Laguna Niguel-based Birtcher Real Estate Group and the Pradium Funds of New York have teamed up to acquire the 400,676-square-foot Brookhollow Office Park in Santa Ana for $41 million, one of the largest low-rise office transactions in Orange County this year.
The deal is another sign of renewed interest among real estate investors in the corridor along the Costa Mesa (55) Freeway in Santa Ana and Irvine, spurred in part by the growing attraction by technology companies to the area’s many low-rise office buildings.
The Birtcher-Pradium team acquired the property from a partnership of Santa Ana-based CALVEST Realty Advisors Inc. and Dallas-based Olympus Real Estate.
The park has 24 buildings on 31.8 acres along the 55 Freeway near the intersection of East Dyer Road and Grand Avenue. The property is a mix of office and retail space. There’s roughly 85,000 square feet of showroom space occupied by such tenants as Adair Office Furniture, Plummers Home and Office Interiors and Sit ‘n Sleep. The remaining office space is taken up by tenants such as Catholic Charities, Children’s Village daycare and Zurich Payroll Systems.
Good Location, Good Deal
While the $41 million price tag seems hefty, that’s about $102 per square foot, which some real estate observers consider a good deal.
“It’s not the most conventional product, and that may have something to do with why it sold so inexpensively,” said Brain Doner, an associate vice president with Daum Commercial’s Anaheim office.
Given the property’s freeway frontage and location near the high-rise complexes of the John Wayne Airport area, Doner speculated Birtcher or some future owner could seek to redevelop the property.
“A parcel that size with that kind of location has the potential to be scrapped and a larger commercial product to be built there,” he said. “The majority of the value is just in the land alone. That site is certainly more valuable in the long term than just the single- and two-story office product that’s located there.”
Rodger Grove, director of acquisitions for Birtcher Real Estate, said his company plans to increase rents on the property before reselling it, probably in three to five years.
“The business plan for the company right now is to be an operating company, buying and selling opportunity real estate,” Grove said. “When we buy a deal, when the optimum time comes to sell it, it will be sold.”
The deal was especially attractive, Grove said, because the buildings are 98% leased. But many of those leases are roughly 20% lower than the area’s average market rents of $1.60 to $1.70 per square foot. Most of the leases are short term, meaning the renegotiation process is set to begin shortly.
The strategy for Brookhollow Office Park may include selling off the complex in pieces, Grove said.
While some consider Birtcher Real Estate’s team to have negotiated a good price, Calvest Realty Advisors and Olympus sold the property for roughly twice the amount they paid and invested, said Greg Hillgren, president of Calvest Realty, which is the West Coast partner of Dallas-based Olympus Real Estate, an opportunity fund.
Strategy Is Buy, Renovate
“Our business plan is basically to buy and renovate assets,” said Hillgren, who added that his firm received roughly a dozen serious offers for the property. “We hold for a three- to four-year period. So we achieved the objectives of our fund and exceeded our business plan.”
Calvest and Olympus acquired the business park in late 1996 for roughly $20 million, after the previous ownership faltered during the recession and various lenders seized portions of the property. The Calvest and Olympus team eventually went back and negotiated with all the lenders before reassembling the park into its current state.
Since then, the partners have invested several million in renovations and upgrades ranging from landscaping to re-doing some building exteriors. The result has been increased occupancy and a more diverse tenant mix flavored with tech firms.
“We have seen a lot of dot-coms move in that are technology-driven and companies that were in Class A high-rise environments,” Hillgren said. “(A lot of them) really preferred to maintain easy access to John Wayne Airport but wanted a campus atmosphere.”
Doner, the Daum Commercial broker, expects that trend to continue.
“We’re seeing a real push toward tenants who want to be in a different type of office environment,” he said. “That project is laid out like that, with lakes and streams and open areas. We’re seeing a greater value in those types of landscaped projects.”
“That market has changed with the recent developments in the area of the new First American headquarters space just down the street, and you have other developments going on north of that,” he added. “You have a much higher clientele moving into the area. Tech companies are now building product in that neighborhood or occupying property in that neighborhood, so I’m sure they’re seeing much higher office rents.”
Rob Socci of Voit Commercial Brokerage represented both the buyers and sellers in the Brookhollow transaction. n
