Boyd Watterson Asset Management, a Cleveland-based investor in commercial properties leased to government agencies, has paid $98 million for the Two MacArthur office tower in the South Coast Metro area of Santa Ana.
The deal marks a sign of confidence for the local high-rise office market, as it represents an 18% premium for the seller, which bought the tower just two years ago.
A venture of New York-based private equity firm Angelo Gordon & Co. and Santa Monica-based Ocean West Capital Partners paid $83 million for the office in 2019.
The latest off-market sale of the building works out to nearly $446 per square foot for the nine-story tower, including the assumption of debt, and adds to a string of top-dollar office transactions for the Central OC office market this year.
Ocean West will continue to manage the 220,000-square-foot office property that sits alongside the Costa Mesa (55) Freeway, near the headquarters campus of title insurance giant First American Financial Corp. (NYSE: FAF).
Government Occupied
The office was 100% leased at the time of sale, with the State of California occupying most of the building under a long-term lease that runs through 2039.
According to Ocean West, the State houses several departments in the office, including the Department of Industrial Relations, the Department of Health Care Services and the Employment Development Department.
The building is sister property to the neighboring One MacArthur tower, which Ocean West and Angelo Gordon acquired in May 2019 for $54 million from Chicago-based Equity Office Management LLC.
That property does not appear to be up for sale; Ocean West is in the process of a $2.5 million property renovation to upgrade the lobby, corridors, elevator lobbies, and restrooms.
The difference in valuation for the two similar buildings has a large part to do with the tenant makeup of each tower, and the long-term leases in place for Two MacArthur’s stable government tenants.
Two MacArthur’s ownership has been a source of speculation for over a year.
Reports out of Asia last year stated that a Korean investment firm agreed to pay $86 million for the tower from Ocean West; that deal never was completed, contrary to initial reports.
Boyd’s Portfolio
Boyd Watterson Asset Management owns several other offices in OC.
Two years ago, it paid a reported $62 million for a pair of offices, 801 Civic City Drive and 200 W. Santa Ana Blvd., which are in Downtown Santa Ana and near the city’s courthouses.
A venture including Ocean West was the seller of those two buildings, which are leased to the IRS, City of Santa Ana and other local and national government agencies.
Other notable properties Boyd Watterson has bought in recent years include the State Fund office in Santa Ana’s Xerox Center office campus. That building, which it bought in 2016 for a reported $64 million, counts the California Department of Transportation as a tenant.
Boyd Watterson buys real estate on behalf of pension funds and other institutional investors and is one of the largest private owners of federal property in the United States.
As of June, Boyd Watterson managed approximately $7.6 billion in real estate assets.
OC Sales Uptick
The sale of Two MacArthur ranks No. 6 among the highest-priced single-building office sales this year, according to data from real estate market tracker CoStar Group Inc.
Year-to-date, three offices in OC have traded above $100 million, the largest being the $150.5 million sale of City Tower in Orange.
The 20-story building sold in July for roughly $345 per square foot; the building runs some 435,000 square feet and is the largest office tower in Central Orange County.
In each of 2019 and 2020, just two area single-building offices properties sold for more than $100 million, according to CoStar’s records.
