A Laguna Hills business park has traded hands in the highest-priced industrial sale Orange County’s seen in nearly two years.
The Saddleback Business Park, a 388,224-square-foot industrial complex just off the San Diego (I-5) Freeway, sold in late June to Corona-based investor and developer Watermarke Properties Inc.
The park sold for $62.3 million, or about $160 per square foot.
The cash deal had a capitalization rate,the expected initial return from rents,of 8%, according to Ryan Gallagher, senior vice president for the Newport Beach office of Grubb & Ellis Co.
It’s the first big industrial acquisition for Watermarke, which had focused on apartment deals since its formation about two years ago.
Watermarke was born out of now defunct Santa Rosa Developers Ltd., a residential construction company also based in Corona.
Watermark owns eight apartment complexes, totaling about 1,700 units. One of those complexes is in OC,the 256-unit Mission Viejo Apartments, which Watermarke bought in 2007.
The company plans more non-housing purchases and is eyeing OC for more deals, said Peter DiLello, who heads up acquisitions for Watermarke.
“We’re looking to aggressively expand our portfolio,” DiLello said.
The plan is for the company to hold on to buildings it buys for a minimum of 10 years, he said.
Watermarke has spent about $400 million on acquisitions during the past two years, primarily in cash deals.
The company’s privately funded by a family trust that is looking for income-generating properties, according to DiLello.
Saddleback Business Park earns about $5.2 million annually in net operating income, according to marketing materials for the property. The business park is on Cabot Road, along the west side of the freeway.
The 11-building property, built in the late 1980s, caters to smaller industrial and office tenants, with the average suite size at about 2,200 square feet. The park is managed by Newport Beach-based Davis Partners LLC, which brought the property to the attention of Watermarke.
Nearly Full
The business park is 94% full. Monthly rents run about $1.50 per square foot, according to CoStar Group Inc.
It’s the highest-priced industrial sale in OC since Chicago-based Walton Street Capital LLC paid nearly $400 million for a 19-property portfolio of buildings in 2007.
It’s also the largest industrial sale in all of Southern California so far this year, said Gallagher, who along with Kelly Rohfeld at Grubb’s institutional capital markets group represented an undisclosed institutional seller in the deal.
CoStar records show an affiliate of Prudential Financial Inc. being the last recorded owner of the property.
Prudential was the seller in what previously was the largest industrial sale seen in OC so far in 2009: the 296,000-square-foot Santa Ana Distribution Center on South Standard Avenue. That building had been on the market for about $25.5 million and sold at a 5% capitalization rate, according to brokers.
There has been a shift in seller mentality since the Walton Street deal.
Commercial real estate prices in the U.S. are down about 25% from a year ago, according to the latest data from New York’s Moody’s Investors Service Inc. The biggest year-over-year drop occurred in April, when there was an 8.6% decline in property prices.
The size of April’s decline suggests that sellers are beginning to capitulate to the realities of the market, Moody’s officials said late last month.
More Expected
More deals should occur in the future, according to Gallagher.
“Expect to see more of the high-net worth groups (making purchases),” he said.
The Saddleback sale is the latest big-dollar deal that’s taken place locally in the past month.
Many sizable office sales have been completed in recent weeks, capped off by New York-based Emmes Group of Cos. paying $160 million for the 3161 Michelson office tower at Irvine’s Park Place campus.
Among retail property deals, last month saw Westlake Village-based DSB Properties pay $45.3 million for the 144,726-square-foot Old Ranch Towne Center in Seal Beach.
