The effects of the credit crunch and slowing economy were felt across all parts of Orange County’s commercial real estate market last year, as sales volumes and prices dropped across the board.
The combined total of the OC’s 10 largest office, industrial, retail and apartment sales was about $1.3 billion in 2008.
That represents roughly a 30% drop from the prior year’s combined total, although 2007’s figures don’t include a number of large portfolio acquisitions that would have made the year-over-year drop even more pronounced.
Not counting those big institutional sales,such as Maguire Properties Inc.’s early 2007 buy of local Equity Office Properties Trust buildings for $2.9 billion,2007’s figures were the lowest seen here in four years. But 2008’s slimmed-down figures make 2007 sales look good.
In the ensuing pages, the Business Journal has published the top sales and leases of 2008 in the office and industrial markets, as well as the largest apartment and retail sales.
Data was provided by CoStar Group Inc., Business Journal records and individual submissions. Sales are ranked by dollar amount and lease deals by square footage.
The Business Journal defines a deal as one building or small office or industrial parks, retail centers or apartment complexes of one or more buildings on the same land. Large institutional sales of portfolios of separate properties or a large mix of uses aren’t included.
Office sales made up about half of the combined value of OC’s top deals in 2008, with the 10 largest sales totaling about $645 million. That’s down more than 10% from a year ago and is about half the combined value of the largest office deals seen here from 2004 to 2006.
Other building types fared even worse than the office sector last year. The combined total of the 10 largest industrial sales fell some 43% last year, while apartment sales fell 11% and retail sales dropped by nearly 50% from 2007’s levels.
The drop has caused brokers to re-evaluate the way they do business.
“Marketing has changed a lot over the past year. We’re not going to the bid-auction approach now,” said Jeffrey Cole, executive director of Cushman & Wakefield Inc.’s Southern California capital markets group.
The brokerage has been targeting a smaller base of potential buyers these days. It goes after groups that can buy buildings largely using all cash and that have track records of closing deals, Cole said.
Cushman’s Irvine office was behind the largest office sale so far in 2009, a nearly $25 million deal for a 117,000-square-foot building on Laguna Canyon Road that was vacated last year by Consumer Portfolio Services Inc., a subprime autolender.
The building was bought by Chapman University, which will use it to house administrative offices and serve as the Orange-based school’s Irvine campus.
Buyers with cash on hand should be able to drive a good bargain in 2009 for bank-owned buildings, even if owners aren’t willing to part with buildings at lower prices.
For the most part, buyers and sellers remained far apart in pricing last year, keeping transactions of all building types at a minimum.
Steve Economos, senior vice president of NAI Capital Commercial and one the county’s top brokers of smaller and mid-sized offices, said he has more listings than at any time in his career. Turning those deals into sales is proving to be a challenge, though.
“It’s tough. People are so worried about making a mistake. Private investors are still staying on the sidelines,” Economos said.
He’s been marketing buildings as of late toward potential owner-users, who see a property as a place to do business and not just an investment.
Total office sales, not just the largest deals, totaled a little more than $1 billion in 2008. That’s an 85% drop from a year ago, according to data from Real Capital Analytics. The research company tracks deals larger than $2.5 million.
With bargain hunters staying on the sidelines, the average price per square foot for an OC office deal only fell by about 5% last year to $280 per square foot, according to Real Capital Analytics data. Capitalization rates increased from 5.6% to 6% during the year.
OC’s industrial market saw total sales decline 42% to $707 million last year. Retail deals fell even further, 70%, to $202 million. Apartment sales declined 71% year-over-year, Real Capital Analytics data shows.
San Francisco-based Shorenstein Proper-ties LLC bought the most expensive property in OC last year, taking two Irvine offices formerly owned by Maguire Properties. Shorenstein paid about $211 million for the Main Plaza office complex, a pair of 12-story towers totaling 607,000 square feet.
They’re Shorenstein’s only OC properties currently in its portfolio.
The largest office lease last year also was the most newsworthy, as Irvine Company signed up the Federal Deposit Insurance Corp. late last year to a 200,000-square-foot lease at its 40 Pacifica tower in the Irvine Spectrum.
The FDIC still is in the process of opening the office, where it will handle the management and sale of assets and loans from failed banks on the West Coast.
The top industrial lease was in Foothill Ranch, where CPU2 LLC, a logistics and telephone services company, renewed the lease on its 231,133-square-foot warehouse and distribution facility. The five-year renewal was valued at more than $10 million.
CPU2 takes up the majority of the 309,685-square-foot building at 25892 Towne Centre Drive. The building’s owned by San Diego-based Kilroy Realty Corp.
