At the peak of the commercial real estate market, some Orange County offices sold for top dollar,surpassing $400 per square foot.
But this month’s flurry of big-name office sales tore down that number, making the $300 per square foot mark seem like a stretch for most sales.
Investment brokers said New York-based Emmes Group of Cos. likely helped set the baseline price for high-end office sales in OC this month when it paid about $160 million, or $300 per square foot, for the 3161 Michelson tower at Irvine’s Park Place campus.
The 19-story office building,widely considered to be one of OC’s best buildings,sold for nearly 40% below the price that Los Angeles-based developer Maguire Prop-erties Inc. paid to construct the building.
But the price is right on target with the overall market, according to local analysts.
Commercial real estate prices in Southern California are down about 35% to 40% from their most recent peak, according to Mike Kirby, chairman and director of research of Newport Beach-based Green Street Advisors Inc.
That’s “awful news” for properties financed at the peak of the market with 70% or more debt, Kirby told attendees of the UCLA Anderson School of Management forecast conference earlier this month.
The next few years will be “ugly” as maturities of underwater mortgages result in fire sales, Kirby told the conference.
There’s been plenty of ugliness involved in some local deals, according to brokers.
In Orange, Long Beach-based real estate investor Abbey Co. this month closed on a deal to buy the 457,000-square-foot City Parkway office tower complex from Maguire.
Terms of the City Parkway deal weren’t disclosed. The building,which is about 30% full,appears to have traded hands for $50 million to $60 million, or roughly $130 per square foot, based on Maguire’s regulatory filings with the Securities and Exchange Commission.
That’s close to $100 per square foot below the property’s value a few years ago.
“The only things that are trading now are trophies and train wrecks,” said Ryan Gallagher, senior vice president for the Newport Beach-based office Grubb & Ellis Co.
Outside of lender-driven sales, properties in good locations or with solid bases of tenants still are generating buyer interest, according to Mike Kane, senior vice president with the Newport Beach office of CB Richard Ellis Group Inc.
Kane worked on this month’s $73 million sale of the Irvine Spectrum office complex that served as the West Coast headquarters for Ford Motor Co. since 2001.
Torrance-based Transpacific Develop-ment Co. bought the 270,000-square-foot Irvine Spectrum office complex, which is set to have Irvine-based Taco Bell Corp. move into it as a long-term tenant later this year, for about $270 per square foot.
The Transpacific and Emmes deals “represent how investors see value in Orange County today. It helps establish where we are in the current cycle,” said Kane.
Future sales are expected for two in-distress office complexes that previously counted big local financial tenants: the former Downey Financial Corp. headquarters in Newport Beach and the Quintana multi-office complex in Irvine that previously was known as the Washington Mutual campus.
Properties in better shape that are said to be up for sale include two offices in Santa Ana’s South Coast Metro area: 3 Imperial Promenade and 4 Hutton Centre.
The aftermath of recent deals also will help establish the leasing market in OC as the new landlords reset rental rates, said Gallagher, who works in Grubb & Ellis’ institutional investment group.
Close to 2 million square feet of recently traded space likely will be listed at new rates. That will in turn impact the rents,and potential sales prices,of other buildings in the region, Gallagher said. n
