It took the Pacific City shopping center in Huntington Beach less than a year to claim a spot among Orange County’s most valuable retail properties.
The distinction became apparent when the real estate division of New York-based asset management firm TIAA Global Asset Management bought a 70% stake in the outdoor retail center on Pacific Coast Highway near the Huntington Beach pier.
The project is part of the 31-acre Pacific City mixed-use development in Huntington Beach, which also includes the recently opened Paséa Hotel & Spa and an under-construction apartment complex, both of which are owned separately.
Financial terms of TIAA’s deal were not disclosed at the time of the sale last month, but recently filed financial documents from the investment giant shed more light on the 190,900-square-foot retail property, which was developed by San Jose-based DJM Capital Partners and opened in November.
The filings show TIAA paid $129.7 million for its 70% stake, which includes the former holdings of DJM’s initial joint venture partners, which had owned the center with DJM under the name PC Borrower LLC.
DJM has retained the remaining 30% stake and will continue to manage the property.
$970 PSF
The price puts a valuation of about $185 million on the 11-acre shopping center, or about $970 per square foot.
By per-square-foot price, the deal is the most expensive sale of an Orange County retail center larger than 100,000 square feet—by a wide margin, according to CoStar Group Inc. records.
The next-priciest deal took place in 2012, when a 49% stake in the Shops at Mission Viejo sold in a deal that valued the nearly 1-million-square-foot mall at about $600 per square foot, CoStar records show.
Multitenant retail buildings of any size in OC now sell on average for a little more than $400 per square foot, according to data from Marcus & Millichap.
Pacific City’s record price comes with a caveat—some of the most prominent retail centers in OC, such as South Coast Plaza and Fashion Island, have never changed hands.
The price paid by TIAA—which provides investment advice and portfolio management through the Teachers Insurance and Annuity Association and its affiliates—nonetheless provides some validation of DJM’s strategy in developing the long-planned Pacific City project, according to Eric Sahn, its chief financial officer.
DJM took over the proposed retail project in 2012, after the site had been sitting untouched for years following recession-related delays and several ownership changes.
The developer and its initial partners reportedly lined up $93 million in financing to develop the project, which had an estimated value of $135 million during construction.
DJM isn’t planning to sell its 30% share despite the strong pricing in the July deal, Sahn said.
TIAA “is a long-term core investor, which is our goal, as well,” Sahn said.
TIAA said it entered into a $30.9 million loan receivable with DJM as part of the deal.
The debt has an interest rate of 4.2% and matures in two years, according to regulatory filings.
Bella Terra
DJM pulled off a similar deal last year when it brought on the real estate investment division of Newark, N.J.-based Prudential Financial to buy out DJM’s former investment partners in its Bella Terra shopping center in Huntington Beach.
That deal valued the center, which sits next to the San Diego (I-405) Freeway, at roughly $360 million, or $460 per square foot.
“When we started talking about the Bella Terra (deal with Prudential), we realized it might be a good structure for our other properties,” Sahn said last week. “We didn’t initially plan it that way, but it’s good that we found partners with the same goals as us.”
A number of below-market lease deals that were in place at Bella Terra at the time of its sale actually gave it a lower capitalization rate than the recent Pacific City transaction, according to Sahn.
He declined to disclose the cap rates for either property’s sale.
Pacific City, in any case, is still leasing portions of its space—brokerage reports put a roughly 80% occupancy rate on the property, although some of the largest empty spaces now are spoken for, according to the developer.
Retailers scheduled to open soon at the center include Urban Outfitters and Drybar, plus a host of restaurants planned for the main center, as well as Lot 579, a stand-alone food hall.
Rents don’t appear to be coming cheap at the property. Recent data from the local offices of CBRE Group Inc. put the center’s monthly asking rents between $4.50 and $6 per square foot, well above the $2.18-per-square-foot average in Orange County’s retail market as a whole.
Deals made at the high end of that range would appear to put Pacific City’s rent in the same neighborhood as what tenants pay for prominent retail centers, such as South Coast Plaza and Fashion Island.
DJM—which also is redeveloping the Lido Marine Village in Newport Beach into a mix of retail and restaurant space of about 125,000 square feet—remains on the lookout for other local projects, as do its high-net-worth and other private investors who initially backed its Pacific City project, Sahn said.
“We’ve seen a lot of interest in doing more business (in OC).”
