COMMERCIAL
Here’s something I’ve been wondering: What did The Irvine Company pay last month for the five-building Irvine Spectrum campus of Verizon Wireless, a venture of New York-based Verizon Communications Inc. and Britain’s Vodafone Group PLC?
The developer forked over $140 million, or $308 per square foot, for the 454,000-square-foot campus at 15505 Sand Canyon Ave. if Real Estate Alert, an industry newsletter, is to be believed.
The newsletter has some excellent sources, or so I’ve heard. Still, that price is way above what a couple of brokers told me.
In a story in the May 23 issue of the Business Journal, I pegged the price at about $220 per square foot, or more than $100 million.
Both Newport Beach-based the Irvine Co. and seller Los Angeles-based Lowe Enterprises Inc. declined to comment last month. A spokeswoman for Lowe’s cited a confidentiality agreement.
If the newsletter is correct, the sale price would be very high for low-rise office space. Buildings that break the $300 per square foot mark tend to be high-rises.
The price likely is related to what Verizon pays in rent. Its lease goes to 2010, sources said. No one I spoke to knew the exact lease terms.
Real Estate Alert said the Irvine Co. is set to get an initial yield of 7.5% on the deal. Its use of the term “initial” suggests Verizon’s lease may include future rent hikes.
Applying a little math to the yield figure, I calculated Verizon is paying $10.5 million a year, or $1.93 per square foot per month, based on the $140 million sale price.
That’s low by today’s standards. The average office lease in the Spectrum is $2.26 per square foot per month, according to Voit Commercial Brokerage LP.
Still, Irvine Co. Chairman Donald Bren likely made a sensible play.
First, Verizon is a blue chip tenant,it’s the second largest mobile phone operator in the country behind Cingular Wireless, so no chance of default.
There’s also probably a rent hike or two in Verizon’s contract.
And once the contract expires in 2010, those buildings should command higher rents.
The Irvine Co. is proving to be a big believer in the office market comeback. It’s planning twin office high-rises in the Spectrum. It’s also developing low-rise buildings there and near the Market Place shopping center on the border of Tustin and Irvine.
In the Verizon deal, the Irvine Co. got 30 acres of its own land back. The company sold the land to Lowe about six years ago to build the campus for Verizon, known then as AirTouch Cellular.
Dynamic Deal
Talk about high prices,a new record may have been set.
Michael Dorsey, a broker with Grubb & Ellis Co., said he recently brokered a deal at $651 per square foot.
A private investor paid $6.36 million, or $651 per square foot, for a 9,766-square-foot building in Dana Point, Dorsey said. An amazing price for a wood-framed, stucco-finished building.
Nicer steel-framed office buildings these days are selling for $200 to $300 per square foot.
Dorsey’s buyer, you may not be surprised to hear, needed the deal to avoid paying capital gains on another sale, taking advantage of a portion of the tax code known as 1031.
The seller was Lew Webb, who sold eight auto dealerships to Fort Lauderdale, Fla.-based AutoNation Inc. in 1998.
Dorsey said the sale price was high because of the location at 33522 Niguel Road,the building overlooks the Pacific Ocean,the motivation of the buyer, a limited supply of commercial buildings in the area and the building’s high rents.
“There is still juice left in the market,” Dorsey said.
Super K Funding
The Newport Beach office of Chicago’s Cohen Financial LP said last month it provided $14 million in financing for redevelopment of a Super K site in La Habra.
The deal is former U.S. ambassador to Spain George Argyros’ first big real estate play since returning to Orange County last year.
Argyros’ Arnel & Affiliates of Costa Mesa plans to renovate the 180,000-square-foot building and add an additional 40,000 square feet to the former Kmart store.
Arnel is teaming with Irvine-based Hopkins Real Estate Group on the project.
The loan from Cohen covers 30 months, with the interest rate tied to the floating one-month London Interbank Offering Rate. Mark Strauss, a managing director at Cohen, handled the loan.
More Condo Conversions
Costa Mesa-based Essex Realty Management Inc. recently paid $10.1 million for four class B office buildings, totaling 56,711 square feet, in Costa Mesa.
The company plans to resell them as 56 office condominiums.
The deal is Los Angeles-based Commercial Ventures’ final sale of buildings at Waters at Creekside. The office park, at 2900 Bristol St., includes nine buildings from 12,000 square feet to 23,000 square feet. The office park totals 156,000 square feet.
Five buildings were sold to individual investors.
As for Essex, its office condos are set to go for $245 to $275 per square foot.
Jeff Hanson, Ryan Gallagher, Bob Davis and Greg Puccinelli of Grubb & Ellis’ Newport Beach office represented the buyer and the seller.
