The federal government is hoping to bring in close to $750 million through the sale of several underutilized properties across the country, and it has a roughly one-year timeline in mind to get those deals done.
A good portion of that windfall could come from the sale of the largest office building in South Orange County.
The Chet Holifield Federal Building in Laguna Niguel has emerged as a crown jewel of about a dozen buildings considered for sale, according to a government advisory board report made public a few weeks ago.
An expected price for the 1 million-square-foot building and its 92 acres of land hasn’t been estimated by that agency.
The land could well be worth $300 million or more if housing and other highest and best uses are ultimately allowed at the site, real estate sources tell the Business Journal. The land isn’t entitled for those uses now.
Other, much smaller residential development sites in the city, recently entitled for apartments and senior housing, have sold for upward of $10 million an acre of late.
Profit Sharing?
A sale would likely come at a steep discount for those types of per-acre prices, factoring in entitlement risk, environmental concerns, necessary demolition work and the city’s involvement in new uses of the site.
The Public Buildings Reform Board, a new federal advisory committee established by the Federal Assets Sale and Transfer Act of 2016, recently noted that the site is “not presently zoned for future use resulting in a significant difference between the current value of the property and its value as entitled for its future highest and best use.”
A profit-sharing model between the government and buyer is possible to allow for that discrepancy, said the PBRB, which recently made its recommendations on the sales to the General Services Administration (GSA), which, if it moves ahead with a sale, would contract with a brokerage to market the property.
Familiar Story
This is the third time in a little over a decade that the government has evaluated the future of the iconic Chet Holifield property, which is on Avila Road just off Alicia Parkway. It’s in the northwest portion of the city, a largely residential area with shopping centers nearby.
As of late last year, the government was talking with city officials and residents to develop a long-range plan for the site; the recent actions by the PBRB suggest a new round of discussions could soon take place.
A “redevelopment of this site will bring increased economic value and local tax revenues to the region,” the PBRB said.
The Chet Holifield building is among the largest of the 12 properties recommended for sale by the agency, and is one of two government buildings in Orange County being eyed for potential sale: the other is an 88,000-square-foot Department of Education building on 12.4 acres in Los Alamitos.
Outside of a city block-sized property in Menlo Park, the Laguna Niguel building appears to be the most valuable site of those 12 properties.
In a recent letter to the Office of Management and Budget, the PBRB recommended selling at least five of the 12 buildings in a prompt fashion—once the GSA signs off on a sales process, a one-year timeline has been cited as doable—and expects those sales to bring in between $500 million and $750 million.
Though final plans are still being considered, the latest actions appear to be further along than previous proposals, including one in 2018 that explored a variety of commercial, residential and community uses.
Most of the tenants in the facility—referred to as the “ziggurat,” a nod to its terraced design that resembles an ancient temple—are slated to be relocated to other spots in OC by 2024, according to a recent update by the GSA, the landholding agency in charge of the property.
Obsolete
The building is likely to be demolished as part of any redevelopment at the site, according to government documents.
GSA describes the Chet Holifield facility as a “large, but obsolete office building.”
A sale would not only “generate significant sales proceeds,” it would also avoid close to $700 million in deferred maintenance and future capital expenses, according to recent documents.
The building currently has an annual operating and maintenance cost of $4.8 million.
The seven-story, pyramid-shaped building was built in 1971, and is occupied by a variety of federal agencies. It is said to be big enough for about 6,000 employees, though it operates far from full capacity.
Tenants
The United States Citizenship and Immigration Services agency is now the site’s largest occupant.
If sold, all tenants but the USCIS are scheduled to be relocated by August 2024 into about 222,000 square feet of space elsewhere in the region.
Meanwhile, the USCIS will need 380,000 square feet, and federal agencies are working to develop “the optimal solution to maximize the sales proceeds and facilitate the USCIS move to more modern facilities.”
The government has suggested that a new facility could be built on a portion of the Laguna Niguel site, which could support the relocation of existing tenants or future uses.
The GSA said it would contract a private brokerage firm for the listing of the asset, if it ultimately decides to move ahead with the sale.
Mixed-Use Future?
In July, the federal government hosted a public hearing in which city officials voiced “support for the redevelopment of [Chet Holifield Federal Building] and a willingness to work with commercial developers to enable mixed-use development.”
It also said there is “broad community support” for this plan, along with “substantial interest from the developer community.”
The city’s Gateway Specific Plan, for a 315-acre area near Crown Valley Parkway and the San Diego (5) Freeway, has prompted a wave of mostly apartment construction in an area that previously held older office and industrial buildings. Those sites have generated some of the highest prices for non-waterfront land sales in the county the past few years.
The GSA’s decision on which of the 12 PBRB-recommended assets it should sell first could take place in the next three months or so, according to the PBRB documents.
Ziggurat’s History: Few Takers, No Pharaohs
The Chet Holifield Federal Building was designed by famed architect William Pereira, who also helped create Irvine’s master plan and the Newport Center business district.
Those other Pereira creations have had much more stable histories.
The Laguna Niguel building was originally designed for aerospace company North American Aviation, which merged with Rockwell International Corp. before the structure’s completion in the early 1970s.
Neither company ever used the ziggurat property.
The federal government assumed control of the building in 1974, and it was renamed in 1978 to honor longtime Democratic congressman Chet Holifield of San Jose.
The government has considered offloading the property at least three previous times, first putting it on the market after leasing struggles in 1983 with the marketing pitch, “Pharaoh Wanted. Pyramid for Sale.”
The New York Times noted at the time that the property was “perhaps the costliest in the government’s huge inventory of unused or underused property that the Reagan Administration is trying to dispose of.”
Bids reportedly came in at about $40 million but no buyer emerged.
Three years later, an undisclosed local real estate firm made an unsolicited $60 million bid for it, reportedly with an aerospace company lined up as a big tenant, but the deal never closed.
The GSA again explored a sale or lease in 2009, as well as in 2018. Both times, the Business Journal reported that a nearly $100 million price tag, if not much more, was possible.
