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Michelson Tower Sees $28M Decline in Valuation

The Michelson office tower in Irvine, one of Orange County’s most valuable high-rise buildings, has seen a roughly 8% decline in value since the onset of the pandemic, according to estimates from its ownership group.

The tower’s value is now around the price it last traded hands at, in 2016, the trophy property’s owners believe.

Manulife US REIT, an owner of high-end office properties in the U.S., and whose stock (SGX: BTOU) is traded on the Singapore Exchange, last month placed a $317 million valuation on the 19-story trophy property at 3161 Michelson Drive, which is near the intersection of the San Diego (405) Freeway and Jamboree Road, in the Park Place mixed-use complex.

The latest valuation, disclosed in the REIT’s annual report, places a $594-per-square-foot price on the office, which totals nearly 536,000 square feet.

The valuation represents a capitalization rate of 5.75%, according to the REIT’s annual report.

At the end of 2019, just prior to the onset of the pandemic, the building was valued at an all-time high of $345 million, or $647 per square foot, according to the REIT’s estimates.

SGX Listing

Toronto-based Manulife Financial Corp., the financial services company best known in the U.S. for its John Hancock Life Insurance Co. division, paid a reported $277 million for the Michelson tower in 2012.

At the time, it was the priciest single-building office sale ever in Orange County.

In 2016, Manulife packaged the Irvine property, along with other buildings it owns in the U.S., in an initial public offering that was listed on the SGX.

It was the first-ever REIT listed on the Singapore Exchange that focuses specifically on U.S. properties. The Michelson building was bought by the REIT for $317.8 million at the time of the IPO listing, though the REIT said its valuation was higher, at $328.6 million.

Shares in the REIT have fallen by more than 40% since the onset of the pandemic, which has hit owners of office towers in OC and elsewhere hard amid safety concerns and work-from-home policies.

Tri Pointe Lease

Occupancy at the Michelson tower stood around 87% at the end of 2021, according to the REIT’s annual report. That’s an improvement from a year ago when vacancy in the building ran 16%.

The REIT said it saw strong leasing momentum throughout its portfolio over the latter half of 2021, and believes it is in better position than other office landlords given the high-end nature of its portfolio, and expectations of a flight to quality for tenants looking to return to office environments.

Recent additions to the tenant base at the Michelson buiding include homebuilder Tri Pointe Homes, which recently leased nearly 32,000 square feet of space in the building, according to CoStar Group Inc. records.

Tri Pointe moved its corporate headquarters to Incline Village, Nev., a little more than a year ago, but still uses Irvine for its corporate offices. It ranks No. 8 among the largest builders in Orange County with 193 sales in the county last year, according to this week’s Business Journal list (see page 25). 

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Mark Mueller
Mark Mueller
Mark is the Editor-in-Chief of the Orange County Business Journal, one of the premier regional business newspapers in the country. He’s the fifth person to hold the editor’s position in the paper’s long history. He oversees a staff of about 15 people. The OCBJ is considered a must-read for area business executives. The print edition of the paper is the primary source of local news for most of the Business Journal’s subscribers, which includes most of OC’s major corporate and community players. Mark’s been with the paper since 2005, and long served as the real estate reporter for the paper, breaking hundreds of commercial and residential real estate stories. He took on the editor’s position in 2018.
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