The telecom-driven run-up in the price of industrial property near fiber-optic loops reached a new high last month with a record purchase in the Irvine Business Complex.
Beacon Properties, a Boston investment firm, purchased a 118,000-square-foot industrial building near the John Wayne Airport for $15.4 million, about $130 per square foot.
“I believe it’s the highest price ever paid per square foot for an industrial building in Orange County,” said John Martin, a senior vice president with the Newport Beach office of Grubb & Ellis, which represented the seller, Von Karman Realty LLC of New York.
Beacon Properties plans to turn the building at 17421 Von Karman Ave., previously occupied by file-cabinet maker Planhold, into a data center. Data centers, sometimes called telecom hotels, can house anything from a stack of Internet routers to roomsful of Web servers.
More than a dozen telecommunications and Internet service companies have secured space to house their local data operations in OC since January. They range from Denver-based Web hosting firm Inflow to Time Warner Telecom, the services arm of the media powerhouse.
There were no such facilities created in all of 1999.
Besides the Irvine Business Complex, the data centers are being placed in the Irvine Spectrum and Parker Properties’ Summit Office Campus in Aliso Viejo. Data centers also have popped up in Orange, Anaheim and other parts of the county that are close to fiber-optic “pipes,” the trunk lines of the information economy.
Martin said the Von Karman site has many of the features sought after for data centers: close proximity to fiber, a single-story building, and the ability to expand another 40,000 square feet if needed.
“They basically bought the premier telecom site in the Irvine Business Complex,” said Martin. “It’s a strong price for a building in the complex but all the telecom buildings are commanding substantially high prices.”
But the new demand for data centers is having a ripple effect on companies located near fiber-optic loops. Telecom companies are paying as much as $2 per square foot per month for well-located space. Other tenants in such areas are facing steep increases when their leases come up for renewal. Instead of 60 cents to 80 cents per square foot, Martin predicted, tenants are going to be paying more than $1 and perhaps as much as $2 per square foot to renew their leases.
“I had one client that was thinking about 70 cents a square foot and they got 85 cents. They were really lucky. It should have been $1.10 a square foot,” said Martin.
On the other hand, the addition of more data centers can be good for businesses in the area, since an abundance of high-capacity fiber-optic lines mitigates the chances of losing a connection because of a single line being cut.
The broker for Beacon was Realty Needham of Maryland. Beacon Properties was once one of the country’s largest publicly traded real estate companies before it was sold in 1997 to financier Sam Zell’s Chicago-based real estate empire in a multibillion-dollar deal.n
