Developers of smaller, industrial and office condominium buildings for sale haven’t shown too many signs of slowing down.
Some of the biggest condo projects the county’s ever seen are going up in areas such as Santa Ana and Irvine, totaling more than 1 million square feet of space.
But after years of red-hot buyer demand, developers,like builders of for-lease space that have struggled recently to find tenants,are starting to readjust their timelines to account for a slower pace of sales.
“I’d say that demand right now is steady, but not as robust as before,” said Bryan Bentrott, executive vice president for Newport Beach-based Master Development Corp.
Master Development is in the early stages of one of the largest industrial condominium conversions in the county, a 280,000-square-foot project in Santa Ana it is calling Las Palmas Business Park.
After paying close to $130 per square foot for the site in mid-2006, the developer is turning the property’s 50 industrial units, spread among 11 buildings at the site, into condos for sale as existing leases for the buildings run up.
Bentrott says his company,a big industrial developer in Corona and Riverside,plans to make about $50 million in sales at the project. That would make it the company’s largest industrial condo project yet in terms of gross sales. The question is: When will those sales take place?
When the project started, Bentrott said the expectations were that they’d be able to sell out most of the buildings within 18 months. Now, the plan is to sell out the project in about 30 months,the result of the uncertain economic climate and the ongoing effects of the credit crunch.
Sales efforts for the project began in earnest at the beginning of this month. So far, Las Palmas has received three letters of intent.
“We’d like to have had twice that amount by now,” Bentrott said.
In some cases, the developer is renewing leases at the site on a one-year basis, with a 60-day relocation clause for tenants in case a sale is made. Monthly rates there now run in the 90 cents to $1 per square foot range.
Still Attractive
Most area brokers expect condo projects such as Las Palmas to continue to sell out, but it might not necessarily be at the pace of recent years.
For-sale industrial properties “are still seen as an attractive investment,” especially with interest rates creeping down in recent months, said Gary Allen, senior vice president of transaction services for the Newport Beach office of Grubb & Ellis Co.
But with so many condos built in the past few years, prospective buyers are likely to have more options, especially if some of the small business owners that bought these buildings in the past few years look to become sellers themselves, Allen said.
Across the county, “demand has diminished. Buyers have been sitting on the sidelines the last few months,” said Kevin Turner, senior vice president for the Irvine office of Voit Commercial Brokerage LP.
If a deal’s to be made these days, small-business owners need to be convinced that a building they’re buying is in a location that will show long-term appreciation, said Turner, who’s part of the team handling the listing for Koll Center 3, a for-sale office and warehouse project being built in the Irvine Spectrum.
The $57 million, 188,000-square-foot business park, along Bake Parkway and Research Drive, is 40% presold, according to Turner.
Two earlier projects at the Spectrum developed by Newport Beach’s Koll Co. were largely sold out prior to construction being completed.
Near the Koll Co.’s latest project, Bacchus Signature Series, a 156,000-square-foot development built by Irvine-based Bacchus Development, has seen sales for more than half of its 40 high-end buildings.
Bacchus also is working on a similar project on the other side of the Santa Ana (I-5) Freeway, the 338,000-square-foot, 50-building Jeffrey Office Park. Brea-based KPRS Construction Services Inc. is handling the construction for the two Bacchus projects.
Turner said he’s seen less than a dozen of the roughly 450 or so office and industrial condos built around the Spectrum the past few years put back on the market.
Master Development’s Bentrott says that his project’s target customer,light distribution, manufacturing and wholesale businesses based in Santa Ana, Costa Mesa or Tustin,aren’t likely to be the same business owners eyeing the Spectrum, where buildings cost more.
Las Palmas Details
The average price for a condo at Las Palmas is around $200 per square foot, Bentrott said. Condos start around $625,000 for the smallest units of about 2,500 square feet, and run up to $2 million for the larger units, which go as big as 15,640 square feet.
The site, along East McFadden Avenue, previously was known as Electric Farms due to its proximity to a power station. The property was built in the 1970s and is in the midst of getting more than $4 million in upgrades. Irvine-based GMI Construction Services is handling construction at Las Palmas.
Buchanan Street Partners of Newport Beach is an investor, while Bank of America provided a loan for the project.
Along with being one of the larger condo conversion projects in the county, Las Palmas was also one of the first projects of its type to be approved in Santa Ana, which added to the project’s complexity.
“The city really had no formal procedure for getting (these types of) entitlements. It was a mutual education process,” Bentrott said.
