Equity Office Management LLC is on a sales push in Orange County, again.
The Chicago-based office landlord, which as of last year was reported to own a little more than 3 million square feet of space in Orange County—much of it acquired in the past six or so years—just offloaded its second tower in as many months in the South Coast Metro area of Santa Ana, with the latest deal pegged at about $83 million, brokers tell the Business Journal.
More sales appear to be in the works, with commercial brokers and industry reports pointing to several more notable area properties of Equity Office that are on the block.
Those deals, if completed, would likely drop the OC portfolio of Equity Office—a unit of New York-based private equity giant Blackstone Group LP—under the 1 million square foot mark.
Market Timers
The last time the company made such notable moves to downsize, it was in 2007, when it unloaded a 22-property portfolio in OC totaling 6 million square feet—much of it heavily leased to the region’s then-healthy subprime mortgage industry.
That highly profitable deal, made with Maguire Properties of Los Angeles, was struck just prior to the subprime industry’s implosion, and subsequent Great Recession. Maguire, burdened by debt from the nearly $3 billion acquisition and cratering occupancy rates, didn’t survive the downturn.
Area real estate executives say that while Equity Office is known as a savvy investor in the office market, the similarities between 2007 and now aren’t too pronounced.
“Equity does a great job of buying and repositioning their buildings, and taking advantage of value to seek new opportunities,” said Greg May, executive vice president at the Newport Beach office of Newmark Knight Frank.
“The Orange County market is strong, and still has a lot of potential,” May said.
A lack of reliance on one tenant type, as in subprime lenders, is the big differentiator in OC’s nearly 100 million square foot office market—which now counts an occupancy rate in the 90% range—this time around, brokers and other area investors note.
No one tenant type makes up more than 20% of the area’s office market, according to data from CBRE Group Inc. Professional and business services firms are now the largest tenant category according to the brokerage.
Equity Office officials could not be reached for comment on their current investment activities.
Twin Deals
Two MacArthur, a nine-story office alongside the Costa Mesa (55) Freeway and next to the headquarters campus of title insurer First American Financial Corp. (NYSE: FAF), is the latest Equity Office building to trade hands.
A venture of New York-based private equity firm Angelo Gordon & Co. and Santa Monica-based Ocean West Capital Partners bought the building, according to brokers with the Irvine office of JLL that worked on the deal.
The office runs about 220,000 square feet, and sold for about $83 million or nearly $380 per square foot.
It’s the second deal between Equity Office and the Angelo Gordon-Ocean West venture in as many months; in May the Business Journal was first to report on the sale of the next door One MacArthur building.
The first office is reported to have sold for much less than the latest deal: $54 million.
The difference in pricing has a large part to do with the tenant make-up of each tower, which are about the same in size and both largely full.
The state of California takes most of Two MacArthur under a long-term lease, while One MacArthur has a variety of mid-sized and smaller tenants, many of which are on shorter leases, according to sources familiar with the deals.
The two sales total about $137 million for One and Two MacArthur, marking a nearly 66% premium on what Equity Office paid in 2013 for the two buildings.
Equity Office paid a reported $82.5 million at the end of 2013 for the two towers in a deal that valued each office around $192 per square foot.
It has since invested in upgrades and upped occupancy at both buildings.
The complex is the largest local property that Ocean West and Angelo Gordon are reported to have bought together.
Ocean West, whose management team includes former executives with office investor Maguire Properties and brokerage Eastdil Secured, have invested in other area offices in recent years, including Irvine’s 2600 Michelson tower and a handful of buildings in downtown Santa Ana, some of which are now up for sale.
Angelo Gordon last September partnered with the local office of Lincoln Property Co. to buy an eight-building portfolio in Newport Beach and Irvine for $160 million, among recent deals (see story, page 3).
Those John Wayne Airport-area properties, totaling a little more than 520,000 square feet, were sold for $307 per square foot, also by Equity Office.
Selling Spree
The recent deals mark the latest sign of retrenchment in Equity Office’s OC presence.
In addition to One and Two MacArthur, Equity has three other notable local projects on the market since April, real estate sources tell the Business Journal.
The nearly 600,000 square feet of inventory for sale includes The Landing, a 237,000-square-foot office project on Red Hill Avenue in Costa Mesa. Equity Office is asking $80 million for the three-building complex, or a little more than $350 per square foot, brokers said.
Equity Office bought the campus, located at 2955, 2975 and 2995 Red Hill Avenue near The LAB in the SoBeCa district, in 2014 for $50.5 million, then upgraded the property, converting it into a creative-office concept in 2016.
Other properties recently listed by Equity include a 175,000-square-foot office in Laguna Niguel and the 195,000-square-foot Anaheim City Centre.
Those two are listed for $53 million and $33 million, or $302 and $169 per square foot, respectively, according to data from trade publication Real Estate Alert.
Offers are due this week for the 10-story City Centre building, according to marketing materials from the Newport Beach office of CBRE, which has the listing for the 82% leased office near City Hall.
Tenants in the building include government agencies and Disney.
