Investors looking to buy office and industrial buildings across Orange County took a breather in 2007, while big portfolio and institutional sales grabbed most of the headlines.
The 10 largest individual office sales here totaled about $722 million last year. That’s down 34% from 2006’s total of $1.1 billion. It’s also the first time in four years that sales for the 10 biggest local sales fell below the $1 billion mark.
Likewise, the value of the biggest industrial sales here totaled nearly $330 million last year, down 34% from 2006 levels, but on par with the county’s total in 2005.
The softening local office market,due in large part to OC’s imploded mortgage industry,put the brakes on the number and size of local sales and leases in the first part of the year. And deals in the latter part of 2007 were put on hold as the market tried to come to terms with the national credit crunch.
All told, there were fewer local office sales in the fourth quarter of 2007 than in the last big market slowdown,the fourth quarter of 2001,according to Steve Economos, senior vice president of NAI Capital.
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The pace hasn’t picked up too much in the early stages of 2008, brokers said. Expect to see the sales market pick up toward the second half of the year, as the gap in expectations between buyers and sellers closes, said Ryan Gallagher, senior vice president for Grubb & Ellis Co.’s institutional investment group in Newport Beach.
The realities of the credit markets have affected the make-up of potential buyers today. With the debt markets in flux, cash investors, such as the Teachers Insurance and Annuity Association, are the most likely buyers for institutional assets these days.
And when sales are made, it’s a longer process, Gallagher said. Deals are taking 60 days to 75 days to get completed, compared to 45 days or so during the market’s heyday.
In the ensuing pages, the Business Journal has published the top sales and leases of 2007 in the office and industrial markets.
CoStar Group Inc. provided the data, while brokerages also submitted deals for consideration. Sales are ranked by dollar amount and lease deals by square footage.
One big caveat: The Business Journal defines a deal as one building or an office park of one or more buildings. Deals that include big portfolios of separate properties or a large mix of uses aren’t included.
That eliminates billions of dollars in OC sales, and resales, from the first half of 2007. Most notably, Maguire Properties Inc.’s $2.9 billion buy of Equity Office Properties Trust’s former OC holdings, along with two towers in Los Angeles, isn’t included in the list.
Maguire’s blockbuster deal included 22 OC properties, totaling 6.1 million square feet.
Subsequent debt-reducing sales by Maguire for selected OC buildings,such as a $310 million sale of three local buildings to Muller Co. of Laguna Hills and Rockwood Capital LLC of Greenwich, Conn., and a $345 million sale of 11 local buildings to Irvine’s Bixby Land Co.,aren’t included in the rankings either.
Similarly, the biggest sale of industrial assets in the county last year, an estimated $400 million buy of 3.3 million square feet of space by Chicago’s Walton Street Capital LLC, isn’t included in our industrial rankings (see story, page 23).
Also not making the cut for either 2007’s top industrial or office deals was the sale of 60 acres of Boeing Co. land and buildings in Anaheim, to Sacramento-based Panattoni Development Co. and ING Clarion Partners LLC.
The Anaheim deal was first reported in November, but didn’t officially close until early January, according to the buyers. Terms of that sale haven’t been fully disclosed, although Boeing said in a filing with the Securities and Exchange Commission that it recorded a $44 million gain on the sale.
With the Walton Street and Boeing sales not included, the biggest industrial sale ended up being for a 428,000-square-foot industrial building in Irvine, at 17871 Von Karman Ave. Woodland Hills-based Voit Development and Buchanan Street Partners of Newport Beach bought the building from Nexus Properties for $57 million, or $133 per square foot.
After several years where Irvine and Newport Beach sales dominated proceedings, two deals taking place in Orange took the No. 1 and No. 3 spots for office sales in 2007.
At the top of 2007 was Orange City Square, a four-building office complex off the Garden Grove (22) Freeway. The deal, which included about 373,619 square feet of office space along with some retail, traded hands for an estimated $130 million, or about $335 per square foot.
San Juan Capistrano investor and developer Birtcher Anderson Realty LLC bought the complex with General Electric Co.’s GE Asset Management from Springfield, Mass.-based Massachusetts Mutual Life Insurance Co.
The size of the Orange City Square sale fell well short of the prior year’s top deal, the $325 million buy of Irvine Towers complex by The Irvine Company, which went for about $385 per square foot.
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In July, Newport Beach real estate investor WCB Properties LP bought Union Bank Square, another 400,000-square-foot set of office buildings in Orange, for $92 million, putting it No. 3 among deals in 2007.
WCB bought the buildings with a real estate investment unit of UBS AG, while Colton Co. of Irvine sold the property.
Although Maguire’s big buys didn’t make the list, one of its subsequent sales did. In one of its few single-asset deals, the real estate investment trust flipped 18301 Von Karman, an 11-story office tower in Irvine, for $112 million, putting it at the No. 2 spot.
Hearn Co., a privately held real estate investor, bought the 11-story building, which houses the headquarters for Golden State Foods Corp.
At 230,605 square feet, the Von Karman sale went for $486 per square foot, more than $100 per square foot higher than most of the other individual office deals this year, and near the top end of prices paid for any of the area’s office towers in recent years.
After a 2006 buying spree where it was involved in the two largest office sales in OC, the Irvine Co. made most of its news in 2007 buying offices in its second-largest market, San Diego County. Early in the year, it paid the Blackstone Group LP an estimated $1 billion for 17 offices in La Jolla and Mission Valley. And in September, it bought Regents Square, a three-building office complex in La Jolla, for an estimated $218 million.
Locally, Irvine Co. buildings saw the two largest office leases for 2007.
Irvine-based video game firm Blizzard Entertainment Inc. in April signed a seven-year lease for almost 235,000 square feet of space in the Irvine Spectrum, at the Alton Corporate Center. It’s taking over three buildings that were vacated by Broadcom Corp. when the chipmaker moved to its new campus at Irvine’s University Research Park.
The following month, engineering and construction company Fluor Corp. signed a lease for 169,254 square feet of space in three Spectrum-area buildings owned by the Irvine Co., at the Discovery Business Center.
