The Orange County Transportation Authority is nearing a deal to pay nearly $65 million for a new headquarters and administrative building next to the Xerox Centre office tower in Santa Ana.
The county’s transportation agency is under contract to buy 1750 E. 4th St., an eight-story office next to the Santa Ana (I-5) Freeway.
The building is considered to be part of the Xerox Centre campus, which includes the namesake 15-story tower that’s one of the best known office buildings in Santa Ana.
The price of just less than $65 million for the eight-story, 228,750-square-foot office—also known as the State Fund Building—comes to about $300 per square foot and includes tenant improvements and transaction costs, according to a recent OCTA staff report.
The sale initially was expected to close escrow this month, according to the Dec. 9 report, but the agency’s board last week pushed back a final decision on the purchase until its next meeting in January.
The deal, as initially structured, would allow OCTA to take control of the Santa Ana building in May.
State Fund
The building is currently owned by the State Compensation Insurance Fund, California’s largest provider of workers’ compensation insurance. The owner currently occupies about half of the office, with the remainder vacant.
The Santa Ana office is one of several in the state that the insurer has been looking to sell, according to brokers familiar with the deal.
The insurer is expected to lease back as much as 77,000 square feet of space at the building from OCTA as part of the deal. That lease is expected to run for 10 years.
OCTA’s administrative offices are in two buildings at the Union Bank Square office complex in Orange. They’ve been there since 1992.
The offices are just north of the Garden Grove (22) Freeway, near the Westfield MainPlace mall. They are about three miles from the Santa Ana building.
About 450 OCTA employees work in the Orange offices, according to OCTA spokesperson Eric Carpenter.
The agency’s current lease in Orange runs through 2018, but OCTA can terminate the agreement with a 12-month written notice.
The agency said it began exploring a potential purchase of its own building more than a year ago following an unsuccessful round of talks on a new lease.
Buying the building “would be both financially and operationally more beneficial to the organization than continuing to lease a headquarters building at the current location,” said OCTA Chief Executive Darrell Johnson, in the Dec. 9 staff report.
OCTA estimates that it will save $23.7 million over the next 30 years by relocating to the State Fund Building, as opposed to leasing space at its current location.
The agency also estimated the building could be worth about $81 million in 30 years, assuming 2% increases in the property’s value annually.
The agency also noted last week that the current owners of the Union Bank Square building recently provided an updated offer for OCTA “to either purchase or lease the current headquarters building at significant savings compared to their prior offers.”
Terms of that proposed deal have not been disclosed.
Funding?
It has not been determined whether the Santa Ana purchase, if it moves ahead, will ultimately be funded internally or through issuing debt, according to the staff report.
OCTA had about $1.2 billion in assets as of mid-2012, according to the agency’s latest financial report.
It reported about $437 million in revenue for the 12-month period ending in June 2012. OCTA runs a variety of the county’s transportation departments, including bus and Metrolink rail services, as well as the 91 Express Lanes toll facility.
The agency said it previously explored buying its own headquarters in 2006, but the then-strong office market made such a deal economically unfeasible. The current environment is more favorable to tenants as well as buyers, it noted.
Other area buildings, priced in the range of $56 million to $89 million based on a 30-year net present value basis, were also considered for purchase, according to the agency’s staff report.
Santa Ana Mayor Miguel Pulido, an OCTA director, was part of a committee set up by the agency earlier this year to explore its real estate options.
Other members of the six-person ad hoc committee included Orange County Supervisor Todd Spitzer, as well as Garden Grove City councilmember Steve Jones.
