The numbers were enormous in 1999.
All forms of real estate activity, whether sales or leases, continued a four-year surge in Orange County.
And that meant bigger deals and more money flowing through the hands of local real estate professionals.
So who got what?
In the following pages, the Business Journal taps into the resources of Orange County researchers to sort through the myriad deals that took place last year.
Behind the wheeling and dealing, however, some memorable events took place that will never be recorded in mere statistics.
One of the county’s largest employers, Experian Information Solutions, bought 20 acres in Costa Mesa. Formerly TRW, the company plans to build a 500,000-square-foot office campus at South Coast Metro Center.
And take, for example, what happened to Jay Carnahan.
A veteran former executive with the Irvine Co. and Transwestern, he struck out on his own last year and wound up landing one of the largest leases in the county.
By helping DiTech Funding into 110,000 square feet at 3200 Parkcenter Drive in Costa Mesa, Carnahan negotiated the county’s fourth-largest office lease deal at $24.5 million spanning eight years.
Just as importantly, he pointed out, was the way terms were negotiated.
“The deal from start to finish took about four hours,” said Carnahan. “From that time to when the tenant moved into the space, it only took 70 days. That was quite a whirlwind deal.”
And one that took place as DiTech was being purchased by GMAC and the building’s eventual owner, LA-based Commonwealth Partners, was still negotiating with C.J. Segerstrom & Co. and Prudential Insurance to buy the complex.
To Carnahan, the ability of negotiators to land DiTech in such short order shows how a market like Orange County can benefit in good times.
“There were several big deals that went down fairly quickly last year,” he said. “I think that’s what makes us different from a larger market like an LA,we’re a relatively small real estate community.”
So as the activity picked up through most of the year, the sales cycle on many of the area’s largest deals was surprisingly swift, according to Carnahan.
“Most business people around here know who they can trust,” he said. “So even though we went through a tremendous amount of activity in 1999, deals got done relatively quickly, which has led to more deals and more activity this year.”
Kurt Strasmann, executive vice president and managing director of Grubb & Ellis in Anaheim, agreed.
“All across the board, the market has been as good as we’ve seen in the past decade,” he said. “The demand continues to be greater than supply, which has boosted prices in almost every area. During 1999, it was a strong, stable year where the sales cycle moved at a good pace.”
Industrial markets were especially active. According to Grubb & Ellis data, leasing and sales volume in 1999 jumped 30% from the previous year, with almost 20 million square feet transacted.
New construction brought about 3 million square feet to market in 1999, according to Craig Jones, director of research for Grubb & Ellis in Orange County.
Some 2.2 million square feet of new office space also was constructed in Orange County during 1999, reported Grubb & Ellis.
The result was that an estimated 84,000 square feet of new office space was absorbed by office tenants last year.
The Grubb & Ellis numbers also show that lease rates continued to rise in Orange County during 1999. Despite a slowdown at the end of the year, asking rates on full-service-gross office deals by the end of December were averaging $2 a square foot per month.
At year-end 1998, those rates were $1.97 a square foot.
Space for research and development work increased from 85 cents on a triple-net basis in 1998 to an average of 88 cents in 1999.
Manufacturing and distribution space held steady with an average of 54 cents a square foot on a triple-net basis, and the popular flex-tech product was averaging $1.41 a square foot in the first year it was measured separately, believed to be up from previous years.
“It was a very strong year, considering how much product came on line for office and industrial users,” said Jerry Holdner, director of research for Voit Commercial in Anaheim. “It all got absorbed and then some.”
The big push, he added, came when ConAgra announced it would lease more than 400,000 square feet at Park Place Office Campus,filling a big chunk of the space vacated by Fluor Corp. (see related story on page 1).
“The Park Place deal with ConAgra was exactly what this market needed,” said Holdner. “That put us over the top for the year in terms of positive absorption.”
He is predicting that,based on the momentum of a strong 1999,real estate markets this year will continue to be hot.
Holdner is forecasting that industrial lease rates will climb 5% to 7% in 2000. Office rates will improve 3% to 5% this year, he added.
On the building sales side, large pension funds and institutional investors are expected to continue to drive prices up in Orange County.
Particularly strong, says Voit’s Louis Tomaselli, were buildings selling for $10 million or less.
“You’ve still got your institutional and pension fund investors looking for the $20 million and up investment type of property,” he said. “But there’s a new group that is interested in tax-deferred exchanges at different price levels.”
The so-called 1031 exchanges, named after an IRS tax code that allows property owners to defer capital gains taxes if they swap rather than buy or sell property, have been around since the late 1980s. But the real estate downturn in the early 1990s dropped land values and depleted interest in 1031 exchanges.
Now that property values are rising in Orange County, local brokers report that exchanges are becoming more popular and easier to accomplish.
One of the difficulties now, however, is finding suitable properties to exchange in a tight commercial real estate market. n
