The Newport Beach office of Hines Interests LP had a blockbuster year, with a steady stream of notable property acquisitions, sales, leasing news, and redevelopment activity.
And that’s just factoring in the deals that the privately-held real estate investment and development company can talk about.
“It’s been a whirlwind year—a lot of buys, a lot of sales, and a lot of leasing,” said Ray Lawler, managing director for Hines, whose local office oversees more than 3 million square feet of space in Orange County.
Hines was involved in as many notable commercial property transactions in OC as just about anyone over the last year, earning Lawler the distinction of the Business Journal’s real estate Business Person of the Year.
Data from market tracker CoStar Group Inc. shows the company and its investment partners spending close to $120 million on local acquisitions over the course of 2016, including the purchase of offices in Anaheim and Orange, as well as the land underneath an office project it owns in Fullerton.
Its latest buy took place just before the end of the year with the PacifiCenter Anaheim campus just north of the Riverside (91) Freeway and next to the Kaiser Permanente Regional Medical Center.
That 15.5-acre project, which includes 143,560-square-feet of office and industrial space, as well as land entitled to hold more than 900 apartments and other developments, is believed to have sold in the $40 million range.
It was sold by UBS in a deal brokered by Jeff Cole, Ed Hernandez, and Lars Platt with the Irvine office of Cushman & Wakefield Inc.
Sell Side
Houston-based Hines and its financial partners took advantage of strong fundamentals to make a series of opportunistic sales over the course of the year, including the State Fund building in Santa Ana, Savi Tech Center in Yorba Linda, and Alton Corporate Plaza in Irvine.
The Business Journal’s count indicates that Hines and its partners have sold five properties since December 2015 in OC for a cumulative total of $280 million. Those same buildings were acquired beginning in 2011 for about $156 million, when they had some large vacancies. They were subsequently renovated and leased up.
“They’ve probably been the best (local) investor, in terms of taking advantage of changing markets,” said Cushman & Wakefield’s Cole, whose brokerage team has been involved in a number of Hines’ sales and acquisitions over the past year.
“They were right on in their ability to lease unique space” and then sell those full buildings, Cole said. “They weren’t afraid to spend some money.”
Intersect Action
The company is anticipating an active 2017, too, in particular with the completion of redevelopment work at its largest local office project, the Intersect campus in Irvine’s airport area.
Lawler said Hines should see much of its $23 million investment in the four-building complex at the intersection of Main Street and Von Karman Avenue completed in the next two months.
That 430,000-square-foot, 15-acre project—bought by Hines and Newport Beach-based Pacific Investment Management Co. in 2015 for a reported $121.5 million—already is seeing a good deal of leasing activity prior to the completion of the redevelopment, according to Lawler.
Tenants including Mazda, RapidScale, and AON Financial Services have recently signed deals totaling close to 80,000 square feet, and another 80,000 square feet of deals are nearing completion, according to Lawler.
Intersect previously held the local operations of Washington Mutual Inc. When Hines and Pimco bought the campus last year, about 363,000 square feet were vacant, according to Lawler.
The mid-rise campus is getting a makeover designed by architecture firm IA that features a variety of creative-office flourishes and other amenities, including a large outdoor courtyard, an expansive fitness center, and ground-level offices whose doors open to the outdoors.
The campus is drawing interest from tenants who’d rather be a short walk away from ground-level amenities, rather than in traditional high-rise space, Lawler said.
Atypical
The Intersect project represents a turn by Hines toward buying higher-end properties in OC in the past few years.
The company has a national reputation for developing skyscrapers and other glitzy buildings. Lawler and his OC office came out of the last recession with a different approach here.
“We’ve tried to do different things,” Lawler said. “We had to focus where we could be profitable.”
Initially, the company focused on buying older local buildings with a fair share of vacancy; renovating and leasing up the properties; and, as seen in the past year, selling them for a good profit.
“It’s a little atypical from Hines,” Lawler said.
The company also took an interest in buildings outside the airport area, and now has one of the largest office portfolios in North Orange County.
“We were trying to get away from the Irvine Co.,” Lawler said of OC’s largest landlord, whose local buildings are largely in the airport area, Newport Center and the Spectrum.
Lawler’s predecessor at Hines, Doug Holte, now runs the office division of Newport Beach-based Irvine Co.
Hines has gone more upscale over the past couple of years in OC, with buys including the 4000 MacArthur office complex in Newport Beach, and now Intersect.
The company also has recently added mixed-use development opportunities into its acquisition plan, with prior deals in Brea and last month’s buy of PacifiCenter in Anaheim holding the potential for apartment development.
Bigger 2017?
Landlords and developers are keeping a close eye on the potential of a real estate downturn after the past seven years of improving fundamentals in OC’s office market.
Lawler says the signs still look good as 2017 begins, giving the company optimism. “From a leasing perspective, the activity is still very strong,” he said.
The office development pipeline in OC isn’t as large as during the peak of the last cycle, which should also help keep lease rates up, he said.
Hines has one ground-up project planned close to Intersect, a nine-story office at 17850 Von Karman that would total 242,000 square feet, but it isn’t planning to break ground without tenants signed up first.
The addition of a much bigger ground-up project now under construction in Irvine— the 1.1 million-square-foot first phase of Broadcom Ltd.’s new 73-acre campus at Great Park Neighborhoods—could affect leasing across the area over the next couple of years.
Hines appears poised to play a large role in the future of the project.
The Business Journal last month cited a number of knowledgeable real estate sources that pointed to Hines as the likely buyer of the Broadcom campus, in addition to excess land at the site that could hold additional development.
Hines officials have declined to comment on the rumored transaction. Sources tell the Business Journal the deal could be announced in the early part of this year.
Broadcom has not indicated long-term plans for the four-building mid-rise campus now under construction. Sources say the company is planning to lease back a portion of the campus from Hines.
The deal ultimately could become the most expensive single-property commercial real estate sale in Orange County history, sources familiar with the transaction tell the Business Journal.
That indicates a total investment of $1 billion or more if Hines opts to retain and build out the entire campus.
The financial partner or partners that Hines plans to use to buy the campus are not known. Along with PIMCO, Hines has used Los Angeles-based Oaktree Capital Management LP as a partner in many of its local deals.
