Until this month, New York-based Emmes Group of Cos. had a small local office in Newport Beach and a nonexistent local portfolio.
Now the privately owned real estate investment company, which made its name buying distressed assets during an earlier down real estate market, is the owner of one of Orange County’s most prominent buildings.
The company last week announced it bought 3161 Michelson, the 531,000-square-foot office tower recently built at Irvine’s Park Place campus by Los Angeles-based Maguire Properties Inc.
Emmes paid about $160 million, or $300 per square foot, for the 19-story tower, next to the San Diego (I-405) Freeway near John Wayne Airport.
“We think it represents the best asset of its class in the market,” said Andrew Davidoff, chief executive of Emmes, which was founded in 1992.
Largest Deal
The sales price is about 40% below the building’s construction cost, but still represents the largest office sale OC’s seen in nearly two years.
Maguire made the sale out of financial necessity.
The under-fire real estate investment trust had about $165 million in debt scheduled to come due in September and had $66 million in master lease obligations tied to the property, among other funding issues.
Emmes financed the deal with a $120 million loan from Germany’s EuroHypo AG. That lender also held Maguire’s debt on the property and will continue financing the loan.
The 3161 Michelson tower had been Maguire’s trophy property in OC. Upon opening in 2007, the building was widely considered to be one of the area’s best office properties, rivaling other towers in Costa Mesa’s arts district and in Newport Center.
Lost in Translation
The building’s quality hasn’t translated into high occupancy levels in a down economy. Like other new office buildings that have opened in the past two years, 3161 Michelson is far from full.
The building’s about 60% occupied, with prominent tenants including Hyundai Motor Finance Co., as well as several law firms, including Gibson, Dunn & Crutcher LLP and Jones Day LLP.
Davidoff said the company knows it has its work cut out for it with regards to leasing.
“The prettiest buildings in your portfolio are always the ones that are full,” he said.
The pricing on the sale gives Emmes flexibility to be more aggressive on leasing for the building, according to Davidoff.
Area brokers said the new landlord still is likely to seek monthly rents that exceed $3 per square foot for the remaining empty space at the building,primarily lower-floor space.
That could be hard to accomplish. Other high-end office buildings in the nearby vicinity, such as Irvine Company’s Jamboree Center, are doing deals closer to $2.50 per square foot these days.
“We’re excited that there’s a new ownership party in Orange County,” said Randall Parker, managing director for the Newport Beach office of Los Angeles-based brokerage Travers Realty Corp. “There are just a handful of landlords now. The area needs diversity.”
If Emmes is “entrepreneurial and competitive (on pricing), they can have success,” Parker said.
Emmes will be managing and marketing the property internally, according to Davidoff.
The company has about five people in its Newport Beach office, but could increase its size if more local deals are made.
Emmes’ Background
Emmes has been around for about 17 years. The company made a name for itself buying Resolution Trust Corp. debt portfolios and distressed debt from insolvent financial institutions.
At its peak, it owned nearly 36 million square feet of space across the country.
It sold a good percentage of its assets earlier this decade while prices were increasing, and it opted against making many of the highly leveraged deals that were common for other investors.
“We like to use (a modest amount) of borrowed money,” Davidoff said.
The company now owns about 10 million square feet of space. The 3161 Michelson tower is Emmes’ only building in California, according to its Web site.
Currently, it’s one of the best-quality assets Emmes owns, according to Davidoff.
May Home Prices Up $30,000 From April
Orange County’s median home price jumped $30,000 in May, thanks in large part to an increase in sales of more expensive homes and fewer foreclosure sales.
The median price of an OC home was $410,000 in May, a 7.8% increase from April, according to San Diego-based MDA DataQuick, a unit of Canada’s MacDonald Dettwiler and Associates Ltd.
May’s median sale price is the highest OC’s seen in seven months.
Despite the jump, median prices still are down about 16% from a year earlier and are off about 35% from their all-time high in June 2007.
May sales in OC rose about 5% from April, and they were up nearly 18% from a year ago.
The median price of a Southern California home was $249,000 in May, a $2,000 increase from April but a 33% decline from a year earlier, DataQuick reported last week.
Sales of homes costing more than $500,000 helped boost the median price, along with a dwindling number of foreclosures available for sale as of late, DataQuick said.
Foreclosure sales,where a foreclosure had occurred at some point in the prior year,made up about 50% of all Southland sales last month, down from a high of 57% last October.
Southland sales totals in May were up 23% from a year ago. It was the 11th consecutive month of increased year-over-year sales.
,Mark Mueller
