It’s a great time to own office or industrial property in Orange County.
Office sales, which traded hands at about $200 per square foot two years ago, continued to rise in value in 2005, crossing the $300 mark in some cases.
On the industrial front, capitalization rates,the expected return from rents and fees,for top sales have fallen toward the 5% mark, which means that these buildings are selling for higher prices than ever.
“What surprised me most about 2005 was the ability of the capital markets to sustain its level of pricing throughout the year, and to even pick up velocity,” said Sherry Bower, who heads CB Richard Ellis Group Inc. in OC.
“We’re seeing higher and higher prices per square foot, and more and more transactions,” Bower said.
In the following pages, the Business Journal has published lists of the top sales and leases of 2005 in office, industrial, retail and apartment markets.
CoStar Group Inc. provided the data, while brokerages also submitted deals for consideration. Sales are ranked by dollar amount and lease deals by square footage.
The Business Journal defines a deal as one building or an office park of one or more buildings. Deals that include a portfolio of separate properties aren’t included.
South Coast Topper
2005’s top office sale beat out 2004’s by a smidgen.
RREEF America, a pension fund investing unit of Germany’s Deutsche Bank AG, took MetroCenter at South Coast in Costa Mesa off the hands of Stockbridge Capital Partners in the year’s biggest deal.
The price: $261 million, just $1 million more than Maguire Properties Inc.’s buy of a chunk of Park Place in Irvine from Blackstone Group LP, which topped last year’s ranking.
MetroCenter is an 809,560-square-foot office campus that includes three 12-story office towers and a 60,000-square-foot fitness center. The complex was 95% occupied at recent check.
The office complex was part of a 2.5 million-square-foot California portfolio that Stockbridge sold to RREEF.
Los Angeles-based Maguire’s buy of the Park Place parcel was part of a major office-buying splurge for the company,it swept the top three office spots on 2004’s list of top deals.
Another Park Place site went to Maguire for $215 million in 2004, along with the $151 million buy of Washington Mutual Inc.’s Irvine Campus.
The real estate investment trust didn’t appear on this year’s list of top deals. Its local focus now is on leasing and construction of a new office tower at Park Place.
There were slightly more big-dollar deals in 2004 than in 2005. The top 10 office deals of 2004 totaled about $1.2 billion, while the largest deals on this year’s list were for $1 billion.
Don’t expect that trend to continue.
2006 has started with a lot of action, highlighted by The Irvine Company’s $545 million buy of Newport Gateway Center and Irvine Center Towers near John Wayne Airport.
Meanwhile, the Newport Beach towers that are headquarters for Conexant Systems Inc. and Mindspeed Technologies Inc. are being bought for $136 million. Real estate investor and coin dealer John Saunders and other investors are buying the two 10-story buildings from KBS Realty Advisors LLC, which owned them for about a year.
The priciest deal per square foot likely was the $117 million sale of 100 Bayview Circle in Newport Beach. It went for $369 per square foot.
Boston-based investment adviser AEW Capital Management LP bought the twin six-story office buildings in Newport Beach from a partnership of Laguna Hills-based Muller Co. and San Francisco’s Rockwood Capital Corp.
Why the interest in office buildings? High-rise office vacancy rates in the county ended the year at a historic low of 6.2%, down from 10.6% a year earlier, according to CB Richard Ellis Group Inc.
With few new office towers opening soon, rents in the county jumped to $2.16 per square foot in the fourth quarter, up 5% from a year earlier, according to CB Richard Ellis.
Industry watchers expect the office sector to see rent increases approaching 10% or more in the next year.
Industrial Stays Hot
The industrial market may even be tighter than the office sector.
Vacancy rates closed the year at 3.5%, down from 3.7% a year earlier, according to CB Richard Ellis.
The average asking lease rate rose by about 5% to 61 cents per square foot during the past year, according to Jerry Holdner, vice president of market research for Voit Commercial Brokerage LP.
Investment in large industrial properties has been brisk.
The biggest nine industrial sales last year totaled about $313 million, nearly twice the $170 million from the top deals in 2004.
Some of the largest industrial deals in 2005 are likely to make industrial space even scarcer.
Miami-based homebuilder Lennar Corp. bought close to 30 industrial properties near Angel Stadium of Anaheim. Lennar plans to raze the sites to make way for its A-Town development of high-rise condo towers in the Platinum Triangle.
Among those buys was the $70 million acquisition of Golden West Business Park and Gene Autry Business Park, which contained 17 buildings on 17 acres. The deal to buy the Anaheim properties was reached in 2004, but didn’t close until early 2005, Voit said.
One note on the list: The biggest trend in the industrial market isn’t reflected by the list of top deals. Smaller, for-sale properties of 10,000 square feet or less are leading the way as far as development goes locally, with tenants trading in leases for ownership. But those deals aren’t big enough to crack the ranking.
Big Fish in Lease Pond
The county’s biggest landlord made the biggest office lease last year.
The Irvine Company signed a blockbuster $183 million lease with Irvine-based Broadcom Corp. in January. The deal is for 685,000 square feet of space in eight buildings under construction at University Research Park near the University of California, Irvine.
The 10-year, two-month lease is set to begin in 2007 when the first two buildings are expected to be finished. Broadcom eventually will move from the Irvine Spectrum when the buildings are ready.
The deal means Broadcom will expand its operations in Irvine by more than 200,000 square feet. The 185-acre University Research Park is owned jointly by the Irvine Co. and the university.
Other than the chipmaker’s deal with the Irvine Co., the mortgage industry grabbed most of the biggest office leases last year. The same trend played out in 2004.
Taking big office leases were Irvine-based New Century Financial Corp., Newport Beach-based Impac Mortgage Holdings Inc. and Irvine-based Option One Mortgage Corp., a unit of H & R; Block Inc.
