The purchase of a creative-office campus in its hometown has capped off a period of reinvention for Newport Beach-based Buchanan Street Partners.
The company, one of Orange County’s most prominent real estate investment management firms during the last commercial real estate boom, had “kept a low profile the past few years,” said Chief Executive Robert Brunswick.
That was partly due to the lingering effects of the downturn, which saw the company cut employees and the number of real estate-related investments it made on behalf of itself and its partners.
Ownership Structure
The structure of the firm’s ownership also saw several shifts over recent years. Buchanan Street sold a majority interest of its business to Los Angeles-based investment manager TCW Group Inc. in 2007, just prior to the last downturn.
TCW, which has some $130 billion in assets, was itself acquired by Washington, D.C.-based Carlyle Group in early 2013 on undisclosed terms.
Buchanan Street has more independence these days. Brunswick and company cofounder and President Tim Ballard recently restructured its relationship with TCW, and regained a majority interest in Buchanan Street.
Terms of the recently concluded deal weren’t disclosed, but TCW is staying on as a minority partner of the company, Brunswick said.
The new ownership structure “gives us the latitude to pursue some more opportunities,” Brunswick said.
“We’re going to try to be a little more proactive, and some of our [recent] deals are indicative of that change,” he said. “We’re having some fun now.”
Rather than focusing on allocating equity capital to operating partners, the firm’s primary focus is now direct ownership, either through equity capital investments or debt placements.
Buchanan Street said it recently launched a new, high-yield, small-balance loan product offering, which is designed to supplement its existing structured whole loan and mezzanine financing business.
“Now, we’re going to be acting more [like] an owner-operator, rather than an allocator [of funds],” Brunswick said.
The company’s goal is to add nearly $1 billion worth of assets—through a combination of equity investments and loans—to its national portfolio over the next three years, according to Brunswick.
That would compare to the roughly $2.5 billion of real estate that Buchanan Street had under management at the time of its 2007 deal with TCW.
WorkScapes Revamp
Markets including Phoenix, Denver, San Francisco and Houston are expected to see a good share of Buchanan Street’s deals-making for equity investments, with offices, industrial properties and apartments all key areas of focus.
The company likes the fundamentals of OC’s real estate market, but “there’s too much capital here,” Brunswick said.
That said, one of Buchanan Street’s first investments since its ownership change is taking place in its own backyard.
The company recently closed on the purchase of the WorkScapes office park in Newport Beach. The creative-office campus is on Irvine Avenue next to the Newport Beach Golf Course.
The firm acquired the six-building campus for $14.5 million from Los Angeles-based Hackman Capital Partners. The new owners said they plan to invest “significant capital” to complete property upgrades at the 4.7-acre campus.
The 82,660-square-foot campus sold for about $175 per square foot in a deal brokered by the Newport Beach office of CBRE Group Inc.
“It’s one of only a handful of creative-office campuses in Orange County—it’s a new and exciting opportunity for the area, and the space is really poised for rent growth,” said CBRE Vice President Anthony DeLorenzo, who worked on the deal with colleagues Gary Stache and Pat Scruggs.
CBRE’s Simon Dillon, Justin Hill and Jason Katz will be handling leasing for the campus going forward.
Half of Campus
About half of the campus has already been converted to creative-office space, which emphasizes collaborative workspaces rather than traditional offices, along with indoor and outdoor meeting areas, and abundant natural light.
Buchanan Street plans to spend a few million dollars to complete the repositioning of the property by renovating the remaining traditional office space to
creative space, while also creating outdoor meeting areas with Wi-Fi access for tenant use.
It’s a strategy that other area real estate developers and investors, in particular Irvine-based Bixby Land Co., have begun emphasizing in OC and other West Coast markets of late.
Brunswick serves on the board of privately held Bixby Land Co.
“The completed renovations will bring a true creative campus to an underserved tenant market in Orange County,” Brunswick said of the WorkScapes campus.
The campus is currently 80% leased; notable tenants there include the Newport Beach Chamber of Commerce, Life Generations Health Care and P11 Creative Inc.
The relatively modest size of the Newport Beach office deal helped keep it under the radar of large institutional investors, which helped Buchanan Street get a leg up in acquiring the project, Brunswick said.
“We started looking at the deal a year ago,” he said.
The company’s ability to deal with complicated, existing loan structures also helped; the sale included the assumption of what was described as a “lowly levered” existing commercial mortgage-backed security loan as part of the purchase.
