Cracks are starting to emerge in Orange County? medical office sector, which to date has held up better than the office market at large during the commercial real estate downturn.
Irvine Medical Arts LP, developer of a three-story medical office building in the Irvine Spectrum that opened last year, filed for Chapter 11 bankruptcy protection last week.
The case appears to be the largest medical office-related bankruptcy or foreclosure the county has seen in the past few years.
The bankruptcy petition, filed in state court in Santa Ana, lists estimates of $10 million to $50 million for assets and liabilities. The company? 20 largest unsecured creditors are owed less than $50,000 in total, according to court documents.
Secured creditors are a different matter. Corona-based Vineyard National Bancorp holds about a $22 million loan on the property and is believed to be the property? largest debt holder, according to lawyers representing the developer.
The bankruptcy filing stops?t least for the time being?he foreclosure-driven sale of the building that was set for late this month, according to lawyers.
It? a ?arden variety?real estate bankruptcy, according to Marc Forsythe, a lawyer with Irvine-based Goe & Forsythe LLP, which is representing the developer in the bankruptcy proceeding.
The firm, which focuses on bankruptcy, insolvency and corporate reorganization matters, has been seeing increased business from real estate clients of all types as of late, Forsythe said.
The medical office property still has equity in it and the current owners are still making sales, according to Forsythe.
?hey just needed some time,?he said.
Irvine Medical Arts is a 63,000-square-foot property at 113 Waterworks, near Hoag Memorial Hospital Presbyterian? and Kaiser Permanente? Irvine hospitals.
The office opened in early 2008 and offered condominiums for sale and lease. The building was marketed to primary care doctors and dental and medical specialists. It also includes a pharmacy, according to the property? marketing materials.
Recent listings show a handful of condos still being marketed for sale at the property, with spaces running about 1,500 square feet to 2,000 square feet. Sale prices are listed at about $440 per square foot. Short-term leases are being offered at monthly rates close to $2 per square foot.
Lake Forest-based Enterprise Commercial Development Inc. previously had been listed as the developer for the project, but that entity is not directly involved in the bankruptcy case, according to Forsythe.
In 2006, Enterprise Commercial paid a reported $13 million to Irvine Company for 4.2 acres of land at the site, which was zoned for medical office use. That land sold for $3 million an acre, which at the time was on the higher end of local land sales.
The medical office building segment of the county? commercial real estate market counts about 8 million square feet of space, not including hospitals and buildings owned or occupied by hospitals.
Overall, the sector remains relatively healthy, with vacancy rates for medical offices running about 12%, up from about 11.5% a year ago, according to data from the Irvine office of Colliers International.
The market? seen a good dose of construction in the past few years.
Four speculative buildings totaling 118,000 square feet broke ground in 2008, on top of nearly 400,000 square feet of medical office space that completed construction last year, including the Irvine Medical Arts building.
At the end of 2008, seven other medical projects totaling 400,000 square feet were planned for OC but have been held up at the drawing board due to entitlement issues, approval delays and the overall market slowdown, according to Colliers data. n
