A prime 13.9-acre site in Newport Beach has found a new owner.
The St. Clair Company LLC, which has been focusing on residential development since forming nearly three years ago, last week purchased the Raytheon Co.’s 415,000-square-foot office and industrial complex at 500 Superior Ave. for $23 million.
Steven St. Clair, the company’s president and founder, said his plans are to convert the four buildings, once used by Hughes Aircraft Co. before it was acquired by Raytheon, into strictly office space.
Although he admitted the facility would need a substantial renovation, St. Clair said it was too early to tell how much such a facelift would cost. But sources familiar with the buildings estimated the new owners would need to spend $15 million to $20 million on improvements. The site is in an old commercial sector near Hoag Hospital.
“We have budgeted the funds for this project to cover any changes that need to be made,” said St. Clair.
His company outbid a list of 20 finalists drawn up by Raytheon, which conducted a three-month competitive process to select a new owner.
“It’s a high-profile property,” said Dave Desper of CB Richard Ellis of Newport Beach. “The buildings were constructed in phases over a period of time for a single user. But it’s well suited for multi-tenant clients and companies looking at around 50,000 square feet and above.”
That’s exactly the market St. Clair wants to target.
“We’ve already been approached by several larger type of users,” he said. “We want to market this to a range of different potential tenants. But it will appeal to technology users and high-end corporate clients trying to find competitive rates for office space in Newport Beach.”
The St. Clair Company got a good deal on the low-rise buildings, according to Barry Saywitz.
The tenant representative who has brokered deals in the area pointed out that the St. Clair Company paid around $56 a square foot for the ex-Raytheon buildings.
“At that price, he should be able to offer rents below what comparable space is going for in the area,” said the president of Newport Beach-based The Saywitz Co.
Lease rates for similar large blocks of office space in the neighboring airport submarket are averaging between $2 and $2.50 per square foot, he added.
At Fashion Island, another nearby submarket, comparable rates are running in the $3 and up monthly rental range. And at the Irvine Company’s University Research Park, also nearby the Raytheon complex, leases are going for around $2.30 to $2.40 a square foot, estimated Saywitz.
“They (St. Clair Company) should be able to beat those rates fairly easily,” he said.
Area Revamping
Saywitz also believes that the new Raytheon site owners will benefit from a move by officials in neighboring Costa Mesa to revamp commercial properties in the area.
“The city of Costa Mesa is implementing a redevelopment plan to convert some of the older buildings into more modern high-tech, flex type of uses,” said Saywitz. “So that has to bode well for him because the whole area is getting a real facelift.”
Tim Joyce, senior vice president of the Seeley Co. in Irvine, sees a repositioning of the old Raytheon buildings to high-end corporate users at competitive rates as a real plus for the Newport Beach market.
“It will offer a real unique alternative to technology companies that don’t want to be in the mainstream of traditional locations,” he said. “I’m sure there are companies with executives who live in Newport Beach that will see that location is an advantage. And they’ll be able to draw a certain amount of employees from the coastline interested in working at that site.”
New Strategy
For the St. Clair Company, buying and renovating the two- and three-story Raytheon buildings signals a start of a new strategy.
“We’ve been focused on residential development up to this point,” said St. Clair, whose company owns more than 4,000 lots in Southern California and Colorado. “Our plan is to move to develop more mixed-use type of developments with commercial and industrial applications. We’re looking now to diversify and this is our first purchase moving into those sectors.”
The New York-based real estate investment firm Angelo, Gordon & Co. is the St. Clair Company’s equity partner in the deal.
“We weren’t the largest company bidding for this property,” said St. Clair. “But we have relationships with very strong financial partners which enable us to compete with the large public and private companies.”
He added that the chance to acquire such a large amount of prime real estate at that location more than justified his company’s decision to use the Raytheon purchase as its first launch into widescale commercial development.
“Any time we have the opportunity to purchase property in Newport Beach which makes financial sense, we will,” said St. Clair. “We’re very confident this is going to attract a lot of interest from corporate tenants.” n
