Santa Ana real estate mogul Michael Harrah recently sold a five-story office building on Main Street for $5.9 million.
Harrah has sold some sizeable office buildings in Santa Ana during the past year or so, likely to raise money to build his dream: a 37-story office tower approved by voters in April.
“The redevelopment of Santa Ana has increased the value of properties in the area and opened the door for additional investment opportunities,” said Harrah’s broker, Gil Marrero of Voit Commercial Brokerage LP in Irvine.
The building sold for about $99 per square foot. Tenants include Bank of the West and the OC Weekly.
Marrero, Al Pekarcik and Dan Vittone of Voit’s Irvine office represented Caribou Industries, Harrah’s company. Rick Julian of Advanced Real Estate Services represented the buyer, Live Oak Plaza LLC.
Last summer, Caribou Industries sold three office buildings to Birtcher Anderson Realty LLC for $58 million, including 10-story Park Tower.
I reported on speculation he may be selling buildings to avoid drawing tenants from his own properties to the proposed 37-story tower. The case against that theory: Much of the space in buildings he sold was occupied by government agencies with long-term leases.
Harrah remains a major area landlord with about 3 million square feet of commercial space. These days he’s fishing for tenants for his dream tower. He signed an agreement with the city that calls for him to lease 50% of the tower before starting construction.
Planned office high-rises like Harrah’s are set to bring some relief to a tight market for the best space here,or so says the second-quarter report from New York-based Studley Inc., which has an office in Irvine.
True, but the first tall building to break ground won’t provide relief since it’s entirely leased to Impac Mortgage Holdings Inc.
Scholle Corp. broke ground last month on the 200,000-square-foot building at 19540 Jamboree Road. Of course, Impac is set to vacate other area offices.
Developers are in a kind of competition to see who can finish a high-rise first, according to Studley.
Among the leaders: Los Angeles-based Maguire Properties Inc. has preleased a big chunk of its planned 20-story building at Park Place, and Transwestern Commercial Services plans to start construction this month on a 10-story tower at 18100 Von Karman Ave.
The county could get eight more high-rises during the next few years, if all the projects are completed as planned.
Studley, which represents tenants, said the amount of available class A space dropped 5.7 percentage points to 11.3% in the second quarter, versus a year earlier. That’s a historic low, according to Studley.
The availability rate includes sublease space. The more commonly used vacancy rate is from a landlord’s perspective, showing the amount of space Orange County’s landlords have open on their books.
The brokerage said annual class A rents jumped 12.9% from last year to $27.77 per square foot in the period. That works out to $2.31 per square foot per month.
National Mall Stall
Malls are under pressure nationally, according to the latest retail report from Marcus & Millichap Real Estate Investment Brokerage Co.
The report looks at nationwide trends in the sales of shopping centers with a focus on tenants. In June, I wrote about the local retail report for OC, where mall vacancy is relatively low.
Department stores have lost as much as one-third of their shoppers during the past decade to discounters such as Wal-Mart Stores Inc. and Target Corp., according to the Marcus report. As a result, malls have to tinker with their tenant mixes.
Target sold off its struggling Marshall Field’s and Mervyn’s department store divisions last year after years of trying to turn them around.
“The mall format is coming under additional pressure as recent department store consolidation means a substantial amount of anchor space may become available over the next several years,” the report said.
Sears, Roebuck and Co. may move some of its stores off mall sites in the wake of its acquisition in March by Kmart Corp., according to Marcus.
The latest news: Federated Department Stores Inc. is set to close the Macy’s at The Shops at Mission Viejo and the Robinsons-May women’s store at Westfield Shop-
pingtown Mainplace in Santa Ana in early 2006.
All remaining Robinsons-May stores are set to become Macy’s in fall 2006. The move is part of Federated’s plan to shutter 68 stores in the U.S.
Another weak spot nationwide is home improvement centers,sales of such properties dropped 60% last year, according to Marcus.
The reasons: a dearth of properties for sale and investors weighing the impact of higher interest rates on home loan refinancing.
On the upside, investors remain hot on drug stores, thanks in part to the needs of aging baby boomers. However, supply is getting tighter. And forget the health nuts, fast-food chains are thriving.
Lastly, investors looking to own a property with just one tenant are going after low-cost “dollar” stores, according to Marcus.
The cost of an average sized dollar store is $665,000, or $80 per square foot. The price has remained relatively flat during the past year, though deal volume nearly has doubled.
