Prologis Inc., the biggest owner of logistics properties in the U.S., has made one of its largest purchases in years in South Orange County, paying $96 million for a 24-acre Lake Forest campus.
In a sign of the times given the scarcity of developable land for new industrial projects in OC, the $110 billion-valued real estate investment trust (NYSE: PLD) bought an office complex in the city, not an industrial site.
The San Francisco-based firm last week disclosed the purchase of Pacific Vista, a five-building office campus totaling about 322,000 square feet.
The site, holding a collection of two-story offices at the intersection of Commercentre Drive and Bake Parkway a few blocks from the Baker Ranch housing development, sold for close to $300 per square foot, or about $3.9 million an acre.
The $96 million deal is the largest reported real estate transaction in Lake Forest in several years, outside of land sales for larger housing developments.
Next Steps?
How long the property stays as an office property remains unclear.
Brokers with Cushman & Wakefield that worked on the deal said Prologis plans “to continue operating the property as a best-in-class office project,” while also calling the purchase a “long-term strategic play.”
There are no records of Prologis owning any other large office-only complexes in OC.
Data from real estate market tracker CoStar Group Inc. indicates Pacific Vista counts a fair amount of vacancy, though there are seven long-term tenants at the complex, whose leases run up to seven years.
Mortgage lender loanDepot Inc., which has its headquarters nearby in Foothill Ranch, leases space at the complex, as does Toshiba America Business Solutions.
Real estate sources tell the Business Journal that Prologis will likely work with existing tenants to end their leases early to free up the site for conversion into an industrial project, though that might not be something that happens immediately.
There are no city records indicating Prologis has begun any entitlement work pertaining to an industrial project.
Tight Industrial Market
The office market in Lake Forest and Rancho Santa Margarita runs about 2.8 million square feet, and currently counts a vacancy rate of 13.5%, according to the latest data from the local office of Cushman & Wakefield.
That area’s industrial market there runs much larger, 11 million square feet, with a vacancy rate under 1%, according to the brokerage, whose Jason Ward represented Prologis in the deal.
Other nearby office complexes in Lake Forest, including many buildings that previously served as the headquarters campus for Panasonic Avionics, in the past year or so have been sold to make way for new industrial projects by Newport Beach’s Western Realco and Denver-based Black Creek Group.
Those sites sold for more than $3 million an acre on a combined basis.
Other industrial-focused REITs, including L.A.-based Rexford Industrial Realty Inc. (NYSE: REXR), have made similar forays into Central OC of late, snapping up older office complexes in Santa Ana, Orange and Costa Mesa with an eye on eventually converting the sites into industrial uses.
SoCal Focus
Cushman & Wakefield’s John Harty, Jeff Cole, Nico Napolitano and Ed Hernandez represented the seller of Pacific Vista, Drawbridge Realty of San Francisco.
Drawbridge paid a reported $76.2 million for the offices in 2017.
“With its central location, Pacific Vista is a great addition to Prologis’ portfolio, and we worked closely with the company to capitalize on this strategic, off-market opportunity,” Ward said in a statement last week.
Prologis owns and operates more than 35 million square feet of real estate across 295 buildings in OC and Los Angeles. Along with extensive holdings in the Inland Empire, Southern California is the REIT’s largest market. n
