With backing from Alex. Brown Realty Inc., Irvine-based CIP Real Estate has been busy doing deals.
So far this summer, CIP has bought the 157,701-square-foot Milliken Business Center in Ontario, the 79,875-square-foot Brea Canyon Business Center in Walnut and sold the 173,467-square-foot La Habra Business Center.
CIP, which was formed in 1995, is a fixer-upper. The firm acquires business parks in need of improvements, makes upgrades and then sells them. With the latest buys, CIP says it is on its way to hitting $70 million in assets this year.
“We try to create value and sell in a three- to five-year timeframe,” said Charles A. “Chuck” McKenna, Jr., one of three principals in the firm.
CIP bought the La Habra Business Center for $6.75 million in 1998. In July, it sold the 13-building park for $9.4 million to affiliates of Costa Mesa-based Transtar Commercial Real Estate Services. The firm said it spent about $500,000 fixing up the La Habra park. CIP replaced the roofs, painted throughout and redid the parking lot.
Now CIP is looking to do the same with its recent buys. The firm paid GE Capital Corp. $5.5 million for the five-building Brea Canyon Business Park. It paid $9.5 million to Northwestern Mutual Life Insurance Co. for the 12-building Milliken Business Center.
CIP bought both sites in a joint venture with Baltimore-based investment fund Alex. Brown Realty, which was started by what’s now Deutsche Banc Alex. Brown Inc. but is privately owned today.
The Brea Canyon Business Park is in fairly good shape, according to principal Robert Y. “Bob” Strom.
“We’ll make minor adjustments to the interior, landscaping and signage,” Strom said. “The biggest reserve will be in repositioning the tenant base from a church to high-tech.”
Strom estimates $225,000 will bring the site up to date and help lure new tenants.
For the Milliken Business Center, CIP estimates it will take roughly $500,000 to replace the roofs and redo the landscaping and signs. With the fixes, CIP plans to bring rents to market levels.
Formerly California Industrial Properties, CIP was formed by principals McKenna, Strom and Eric C. Smyth. The three tout a combined 80 years of work in commercial real estate.
McKenna heads the legal and development side. He’s a partner in the Irvine law firm of McKenna & Morris and was part of the group that developed The Atrium office building near John Wayne Airport.
Strom comes with a background in financing. Before forming CIP, he handled the construction portfolio with Lloyd’s Bank. Strom also is president of Irvine-based Mortgage BancFund Corp.
Smyth, who comes from a real estate family, heads the property management part of the business. Smyth’s father began building tract homes in the 1950s and did build-to-suits in the 1980s.
When the trio formed CIP in 1995, they did so in the throes of a still shaky but recovering market. But the firm bet that the timing was right: “We should be buying,” Smyth said.
CIP landed its first deal in late 1995, acquiring Laguna Hills Business Park, a site it turned over within 18 months of buying it.
Part of CIP’s strategy is to focus on specific geographic areas.
“We have focused on a market location where we have two to three parks within 15 minutes of one another,” McKenna said. “That way, we’re able to move tenants within and between parks.”
CIP has its headquarters in the airport area of Irvine, with site management offices in Chino, Ontario, Costa Mesa, La Habra and Anaheim. To handle an expanding portfolio, CIP recently added three people to its ranks for a total of 20 employees.
McKenna said there’s no big secret to what CIP does.
“We look for sites with good demographics, good freeway access and a strong industrial base,” he said.
CIP is looking at properties in the South Bay, a few submarkets in San Diego and throughout OC, the principals say.
“We still think there’s a good market to invest in,” Smyth said.
While CIP has a big-name partner in Alex. Brown, financing is another matter.
“It’s still here, but lenders are more cautious,” Strom said. “They’re showing more concern with the tenant mix.” n
