51.5 F
Laguna Hills
Thursday, Mar 28, 2024
-Advertisement-

Orange City Square Deal Shows ‘Appetite to Buy’

Orange City Square—a four-building office complex off the Garden Grove (22) Freeway that set a high-water mark for local office sales just prior to the economic downturn—recently changed hands at a fraction of its previous price.

An investment offshoot of Los Angeles-based brokerage CB Richard Ellis Group Inc. recently bought the 386,000 square- foot complex for undisclosed terms as part of a foreclosure process.

Real estate sources estimate a price tag of $65 million, or about $170 per square foot, based on recent comparable deals for distressed properties.

That’s about half the price that Birtcher Anderson Realty LLC in San Juan Capis-trano and Fairfield, Conn.-based General Electric Co.’s GE Asset Management paid when they joined up to buy the complex in September 2007.

Executives with the prior ownership group declined comment on the recent sale.

The estimated $65 million deal still makes it the third-priciest office sale in Orange County so far this year. The complex was the most expensive stand-alone office complex to sell here in 2007.

The discounted price follows a drop in occupancy from about 86% to 60% at Orange City Square, which has lost several mortgage tenants in the past three years.

The new owner is CB Richard Ellis Strategic Partners U.S. Opportunity 5, a private equity real estate fund of the brokerage’s CB Richard Ellis Investors business unit.

The fund recently bought a non-performing mortgage note that was tied to Orange City Square in “the late stages of the foreclosure process” said Phil Hench, a principal with the new ownership team.

The fund completed the foreclosure process and became the official owner of the property.

The new owner got financing for the acquisition from an undisclosed bank that held the prior mortgage.

The seller-backed financing made the deal “very compelling for us,” Hench said. “It’s a lot easier to get financing now, than it was” a year or so ago, he said.

It’s the first OC deal in more than five years for a CB Richard Ellis Investors fund.

The investment group previously owned buildings at Santa Ana’s Hutton Centre office complex, among other holdings.

The fund had been looking at Costa Mesa’s Pacific Arts Plaza office complex as a potential acquisition, Hench said.

That distressed property’s status appears to be a bit muddled after a reported $210 million deal with a San Diego investor was reportedly called off recently, according to trade reports (see Real Estate column, page 28).

The Strategic Partners fund has more than $2 billion from pension funds and other institutional investors, so more deals are likely, executives said.

The Orange City Square deal is “another example of institutional money with an appetite to buy,” said Kurt Strasmann, managing director of broker services for Newport Beach’s Voit Real Estate Services.

“If you have a quality product, there’s multiple buyers” from the institutional ranks right now, almost as many as during the market frenzy of a few years ago, Strasmann said.

Appetite For Deals

Along with the high-end Pacific Arts Plaza complex, the CB Richard Ellis fund has been keeping an eye open for other buying opportunities in OC.

“We have an appetite” for more deals, Hench said, confirming Strasmann’s outlook.

In the meantime, the new owners will be looking to ramp up leasing at Orange City Square, which is located on a 14-acre site that runs along The City Drive South, just south of The Block at Orange. The complex includes three mid-rise office buildings totaling 373,619 square feet.

Office tenants at the complex include Disney Destination, Pediatrix Medical Group, Zenith Insurance and Great Ameri-can Insurance.

A fourth building counts 12,392 square feet of small retail tenants.

“The building is a great Central Orange County product,” said Greg May, co-managing director for the OC brokerage operations of Santa Ana-based Grubb & Ellis Co. “It fits the (area’s) back-office tenant needs.”

Among other changes, the new owners plan to kick off a marketing campaign to rebrand the property, highlighting the new ownership, leasing operations and property management.

At the time the building last sold, rents were about $2.85 per square foot, although that number has dropped in recent years.

Hench said the investor’s forecasts calls for a “strong market recovery” to take place within the next 12 to 18 months, which should lead to higher rents.

The undisclosed bank that sold the complex was represented in the transaction by Bob Smith, Paul Jones and Karen Scholte, from the Newport Beach brokerage office of CB Richard Ellis.

Want more from the best local business newspaper in the country?

Sign-up for our FREE Daily eNews update to get the latest Orange County news delivered right to your inbox!

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.
-Advertisement-

Featured Articles

-Advertisement-
-Advertisement-
-Advertisement-
-Advertisement-

Related Articles

-Advertisement-
-Advertisement-