2016 is shaping up to be a year of heavy suspense for a nearly 3-mile swath in Costa Mesa just north of the San Diego (I-405) Freeway in terms of potential residential and commercial development.
A handful of large proposed projects—most in the early planning stages—have the potential to result in construction of a few thousand apartments and condos in that part of Orange County’s eighth largest city by population, along with several million square feet of offices and other commercial construction.
The area north of the 405 “represents the best opportunity for Costa Mesa to go forward in the 21st Century,” said Leonard Glickman, founder of Beverly Hills-based developer Rose Equities, which has one project in the works in the area.
Sites being considered for major development include the city’s former Los Angeles Times printing plant, Emulex Corp.’s corporate campus, and a big industrial building next to the South Coast Collection retail center, plus property owned by the Segerstrom and Sakioka families, two of the region’s big landowners.
Developers for several of the projects must first get the approval of a city council that has traditionally frowned upon big residential developments north of the 405. What’s more, it’s unclear how willing city officials are to open the way for high-density or high-traffic projects with an election on the horizon later this year.
Also on the horizon: a slow-growth development proposal modeled on Newport Beach’s Greenlight initiative that could put a chill on new large-scale projects.
“There’s a lot in limbo right now,” said one local development executive who’s working on an area project. “Just about every major development has pulled back” until the city resolves the issues this year, that executive said.
Meanwhile, it could be a very busy year for smaller projects that can get city approvals and break ground by midsummer, when election season starts to heat up, according to real estate sources.
Wait-and-See
A wait-and-see approach might be the right one for larger projects that will take longer to secure necessary entitlements, development sources tell the Business Journal.
The lack of clarity has the potential to keep the city on the outside looking in when it comes to new investors and capital coming into the area in the strong real estate market.
The market “is incredible right now,” said Don Lamm, founder of Newport Beach-based development and entitlement consulting firm Diamond Star Associates Inc. and a former Costa Mesa deputy city manager. “It’s better than any time I’ve seen in the past 30 years.”
Investors’ interest in Costa Mesa properties has manifested itself in a number of recently closed deals.
In November, Los Angeles-based real estate investor Rockwood Capital LLC paid $120 million to buy a majority stake in the South Coast Collection retail center, which sits on 20 acres next to the 405 freeway.
The 300,000-square-foot center, which also goes by the name SOCO, is one of the area’s big success stories of recent years after being transformed by Newport Beach-based Burnham-Ward Properties from a faltering home furnishing center into an eclectic mix of fashion-focused shops and a food hall.
Just prior to Christmas, a venture between Madison, N.J.-based Prudential Real Estate Investors and McCarthy Cook & Co. in Costa Mesa closed on the purchase of MetroCenter at South Coast, which holds a trio of 12-story offices totaling about 800,000 square feet, plus a 51,000-square-foot 24 Hour Fitness health club.
The estimated $233 million deal was the largest office sale in Orange County in 2015.
The new owners are planning a major renovation of the campus to emphasize creative-office features, and executives of the new ownership group said they’ve been in close contact with the city to get the go-ahead on the project, which is scheduled to be done by mid-2017.
“Costa Mesa is the best city to do business with in Orange County,” said Edward Cook, co-president of McCarthy Cook, at the time the MetroCenter sale closed.
Other real estate owners are hoping to hold similar sentiments at the end of the year, especially those planning big projects of their own, most of which still require a lengthy review period and city council approval.
Several of the projects are dependent on an update of Costa Mesa’s general development plan that’s in the early stages and that will result in land-use regulation changes in a number of areas in the city, not just those north of the 405.
The update could result in the biggest development regulatory changes in the city in nearly nine years, when Costa Mesa signed off on a number of high-rise residential towers in the arts district near South Coast Plaza. None of those high-rises have been built yet.
One revision under consideration among the latest general plan proposals involves a nearly 44-acre site near the intersection of the 405 and Fairview Road known as the Segerstrom Home Ranch.
The farmland on the home ranch site is now entitled to include up to 760,000 square feet of office and office-related uses. Representatives of the Segerstrom family have proposed bumping up the office square footage to 1.2 million square feet, according to city documents.
An earlier request to add 300 residential units at the 44-acre home ranch site is not part of the latest land use request, according to city documents.
Also included in the general plan update process is the nearly 24-acre site comprising the long unused L.A. Times printing plant and an adjacent baseball field that the newspaper’s owners, Chicago-based Tribune Media Co., bought last year.
Los Angeles-based real estate investor Kearny Real Estate Co. has been working with Tribune Media to plan a redevelopment of the site. A mixed-use project featuring condos or apartments once had been considered the most likely project, but after city feedback, an office project exceeding 600,000 square feet looks likely to be included in the general plan update, according to real estate sources.
Other proposed area developments include a 3.2-acre site next to Emulex’s campus at 3333 S. Susan St. that was bought in September by SteelWave, a Foster City-based investor and developer of commercial, residential and mixed-use properties.
The vacant land is being considered for office, retail and other uses, according to Diamond Star’s Lamm, who’s working with the new owners on entitlement work there.
A 345,000-square-foot industrial building that fronts the 405 freeway next to the SOCO retail center at 1683 Sunflower Ave. also is being considered for redevelopment. Its owners, an affiliate of Cypress-based Sakura Paper, last fall proposed tearing down the building to make way for a residential project called the Villages of South Coast.
The location of what’s known as the Robinson Pharma building “no longer makes sense for warehouse storage and light manufacturing that results in relatively few jobs,” Rose Equities’ Glickman said in a letter to the city last year.
Rose Equities is working on behalf of the property owners on the proposed redevelopment, which isn’t part of the city’s revised general plan. The project could move forward later if market conditions warrant and the city is amenable, Glickman said last month.
“Costa Mesa is at a crossroads,” Glickman said. “But it’s OK, we’re patient.”
A Costa Mesa ballot initiative slated for November could play a big part in that project and others.
Jay Humphrey, a former Costa Mesa city councilman, wants to give the electorate the right to vote on any development topping 10,000 square feet of commercial space or 40 residential units.
Greenlight
The measure would echo Newport Beach’s nearly 15-year-old Greenlight initiative, which requires a public vote on projects topping 40,000 square feet of commercial space or 100 residential units.
The Costa Mesa initiative has enough signatures to qualify for the general election ballot.
Costa Mesa Councilman Jim Righeimer has said he opposes the proposal, saying it would discourage companies from moving to the city.
Action sports apparel company Vans Corp. last year bought 1588 South Coast Drive, an 180,000-square-foot office in Costa Mesa that fronts the 405 freeway, and wants to expand it by about 40,000 square feet for the company’s planned new headquarters.
Righeimer said last year that the expansion would have fallen under the initiative if it was already on the books and therefore could have kept Vans from relocating from Cypress.
