Ghods Opens OC Office, Eyes High-Rises
Subleases, ‘Shadow’ Space Loom as Factors in Commercial Recovery
By Matthew Padilla
COMMERCIAL
Another Canadian high-rise homebuilder is staking a claim in Orange County.
This time it’s GBI Residential Development Inc., a unit of Toronto’s Ghods Builders Inc.
No, GBI isn’t ready to announce a big new project here. But it recently leased 5,000 square feet in C.J. Segerstrom & Sons’ Park Tower high-rise across from South Coast Plaza as a West Coast headquarters, according to Costa Mesa’s C.J. Segerstrom.
Ghods bears the name of owner and founder Ghasem Ghods, who came from Iran in 1971 to study engineering at the University of Texas. In 1985, he moved his family to Canada to build custom homes.
Ghods Builders has put up condominium high-rises in the Toronto area, as well as custom houses and townhomes.
Ghods joins Vancouver, British Columbia-based Bosa Development Corp., which plans twin high-rise condominium towers in Irvine.
The developer is in escrow on a couple of sites in Los Angeles to build condo towers, Ghods said. The company plans to focus on Los Angeles, Orange and San Diego counties from its Costa Mesa office, where it is set to employ about 20, Ghods said.
C.J. Segerstrom also recently closed a couple more deals at 17-story Park Tower for a total of 35,000 square feet. Law firm and political lobbyist Manatt, Phelps & Phillips LLP leased 21,000 square feet. The firm is moving in December from another Segerstrom building.
Don Nourse, Bob Taylor and Stan Gerlach of CB Richard Ellis Inc. represented Manatt.
Waddell & Reed Inc., a Kansas City-based investment manager, leased 9,000 square feet at Park Tower, combining two OC offices, according to the company.
Bill Early of First Scout Realty Advisors in Kansas City represented Waddell.
The three lease deals bring occupancy at Park Tower to 90%, according to John Barganski, marketing director for C.J. Segerstom’s office properties.
Park Tower, which totals 362,000 square feet, was renovated in 2000, including the addition of a three-story atrium lobby, metal canopy wings at the entrances and new elevators.
Shadows and Subleases
As companies return to profitability and economic growth picks up, brokers are hoping good times are ahead for the county’s commercial real estate market.
Two related issues could affect when and how a recovery occurs: sublease space and shadow space.
Several companies have preferred to take sublease space, which generally is cheaper than renting from a landlord. This trend has kept rents down, brokers said.
Shadow space is another issue. That’s where a company leases space but doesn’t use or sublease it. Shadow space always has been important in real estate recoveries, since a company with shadow space might grow into it before leasing up new space.
But this time around the shadow issue is more muddled than ever.
That’s because in December the Financial Accounting Standards Board set down new rules that say a company must write off the cost of unused real estate either when it terminates a lease or when it “ceases using” the space.
Under the old rules, companies had to account for unused space only when they developed a facility exit plan.
In a worst case scenario, companies could be more conservative when they sign new lease deals as the economy picks up, perhaps lowering the average deal size, as a result of the new rules, brokers said.
Office leases are a lot smaller these days than during the boom of the late-1990s. I see a lot of deals less than 10,000 square feet, where once it was common to see companies taking 40,000 square feet or more. The question is whether or when deals will get bigger again.
Still, the overall effect of the new accounting rules is difficult to gauge, according to a report in the Wall Street Journal earlier this year. Motoko Rich, a Journal reporter, wrote that some accountants believe tenants still have leeway with the new rules if they occupy some of the space or plan to occupy it in the future.
In September, Jones Lang LaSalle released the results of a survey it conducted of 75 corporate real estate executives, mostly from Fortune 100 companies. The executives surveyed said they were cautiously optimistic about the future but “are still struggling to deal with a substantial inventory of excess space. Furthermore, new accounting rules regarding the impairment of excess space have created additional hurdles.”
Jones Lang also reported that 35% of executives surveyed said their excess capacity is more than 15% of their current portfolio, while 60% cited levels above 10%.
“Based on consensus economic growth expectations, this could represent two to three years of supply,” Jones Lang said in a release.
CommonWealth Enlists Money Partner
Los Angeles-based CommonWealth Partners LLC recently detailed a partnership with Rockefeller Group International Inc., a unit of Mitsubishi Estate Co. The partnership plans to provide more money for CommonWealth to invest.
In September, CommonWealth announced plans to market an 18-story office tower it seeks to build in its Two Town Center complex, which also is home to the Ditech.com building in Costa Mesa.
Brett Munger, chief operating officer and principal with the firm, said money from the partnership could be used to pay for building of the high-rise. But he said the company will not change its original strategy of doing some “significant preleasing” before construction.
