Western Digital Corp., the computer disk drive company that helped make the Irvine Spectrum one of the nation’s elite technology parks, is taking its name off of the 15-story building there that it’s called home for the past decade.
The company has come to terms with Laguna Niguel-based Birtcher Enterprises on a 10-year lease for 187,673 square feet in Birtcher’s Serrano Creek office campus in Lake Forest, according to a source familiar with the talks.
The pact, valued at $35 million to $40 million, is expected to be signed this week. Western Digital is scheduled to relocate in the fourth quarter. The lease at its current headquarters expires in January.
Western Digital, the Irvine Co. and Birtcher Enterprises officials declined to comment, but the planned move was confirmed by several other sources.
The deal brings to an end Western Digital’s long tie to the Irvine Co., Orange County’s dominant landlord and owner of most of the Irvine Spectrum.
But while Western Digital will no longer be a tenant of the Irvine Co., it isn’t exiting the Irvine Spectrum altogether. Western Digital recently signed a 10-year, $6.9 million lease for a 59,213-square-foot building at 1 Morgan. Western Digital will use that Spectrum building, which is not owned by the Irvine Co., for research and development space and possibly to nurture start-up companies.
The planned move comes as Western Digital struggles for market share in the cutthroat disk-drive market. Amid competition from bigger rivals such as Seagate Technology Corp. and Fujitsu Ltd., Western Digital recently retreated from the market for high-end drives for business computers.
For the quarter ended March 31, Western Digital saw sales drop 23% to $516 million, and posted a loss of $22.6 million before $62.8 million in restructuring and other charges. The company lost $114.3 million in the year-ago quarter, including research, acquisition and restructuring charges.
No Dramatic Exit
Western Digital’s pending move from the Spectrum won’t be as dramatic as when the company first moved in, said Gary Liebl, a longtime local technology executive and former chairman of Aliso Viejo-based QLogic Corp.
“They were an early anchor tenant and helped establish credibility for the Irvine Spectrum,” he said. “The significant event was them moving in when the Irvine Spectrum was just establishing itself. The significance of them moving out now is far less dramatic because the whole world of technology is aware of the troubles and transitions that Western Digital has been going through over the last few years.”
The move is part of Western Digital’s larger bid to right itself, Liebl said.
“For Western Digital to be redeveloping its strategy in every respect, including its facilities, is part of what they need to do to survive,” he said. “I don’t think anyone will see that as a vote of no confidence in the Spectrum.”
To be sure, Western Digital’s move is part of an ongoing changing of the guard at the Spectrum and in OC’s technology sector. Two years ago, fast-growing Broadcom Corp. moved into the prime Spectrum real estate once occupied by now-defunct PC maker AST Research Inc.
Western Digital’s move to Serrano Creek fulfills the company’s wish to reduce its rent bill, at least in the long term. By moving to the business park, Western Digital will pay substantially less than the $2.75 to $3 per square foot the Irvine Co. has been marketing the Spectrum building for. Serrano Creek’s asking price was $1.35 per square foot.
Still, whatever savings are being offered to Western Digital won’t be fully realized for a couple of years, since the technology company will have to make a major investment to recreate special labs it has at the Spectrum building.
The new, three-building Lake Forest space also is substantially smaller than the 366,000-square-foot Spectrum building the company had leased and once fully occupied. But recently Western Digital has taken up substantially less space, a result of its sagging business fortunes and severe cutbacks.
According to real estate sources, the Irvine Co. had agreed to re-lease roughly half of the 15-story Western Digital Building near the El Toro Y freeway junction to the company. The sticking point, which apparently proved insurmountable, was price.
At Serrano Creek,at 20411 to 20521 Lake Forest Drive,Western Digital will get what it has long sought: a campus-style setting, as opposed to its current high-rise location. In fact, during its heyday and as late as 1997, Western Digital was looking to build a campus-style headquarters in the Spectrum, having purchased 32 acres of land near its current building from the Irvine Co.
Since then, the company has been battered by falling prices for its disk drives, even as the amount of data those drives store has increase exponentially. The company has laid off more than 6,000 employees worldwide, including roughly 400 in Irvine. Last year, the company sold the 32 Spectrum acres back to the Irvine Co.
In addition to the Serrano Creek site, sources say Western Digital, through its brokers at Daum Commercial Real Estate, also had looked at space at the Park Place office campus in Irvine and The Summit Office Campus in Aliso Viejo.
Current Space on the Market
While the Irvine Co. had held out hope of retaining Western Digital, the giant landowner also had begun planning for a different scenario, listing and actively marketing Western Digital’s current space.
Given the hot real estate market, real estate observers do not expect the Irvine Co. to have much trouble releasing the space.
“It’s a wonderful building and it’s extremely well-located,” said Jeff Shepard, an office broker with CB Richard Ellis who is representing a couple of clients interested in space in the building.
One client, he said, may take up to two full floors, while another is eyeing two-thirds of a floor.
Shepard also said he believes the Irvine Co. will be able to get its $2.75-to-$3-per-square-foot asking price. n
