The $443 million sale of Broadcom Ltd.’s campus under construction in Irvine would be Orange County’s biggest office transaction in a decade.
But FivePoint Communities Inc.’s potential deal for nearly a million square feet of office space, plus excess land that could hold a similar amount of future development, could well turn out to be a bargain for the site’s cash-flush new owners—which just raised about $300 million in an initial public offering—if the area’s economy and office lease rates keep growing.
So said area real estate brokers and developers reacting to last week’s disclosure that FivePoint is considering a buy-back of the chipmaker’s 73-acre campus at the southern edge of Great Park Neighborhoods near Irvine’s train station.
The Aliso Viejo-based master developer said in regulatory filings last week that it’s “currently evaluating” a buy-back of the campus, and that a deal would likely take place by the end of September.
The company intends to exercise an option to buy back the campus once the bulk of the site’s core construction is finished, sources familiar with the transaction told the Business Journal.
The purchase price for the land and buildings would be $443 million, FivePoint said in regulatory filings pertaining to its IPO, which was completed last week. It expects it would have to spend about $45 million more to get the offices tenant-ready, sources said last week.
A breakdown of the prices for the four offices being built and for the excess land wasn’t given.
FivePoint sold Broadcom the land at the Great Park Neighborhoods development in 2015 for about $128 million. Factoring in taxes and other fees, the deal cost the chipmaker about $156 million.
The following year, Broadcom was sold to Avago Technologies, which kept the Broadcom name but moved its executive offices to San Jose and laid off a big portion of the company’s workforce in Irvine, where it had been the area’s largest office tenant, at one point leasing more than 900,000 square feet at University Research Park.
The chipmaker said in its 2015 financial statements that it planned to spend about $650 million through the end of 2018 to build the 1.1-million-square-foot first phase of the campus.
Repurchase Option
FivePoint, as part of the 2015 sale, was granted the option to repurchase the Broadcom property “before it is sold to a third party on the terms provided in the purchase agreement,” the company said in regulatory filings last week.
Since December, industry watchers pointed to the local office of Hines Interests LP as the unnamed third party, although the active area investor and developer has yet to confirm a deal was ever in the works.
Newport Beach-based Pacific Investment Management Co. has been cited by multiple knowledgeable sources as the likely financial partner of Hines on the deal; the two companies are also investors in the Intersect campus near John Wayne Airport in Irvine.
Sources familiar with the sale of the Broadcom campus said they felt that FivePoint’s right of first refusal was long considered a formality, although the real estate firm had previously expressed interest in owning and operating its own commercial properties at the master-planned developments it manages.
The Business Journal noted in April a chance of such a buy-back deal taking place.
FivePoint’s confirmation that it was considering the move last week “caught a lot of people off guard,” said one area broker who’s worked with some of the parties involved in the potential deal.
Hines has discussed partnering with FivePoint in the transaction but now won’t be involved in the ownership of the campus following the sale, sources told the Business Journal last week.
Broadcom Stays
FivePoint can certainly afford to buy back the property, now that it’s completed its IPO. Proceeds from the offering and a trio of private placements will provide the offshoot of Miami-based homebuilder Lennar Corp. nearly $450 million that could be used “to fund our development activities and for other general corporate purposes,” the company said in regulatory filings.
That’s roughly the cost to buy the campus, although the buy-back would be funded largely through other means, likely including “a combination of project-level debt financing and equity from existing and potentially new investors,” the company said last week.
FivePoint, which oversees development of the former El Toro Marine base in Irvine and other large projects in the state, is largely debt-free.
It would buy the offices with a few large tenants already apparently committed.
As part of the sales transaction, the two largest buildings now under construction, totaling about 640,000 square feet, would be leased back to Broadcom, FivePoint said. Financial terms and the length of the lease-back haven’t been publicly disclosed, but according to sources who say the deal would be for more than 20 years, it would ensure the chipmaker keeps a big presence in Orange County for the foreseeable future.
The chipmaker’s monthly rent would likely be around $3 per square foot at the start of the lease, according to the sources.
FivePoint and Lennar would move their local operations from Aliso Viejo to one of the smaller buildings, sources said. They and affiliated companies currently lease nearly 110,000 square feet in Aliso Viejo, according to CoStar Group Inc. records.
The move would leave FivePoint with almost 300,000 square feet of empty space to fill at the new campus.
