Walton Street Capital LLC suddenly has found itself as one of the largest industrial landlords in Orange County, following its estimated $2.8 billion buy of a national portfolio of buildings.
The Chicago-based company, which manages a number of private equity real estate investment funds, has agreed to acquire 3.3 million square feet of local warehouse and business park properties previously owned by CalWest Industrial Holdings LLC.
CalWest is a venture of California Public Employees’ Retirement System, the largest pension fund in the U.S., and Chicago-based RREEF Funds LLC.
The OC properties, valued at about more than $400 million, compromise the biggest region represented in Walton Street’s portfolio buy, which totals about 23 million square feet in total.
The OC portfolio includes 19 properties, totaling about 118 buildings. Those 19 properties were about 97% leased at the end of last year, on par with the rest of the county’s industrial properties.
About 1.7 million square feet of the local buildings is warehouse and distribution space, while business parks comprise an additional 1.5 million square feet.
One Irvine office/flex building totaling about 117,000 square feet also was part of the sale.
Most of the buildings are in Santa Ana, Garden Grove, Anaheim, Irvine and Tustin.
First Foray
It’s Walton Street’s first foray into the industrial market here, according to Louis Tomaselli, senior vice president for the Orange office of Voit Commercial Brokerage LP.
“They’d never bought in Southern California before (with previous private equity funds). This helps fill that box,” Tomaselli said.
The deal also includes more than 2 million square feet of space in Los Angeles.
The county’s nearly 250 million-square-foot industrial market is a scattershot affair, with a large number of landlords in the market.
Newport Beach’s The Irvine Company is the largest industrial owner here. The Walton Street deal likely makes the newcomer the No. 2 landlord.
The properties it bought here are of higher quality than much of what is on the market, making its presence here notable for tenants seeking better space.
“RREEF had been a 900-pound gorilla here, buying up properties for CalWest,” said one industrial broker. “This changes the (dynamics) of the market.”
Handling the Deal
Walton Street is said to have beat out a number of national industrial investors for the national portfolio, including AMB Property Corp., First Industrial Realty Trust and ProLogis.
Walton Street is said to have offered a sizable amount of non-refundable money to open an escrow, which helped it land the deal over some of the better-known names, according to sources.
Walton Street raised $1.6 billion in its latest fund, which is targeted for office, industrial and hotel buys, according to the company’s Web site.
The company could not be reached for comment.
Walton Street had been looking to gain entry into the Southern California market. Buildings it bought here are likely to remain under their control, sources said.
The company could look to sell buildings in other regions of its CalWest buy, similar to what fellow private equity firm Blackstone Group LP did when it bought Equity Office Properties Trust’s office portfolio earlier this year.
Orange County “is part of their core holdings. They’ll continue leasing it, while selling other parts of the portfolio,” said a source familiar with the deal.
As in most office and industrial sales, tenants in the buildings being sold should brace for increases in operating expenses, especially property taxes, as well as likely rent increases, said Jeff Cannon, corporate managing director for the Irvine office of Studley Inc.
“It’s always a benefit when you have diversity in ownership,” he said. “But tenants need to be wary of the business plan of a new owner.”
Business parks changing hands include the 208,200-square-foot Garden Grove Business Center, the 192,000-square-foot Harbor Business Park in Santa Ana and the 226,000-square-foot Spectrum Centre Business Park in Lake Forest.
Warehouses include a 202,000-square-foot property in Fullerton at 1425 Acacia, and the 245,000-square-foot Tower Park property in Anaheim.
