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Orange County’s biggest commercial property managers combined to eke out a second consecutive annual gain amid a real estate market that remains in flux thanks to plenty of distressed properties with uncertain ownership.

Total commercial space in the county currently managed by the largest 25 property managers here grew by nearly 3 million square feet, or about 2%, in the past 12 months. The group combined for a total of 188 million square feet of office, industrial and retail space under management here, according to this week’s Business Journal list.

That matches a level last seen in 2007, at the outset of the real estate downturn.

The same companies now manage about 229 million square feet of commercial space counting properties outside the county, roughly the same amount as a year ago.

Figures have tended to see big annual changes in square footage totals in recent years—both positive and negative—although the downturn wasn’t the main reason for the swings.

Some of the industry’s largest property owners decided to take over their building management operations in the past few years. Others went the opposite route and outsourced the work.

Last year saw that trend ease and individual property sales—especially for distressed properties—lead to a moderate overall gain, according to industry executives.

“We’re still seeing lots of activity around distressed assets, although maybe not as much as we initially expected,” said Sherry Bower, managing director for the Southern California asset services division of CB Richard Ellis Group Inc., which is based in Los Angeles and has offices in Newport Beach.

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CB Richard Ellis retained the No. 1 spot on this year’s list with 48.3 million square feet under management in the county, a decline of about 5% from a year earlier.

“More of these distressed assets are being turned over to investors who use third-party property managers,” said Bower, who also has been acting as a court-appointed receiver for a handful of local office properties of late.

Large local distressed office properties that have changed hands of late include the 386,000-square-foot Orange City Square office complex in Orange and Costa Mesa’s Pacific Arts Plaza, which totals 827,000 square feet.

An investment offshoot of CB Richard Ellis bought the Orange City Square property late last year. Newport Beach-based Irvine Company—No. 2 on this year’s list—picked up Pacific Arts. The deals added a good chunk of square footage to each company’s management portfolio.

Sales of bank-owned properties aren’t the only thing helping a number of property management groups boost their bottom line, according to John Combs, founder of Newport Beach-based RiverRock Real Estate Group Inc.

New business also is coming from clients changing property managers and outright purchases of properties that are not distressed, said Combs, whose company started up operations in 2003 and was up two spots to No. 22 on this year’s list.

“It’s like shooting fish in a barrel,” he said.

RiverRock’s total square footage increased by more than 13% to 13.8 million square feet last year, thanks in part to new business gained in Northern California.

Property management essentially is a zero-sum gain. If one company grabs a new office or retail client, it usually means that another company lost that business.

This is especially true when there isn’t much development and opportunities for organic growth are scarce.

That give and take can be seen in this year’s list.

Seven companies on this year’s list reported year-over-year increases in the amount of the local space they manage. Five companies reported declines, while three companies were flat. Ten are Business Journal estimates.

The Irvine office of Houston-based PM Realty Group was one of the companies on this year’s list that remained flat. With a locally managed portfolio of about 6.1 million square feet, it retained the No. 7 spot.

The company’s key clients, including Glendale-based American Realty Advisors and WCB Properties in Newport Beach, haven’t been among the landlords giving properties back in the past few years.

That’s helped keep PM Realty’s portfolio stable of late, said Jim Proehl, executive vice president and managing director for the company’s Irvine office.

“We’ve been fortunate,” Proehl said.

2 Newcomers

There wasn’t much change among the names on this year’s property managers list, with only two new entrants—No. 18 Grubb & Ellis Co. of Santa Ana, and No. 19 Voit Real Estate Services of Newport Beach.

Both newcomers are better known for their core brokerage work, but each has been growing its property management division.

Grubb recently started a subsidiary, called Daymark Realty Advisors, to manage its 33 million square foot national portfolio of properties bought through its tenant-in-common program.

It posted a nearly 41% jump over the past year, to 3.1 million square feet in its local portfolio.

Grubb also manages close to 300 million square feet of space across the country.

No. 4 Davis Partners LLC of Newport Beach saw the largest jump of any company on the list, reporting a more than 3.5-million-square-foot increase in its local portfolio. It reports now managing about 10.6 million square feet of space here and about 21 million square feet overall.

“Operational efficiency” has been a mantra for the property management industry for much of the past year, according to CB Richard Ellis’ Bower, who works out of the company’s Los Angeles office.

Download the 2011 OC's LARGEST PROPERTY MANAGERS List (pdf)

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