Suite Company Bankrupt; Others Vie For Its Space
By DANIEL D. WILLIAMS
Executive suites operator American Office Centers LLC filed for bankruptcy in September and is planning a reorganization that would allow it to keep its Orange County locations. But real estate brokers said they already are fielding inquiries from other suite operators about the OC sites.
Last week, a bankruptcy court granted Huntington Beach-based American an extension of up to five months to figure out its finances.
Formed in 1994 with the merger of Pacific Office Centers and Great Offices Inc., American has executive office space in Irvine, Seal Beach, Huntington Beach and Rancho Santa Margarita.
“Originally AOC had 19 locations, but nine of those have been given back to the landlord,” said Newport Beach attorney Allan Leguay, who is representing American. None of the spaces turned back were in Southern California, he said.
The company was not available for comment. But Leguay said American is formulating a plan to keep its nine remaining Southern California facilities and one in Frisco, Texas. It has no plans to lay off any of its 66 employees, Leguay said.
University Tower in Irvine is one of the locations American wants to keep, Leguay said. But the sharks already sense blood in the water.
“I’m the broker on the property, and I’ve already received four unsolicited offers on their space,” said John Bosko with the Newport Beach office of NAI Capital Commercial Real Estate.
All of the offers have come from other executive suite operators, which makes sense to tenants and landlords, according to sources. Another executive suite company can move right in without needing to make improvements, they said.
One potential suitor comes from as far away as Manhattan.
“My clients heard about it (American’s financial problems) through the grapevine,” said Mike Doetsch, a Manhattan broker for New York-based Williamson, Picket, Gross. “In this business, with its alliances and networks, you hear when a particular company is sucking wind.”
According to Doetsch, American is not alone. Dallas-based HQ Global Workplace Inc. and Regus Business Centre of Purchase, N.Y., the two big players in executive suites, are suffering the of late.
In light of the flagging economy, the difficulties within the executive office market do not surprise industry sources.
“Occupancy can ebb and flow rapidly with cycles of the economy,” said Steve Case, managing director of the Anaheim office of CB Richard Ellis Services Inc. “It’s often the first space to go in an economic crunch. The typical break-even for executive office suites is at 75% occupancy. Below that, and it becomes unprofitable very quickly.”
Executive Suite operators typically negotiate long-term leases with landlords on 11,000- to 15,000-square-feet spaces that include large reception areas and conference rooms. Tenants pay premium prices,$6 to $8 per square foot,to occupy the equipped space. The executive suite operator handles phone and clerical services for tenants, a plus for small or startup companies.
But problems can crop up when executive suite operators attempt to leverage their business.
“You can’t pull money from a profitable location and put it in a dog,” according to Doetsch. “The margins are too low. A slight hiccup in the market and you’re done.”
Not all executive suite operators are suffering, though. Irvine-based Real Estate Management Corp. recently picked up space formerly leased by HQ Global and American, according to the company’s president, Ron McElroy.
