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Irvine Industrial Building Trades at Likely Discount

2323 Main Street, a 260,000-square-foot industrial building in Irvine, recently was sold by Houston-based developer Hines Interests LP and Newport Beach-based real estate investment bank Buchanan Street Partners.

The building’s received a lot of attention in recent years and has been earmarked as a space for both homes and upscale commercial space. But it has been vacant industrial space for the past two years.

A sale price for the property, on the heavily trafficked corner of Von Karman Avenue and Main Street, wasn’t disclosed.

Sources not affiliated with the deal say the price is believed to be about $100 per square foot, or about $26 million.

Hines and Buchanan Street paid a reported $31.5 million, or about $121 per square foot, for the Main Street building in late 2006.

If the most recent sale price is accurate, that would be a more than 15% drop in price for the building since the last sale, as well as one of the first notable local examples of a large industrial building trading below its peak market price of a few years ago.

Office and retail properties in Orange County have seen their values drop by even greater amounts during that time, in some cases by 40% or more for some notable assets such as the South Coast Home Furnishings Center in Costa Mesa and the City Plaza office tower in Orange.

The sellers declined to comment on specifics of the deal, but said the two companies would recycle the money from the sale into new investments together.


Welcome Sign

Regardless of the building’s price, the sale’s a welcome sign for the area’s sluggish industrial market, which has seen minimal investment activity and a slowdown in leasing in the past six months.

“The challenge is that there’s a lack of (comparable sales) out there. It’s hard to determine (a property’s) value,” said Jeff Chiate, executive director for the Irvine office of Cushman & Wakefield Inc.

There have been no industrial sales of individual OC properties exceeding $30 million since 2007, according to CoStar Group Inc. Only three industrial sales exceeding $20 million have taken place in the past year.

Some of the best and largest industrial buildings in the area sold for nearly $140 per square foot at the peak of the market, about two years ago, Chiate said. Those figures aren’t expected to be met again any time soon, according to local brokerages.

Including smaller owner-user buildings that count higher per-square-foot prices, the average asking price for a for-sale industrial property here stood at $154.10 at the end of the first quarter, according to data from the Irvine office of Voit Commercial Brokerage LP.

That’s down about 11% from a year ago, and it is off 15% from the market’s peak in the third quarter of 2007, according to Voit’s data. Sales volume in the first quarter was down nearly 90% from mid-2007 levels.

Whether 2323 Main Street remains as an industrial property is yet to be seen.

Along with the sales price, the new owner’s identity is not being disclosed. Sources say the buyer is believed to be a foreign investor, who may have a different plan in store for leasing up the building.

In a healthier market, the property’s location would most make sense for an office building, area brokers say. That type of development is not likely to happen any time soon, considering an office vacancy rate in the airport area that now approaches 20%.

On the other side of Von Karman Avenue, the former Washington Mutual Inc. office campus counts more than 300,000 square feet of empty office space, including a 151,000-square-foot building completed in 2008 that’s yet to land a tenant.


Housing Plans

The Main Street site has been considered for more than just offices during the past few years, but no plans have worked out.

Prior to Hines and Buchanan Street ownership, the site was envisioned as one of the first big housing projects in the area known as the Irvine Business Complex.

Its previous owners wanted to build nearly 450 condominiums there, but they faced resistance from other local businesses as well as neighboring cities.

Hines’ plan for 2323 Main Street scrapped housing uses and instead focused on upgrading the building, which includes some office space along with its warehouse.

The property was envisioned as an upscale building that could serve as the headquarters for one of OC’s many apparel makers, among other potential tenants.

The building’s most recent tenant, American Sporting Goods Corp., used the existing building in that manner until 2007.

When plans for a housing redevelopment emerged, American Sporting Goods, which makes running and other sports shoes, opted to move its headquarters to Aliso Viejo and its warehouse operations to a 320,000-square-foot building in Fontana.

The building’s just one of several industrial properties along Von Karman that’s had difficulty landing a tenant of late. By the Business Journal’s count, there’s nearly 1.5 million square feet of empty industrial space being marketed for lease or sale along the busy road.

The area saw one notable tenant move recently: San Clemente-based apparel maker Silver Star Casting Co. took over a 42,000-square-foot space previously leased by nZania LLC, another apparel maker, which recently shut down operations.

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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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