A division of New York-based Blackstone Group is returning to its position as Orange County’s second largest landlord just as the local market for office space looks to be switching into overdrive.
The private equity firm, which runs its local office properties under the Equity Office Management LLC name, last week began taking over ownership of a number of Southern California office properties that had been operating under the banner of Los Angeles-based Arden Realty Inc.
The acquisition includes 1.7 million square feet spread over 24 buildings in Orange County, a total that made Arden the ninth largest office landlord in OC, according to data from brokerage Cushman & Wakefield Inc.
Prominent local Arden buildings include the Anaheim City Centre, a 10-story building in downtown Anaheim; Crown Cabot Financial Center, a 174,000-square-foot office that’s one of the largest buildings in Laguna Niguel; and Von Karman Corporate Center, a nine-building low-rise campus near John Wayne Airport.
Other Arden Buildings
Other OC buildings in Arden’s portfolio include properties at South Coast Executive Center in Costa Mesa, as well as properties in Santa Ana, Orange, Newport Beach and Foothill Ranch.
Equity Office already had been OC’s third largest office landlord, with about 2.6 million square feet of space, primarily in the South Coast Metro office market, following a surge of local buys over the past two years.
The deal to buy all of Arden’s local assets should vault Equity Office past Irvine-based LBA Realty to the No. 2 spot, giving the firm nearly 4.3 million square feet and a combined 47 larger buildings in OC to its name.
LBA, owner of a bulk of the Park Place mixed-use complex in Irvine and other area buildings, owns about 2.9 million square feet of office space here, according to Cushman & Wakefield’s data on buildings larger than 25,000 square feet.
Newport Beach-based Irvine Company is the biggest office landlord in OC, with 183 buildings and 16 million square feet of office space here, according to the brokerage’s data. The company’s office portfolio—which brokerage data show to be about 94% leased—is roughly the same size as the cumulative total of the eight next-largest office owners.
Only two other landlords—Greenlaw Partners in Irvine and the local office of Houston-based Hines Interest LP—have local office portfolios in excess of 2 million square feet, according to Cushman & Wakefield’s data.
Arden’s assets, which were owned by the real estate arm of Fairfield, Conn.-based General Electric Corp., are being acquired by Blackstone as part of a $23 billion real estate and debt deal that was announced in April.
The office component of that deal—featuring about 11 million square feet of buildings primarily in Southern California, Seattle and Chicago—has been valued at nearly $3.3 billion.
The 24 OC assets of Arden that are expected to trade hands are likely valued at $300 million, if not more, according to estimates from local brokers familiar with the transaction.
Property records show more than a dozen Southern California properties being transferred from GE to affiliates of Blackstone as of last week. Neither Arden’s nor Equity Office’s websites had reflected those changes in ownership by the time the Business Journal went to press.
Blackstone officials previously said the entire office deal should close by the end of the third quarter.
It’s not known whether the company is looking to flip any of the local Arden assets it is buying. Calls to representatives of the company and Equity Office were not returned last week.
Back Again
It has been eight years since Equity Office owned a local portfolio of office space in excess of 3 million square feet.
Equity Office, whose operations are run out of Chicago, was Orange County’s second largest office landlord before it cashed out of its local portfolio near the peak of the last commercial real estate cycle.
The company, previously known as Equity Office Properties Trust, owned about 6 million square feet of offices in OC before its national portfolio was bought by Blackstone in early 2007 in a blockbuster $39 billion deal.
Blackstone sold its OC office portfolio to Los Angeles-based Maguire Properties Inc. later that year as part of the latter’s ill-fated $2.9 billion bet on the local market.
Equity Office became an active buyer of properties here again in 2013. Deals since then have included buys of Griffin Towers and the 1 and 2 MacArthur Place complexes, both in Santa Ana, as well as the South Coast Corporate Center in Costa Mesa.
Equity Office has spent in excess of $300 million on office deals in OC since the start of 2013, not factoring in the impending Arden acquisition.
The company’s re-emergence in OC comes amid quarterly data showing the area’s office market clearly pivoting in favor of landlords, particularly when larger blocks of space are needed.
The OC office market’s asking rents posted one of the biggest gains in over two years last quarter, with monthly rents now standing at $2.17 per square foot, according to data from the Newport Beach office of Newmark Grubb Knight Frank.
That’s up 2.8% from three months ago and is a nearly 9% increase from year-ago levels, the brokerage said.
Class A Rents
Class A office rents now stand at about $2.46 per square foot per month, also up about 9% from year-ago levels. It’s the first time since late 2009 that class A asking rents have topped the $2.40 mark, according to Newmark Grubb Knight Frank.
Rent increases are expected to continue through the remainder of 2015, particularly for those seeking larger blocks of space.
“Smaller and mid-sized tenants still have quite a few options to consider. In contrast, companies requiring blocks of 50,000 square feet” or more face greater challenges, said a new report from the Irvine office of Savills Studley, a brokerage that represents tenants in lease deals.
The overall vacancy rate for OC’s office market runs at about 12%, according to Newmark Grubb’s data.
