluter, a longtime area developer and owner of Cannery Village Realty in Newport Beach. “What’s surprising is that (people) are actually selling.”

Big-dollar property sales are a rarity for the area, due in part to the relatively small square footage of many of the waterfront commercial properties, as well as a general unwillingness of longtime owners to let go of the properties.

Only six deals in excess of $20 million involving waterfront retail, office or mixed-use properties have taken place in Newport Beach since 2010, according to CoStar Group Inc. records.

Three of those sales came in the past two months, according to the market tracker’s data.

The recent flurry of activity reflects growing interest in the area’s properties—and it’s coming from Orange County investors, as well as deep-pocketed out-of-town investors, local property owners say.

“I think Newport Beach is being discovered by an entirely new type of investor,” said Gary Jabara, chief executive of Newport Beach-based telecommunications infrastructure firm Mobilitie Inc., and one of the area’s largest private real estate investors.

“It’s no longer the local-players market at the waterfront.”

National investors include Dallas-based Invesco Real Estate, which recently partnered with Shopoff Realty Investments in Irvine to buy Bayside Square, a two-building office complex totaling 35,000 square feet at the entrance to Balboa Island.

The deal, which closed in mid-November, was for about $22 million, roughly $622 per square foot, according to brokerage data. It was about twice as expensive as a high-end office near John Wayne Airport in price per square foot.

The new owners are considering a redevelopment but would be operating the multitenant buildings as-is for the time being, Shopoff Realty Chief Executive Bill Shopoff said at the time of the deal’s completion.

Also being eyed for redevelopment: 3366 Via Lido, a roughly 16,000-square-foot waterfront office in the Lido Village area of Newport Beach.

Burnham USA bought the two-story property, plus a vacant site about a block away on 32nd Street, in a deal in December that totaled about $16.6 million.

Newport Beach-based Olen Properties sold both sites, one of which includes a ground lease for a 17-slip yacht marina.

It’s the only major property in Orange County that Olen—whose president, Igor Olenicoff, is Orange County’s second-wealthiest resident, with a fortune topping $3 billion—is known to have sold over the past decade.

“The price was quite compelling for us,” with the office trading hands for more than $1,000 per square foot, Olenicoff said at the time the deal was completed.

Burnham USA Chief Executive Scott Burnham said at the time of the deal that he was considering “all options” in terms of redevelopment of the just-bought properties, including restoration of the Via Lido building with continued office uses or a combination of residential and commercial development.

“Waterfront commercial property of this size and caliber in Newport Beach is very unusual” in terms of availability for purchase, said Burnham, one of the largest property owners in Newport Beach.

Mariner’s Mile

Some of the largest deals of late included longtime property owners who rarely sell, but not every transaction appears to be exclusively driven by current market conditions.

The largest recent deal saw Newport Beach-based MX3 Ventures LLC this month close on a 3.1-acre waterfront site on Mariner’s Mile, plus an additional 4.4-acre property on the opposite side of Coast Highway, for about $71.7 million.

The Mariner’s Mile properties—at 2101, 2201 and 2200 W. Coast Highway—include a handful of small buildings, among them the local offices of Ardell Yacht and Ship Brokers.

It’s the priciest waterfront commercial property sale reported in Newport Beach in more than a decade, according to CoStar’s data. The sale works out to a price of about $9.5 million an acre for the three-parcel property.

The seller, an affiliate of Ardell Investment Co., was headed up by Don Haskell, a longtime area property owner whose family created the Sherman Library and Gardens in Corona Del Mar.

Haskell died in late December, a few weeks before the sale to MX3 closed.

MX3 Ventures’ ownership group includes Manouch Moshayedi, the former chairman and chief executive of Santa Ana-based storage device maker STEC Inc., as well as Mark Moshayedi, Manouch’s brother and STEC’s co-founder.

STEC was sold to a San Jose-based subsidiary of Irvine-based Western Digital Corp. in 2013 for $340 million. The company now operates as part of HGST Inc., a unit of Western Digital.

A good deal of the Moshayedi family fortune has been reinvested into commercial real estate, with Mariner’s Mile a frequent source of their deal-making. The family is now believed to be the biggest property owner on that stretch of Coast Highway, home to an eclectic mix of restaurants, offices and maritime-related businesses.

Other nearby buildings the family owns include the Mariner’s Mile Marine Center, which is next door to its latest purchase, and the Joe’s Crab Shack restaurant.

The just-bought site on Coast Highway could be redeveloped eventually, but the city’s land-use guidelines for the area would first need to be updated.

The $71.5 million paid by MX3 Ventures and its affiliates is the largest Orange County purchase the investor is reported to have made, topping a $34 million office deal in Santa Ana that closed just a few weeks earlier.

Primm Sale

Also trading hands in the past month: a three-building portfolio of properties, including two waterfront retail properties on Coast Highway, in a deal reported at $28.9 million.

Irvine-based Khoshbin Co., headed up by local entrepreneur Manny Khoshbin, bought the 29,341-square-foot portfolio.

Properties changing hands include the Billy’s at the Beach and The Ritz restaurant sites, which are a few doors down the street from MX3’s recent investments.

The buildings were sold by an LLC with ties to casino magnate Gary Primm, who had owned the property since 2003. Primm also is reported to own a home in the area, as well as one of the larger yachts docked in Newport Beach’s harbors.

Whether more notable waterfront deals take place in the city remains to be seen.

Cannery Village’s Fluter said he’s planning to be “extra careful” about his own investments in the area, with an eye on economic trends that suggest the top of the latest real estate cycle could be approaching.

Mobilitie’s Jabara said he remains sold on the region and expects more outside money to target the area when properties do come to market.

“I am most bullish on my Newport Beach portfolio of shopping centers and multifamily holdings compared to nearly everything else in my portfolio,” he said.

Jabara, an investor in Newport Beach-based residential brokerage Villa Real Estate, said he expects to see “more national and internationally funded investors because of the lack of opportunity elsewhere and our pristine demographic.”

The area is “in my opinion, undervalued and unrealized from an investment perspective.”

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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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