The Orange County real estate market witnessed a record year in 2000. Even as news surfaced in the fourth quarter that the national economy faced an impending downturn, large deals surged locally.
In the following pages, the Business Journal lists the top deals for the year in Orange County,from leases to sales, from residential to retail. Comparing the list to 1999’s provides evidence of what most industry watchers and players already knew: 2000 was a very, very good year.
“For the short term, we are quietly optimistic. For the long term, Orange County is still the place to be,” said Richard G. Sim, chairman of The Irvine Company’s investment properties group.
The key to Orange County’s activity is its diversity, according to Sim. He pointed to last year’s deals between The Irvine Company and chip maker Broadcom, consultant McKinsey, computer equipment maker Fujitsu, aerospace firm Boeing and software giant Microsoft as examples of the diverse business clusters in Orange County.
The addition of McKinsey, in a 22,000-square-foot facility at University Research Park, furthered the trend toward incubator businesses.
“We’re excited about McKinsey,” said Sim, “They are developing an incubator-type office place where they will grow companies.”
Another trend is the move to convert warehouses into data centers. Companies need space for their computer servers and networking equipment to run their electronic operations. Older, large buildings, especially in the airport area, meet that need.
“The telecommunications industry still seems to be one of the most active entities here in Irvine,” said Scott Read, a Grubb & Ellis broker. “There’s been real strong interest in buildings that are on fiber-optic networks. And there are certainly a lot of them around here in the airport area.”
In other major developments, The Staubach Company found a home for Verizon Wireless. After a three-year search, the cell-phone company relocated to a five-building, 470,000-square-foot office campus built for it on Sand Canyon Avenue in the largest lease deal of 2000. The company’s 10-year lease allowed it to consolidate approximately 1,800 employees to the new facility from three other sites.
Verizon also has an option on 10 acres east and within walking distance of the new campus.
“It was ‘what do you want and let’s put the shell around it.’ The operations drove the design. The campus is functional for Verizon but re-leasable long-term for (the landlord),” said Jeff Manley of The Staubach Co.
And the residential market was “white hot,” according to John Burns, vice president of The Meyers Group. Burns pointed to new communities in Crystal Cove, Talega and Ladera Ranch as major success stories.
The new communities have experienced sellouts in virtually every phase, according to Burns.
“They had phenomenal success,” Burns said. “Really, there’s not much bad news.”
If there’s a cloud, it is the jobs-to-housing imbalance.
Over the past five years, 211,000 jobs have been created in OC, according to Sim, but only 44,000 new units were built during that time.
In 2000, one new building permit was issued for every 4.3 new jobs created, said Sim. Those numbers tighten an already tight market by lowering vacancy rates and raising prices, a trend that threatens to spin out of control unless supply catches up with demand.
The Irvine Company will bring more than 1,600 new apartments to the market by June, nearly 1,200 of those in Irvine. The two newest apartment complexes are Oak Glen, which opened earlier this month, and Las Palmas, set to open in April.
But those units will hardly match demand, Sim noted. Additional measures are needed, and Sim mentioned a few possible solutions.
There’s a bigger problem in Silicon Valley, where local government took residential land and zoned it for industrial and commercial use, said Sim.
“Our problem isn’t as bad because of masterplanned communities, but we need to build more apartments, we need higher-density living and more in-filling,” Sim said. “If we do that, then we can keep prices down.”
The problem will not go away without the help of legislation.
“We stopped building attached for-sale housing because of lawsuits,” Sim said. “We need relief from legislation to begin building them again.”
A report by CB Richard Ellis details the multi-housing future for Orange County and, in lock step with Sim’s assessment, gives a bleak picture for affordable housing.
Only one-third of Orange County’s families can afford a median-priced home, further tightening an already tight multi-family market. Multi-housing construction fell to its lowest numbers since 1997, dipping below 2,000 units built last year. The trend continues in 2001, with new construction meeting only 50% of demand.
But a trend toward rehabbing older apartment buildings is gaining momentum.
With much of Orange County stunted by the lack of available land or no-growth initiatives, “investors looking for a value-added play outnumber new construction projects,” according to the CB Richard Ellis report.
The Toscana Apartments received a facelift and set a record. The 563-unit complex, one of only four 100-plus-unit complexes in Irvine not owned by The Irvine Co., sold for $90 million and set the record for highest price per unit to date in Orange County at $160,000.
“Because of the strong fundamentals in place, Orange County will remain among the top multi-family markets nationally, said Ray Eldridge of CB Richard Ellis, Newport Beach, who along with Chris Knowles and Joe Leon brokered the deal.
In fact, Eldridge sees this facet of the real estate market not slowing down like others due to unique fundamentals.
“You have very high occupancy rates and a shortage of new construction,” putting supply and demand in a disequilibrium,” he said. n
