By PAT BRODERICK
The Irvine Company long has been Orange County’s dominant landlord.
So much so that the company’s moves are closely watched for clues on whether it is time to pull back or press ahead in commercial real estate.
Now the Irvine Co. could be close to cornering the office market in downtown San Diego.
The Newport Beach-based company is said to be in escrow on two downtown buildings, including the city’s marquee One America Plaza.
Company officials declined to comment on the reports.
Since 2003, the Irvine Co. has bought four downtown San Diego buildings for about $550 million. The company owns other campus-style buildings in San Diego County, including La Jolla Gateway and Eastgate Technology Park.
The company’s downtown buildings:
Symphony Towers, a 34-story high-rise bought for an estimated $134 million in 2003.
Wells Fargo Plaza, a 23-story tower bought in 2004 for $148.3 million.
225 Broadway, known as the SBC building, and 101 W. Broadway, known as the NBC building, bought for a combined $265 million last year.
The latest sale of the San Diego towers could close this month, according to Jason Hughes, a principal at San Diego real estate brokerage Irving Hughes Group Inc.
The brokerage has represented tenants at One America Plaza and the other building, Koll Center.
The pending sale signals the Irvine Co. “is very bullish on rents going up,” Hughes said.
“These are very, very smart investors,” he said. “They know what they are doing. And, it’s almost a self-fulfilling prophecy now. With them controlling so much space, they can manipulate the market.”
The impact stands to be felt in coming years as leases come up, he said.
“Most tenants sign for five to 10 years,” Hughes said. “At any given time, 10% to 20% are rolling over as tenants. Over time, (the landlord has) the ability to increase rents as they bring in new tenants, and,over 10 years,to significantly increase rates. Certainly, if you can manipulate the market, and you have a large supply, you can control rates.”
If the deal goes through, the Irvine Co. will own six of downtown’s nine top buildings, said Kraig Kristofferson, senior vice president for CB Richard Ellis Group Inc. in San Diego, who was involved in the past sales of One America Plaza and the Koll Center.
“They will have a good corner on the class A market, and it’s indicative of investor interest in downtown San Diego,” he said. “There was a lot of competition for each building sold recently, and Irvine was the most aggressive.”
One America Plaza is the “premier building in downtown San Diego,” Kristofferson said.
The 34-story, 570,000-square-foot One America Plaza could go for $285 million, or $500 a square foot,considered the highest price paid for a building in downtown San Diego.
“If it sells for that, $500 a square foot would be a milestone,” said Glenn Fibiger, president of the Building Owners & Managers Association in San Diego. “Nothing has gone that high in memory. It’s way outside of anything that has been purchased downtown, which has been at $350 a foot recently.”
Koll Center, developed by OC developer Donald Koll in 1989, could sell for $150 million, or about $402 per square foot.
GE Asset Management, the real estate unit of General Electric Co., owns both buildings in partnership with Sentre Partners, a San Diego-based real estate investment and management firm.
GE and Sentre bought Koll Center in late 2003 for $93 million. One America Plaza was acquired about a year earlier, reportedly for $166 million.
The Irvine Co. reportedly bid on One America Plaza at that time.
Better Than Building
Even with the high prices, buying office buildings likely is a better bet than building them, local real estate sources said.
San Diego, unlike OC, has seen some office construction: one tower, Broadway 655, finished last summer. Another, Diamond View Towers, is set to finish in the spring.
But building means dealing with high construction costs and securing tenants.
There’s less risk in buying a prime building that’s already leased up, according to Kristofferson.
“That’s half the battle,” he said.
The risk for the Irvine Co. could be in paying top dollar at the peak of the office market’s current boom.
Kristofferson is bullish:
“Locations like that can’t be duplicated. People are amazed on what prices have been paid. But if you look at the buildings, some have traded two or three times in the last three or four years. Everyone’s made money along the way.”
Downtown San Diego is in the throes of a redevelopment boom, with condominium towers dominating much of the construction activity in recent years.
“The residential growth and occupancy will continue to improve the value, as we have a truly 24/7 downtown,” Kristofferson said.
Mark Mueller of the Orange County Business Journal contributed to this story.
