A decision to move ahead on one of the first office-to-industrial conversion projects in the city of Irvine appears to have paid off well for a local development team.
Irvine’s City Council last month greenlit plans to buy a new, 110,000-square-foot industrial building at 17300 Red Hill Ave. for a little over $96.5 million.
The 7.3-acre site is expected to be used by the city as an indoor gym facility for local residents, to accommodate badminton courts and other recreation uses, once it is built. Construction on the building has yet to start.
With a sales price nearing $880 per square foot, the deal is among the priciest real estate transactions seen in Orange County history involving a larger property, on a per square foot basis.
It’s also set to be the most expensive single-building industrial deal seen for the city of Irvine, according to data from real estate tracker CoStar. Industrial buildings in OC rarely trade for more than $400 per square foot.
Inwood Park Re-Do
The Red Hill site previously held a two-building office park, dubbed Inwood Park.
The roughly 160,000-square-foot office complex, on the corner of Red Hill and McGaw Avenue, was located near the headquarters of Edwards Lifesciences Corp. (NYSE: EW) and Pacific Dental Services; it was demolished near the start of the year.
Initial plans called for a 156,632-square-foot warehouse, dubbed Red Hill Logistics Center, to be built at the site, making it one of the city’s first examples of a developer tearing down an older, outdated office building to make way for an in-demand industrial project.
The size of the proposed warehouse building was scaled down during negotiations between the developer and Irvine, which city filings indicate have been ongoing for a few months.
Property records indicate that a venture backed by Des Moines, Iowa-based insurance and investment management company Principal Financial Services bought the office campus last August for $44 million from a joint venture between New York-based asset management firm TPG Angelo Gordon and commercial real estate firm Lincoln Property Co., which counts a large local presence.
Lincoln Property remains involved in the project and its ownership and is heading up the development of the building. Fullmer Construction and architecture firm Ware Malcomb are also involved in the project, city filings indicate.
The deal is expected to be finalized this week; the city has a Sept. 3 contingency date to terminate the deal.
City Bargain?
A spokesperson with Lincoln Property confirmed it would develop the shell of the building, with the city of Irvine set to make interior improvements for the gymnasium at an extra cost – meaning the final cost will eclipse the $100 million mark.
The project’s timeline would be set once the deal between Irvine and Lincoln Property is finalized.
Irvine city staff, in a report submitted to the City Council last month, described the proposed indoor gymnasium as “more cost-effective” than similar gym facility considered elsewhere in Irvine.
The city had another proposal on the table for an indoor gymnasium, but Irvine staff said that building could take five years to build and cost as much as $175 million.
That other proposal, according to Irvine staff, would be a publicly owned gymnasium at Colonel Bill Barber Marine Corps Memorial Park, located next to Irvine’s city hall. The park is near a few schools and immediately surrounded by homes.
The Bill Barber indoor gymnasium price tag and longer timeline made the $97 million-plus development at the Irvine Business Complex industrial campus more appealing, especially since the former industrial building could be converted into a recreational facility by 2025 or 2026, according to Lincoln Property.
Land Values
A large portion of the $97 million price tag is due to the value of the Red Hill Avenue land; an appraisal for the city conducted by CBRE earlier this year pegged the value of land in the IBC around $4.2 million per acre, with industrial development the highest and best use of that land.
Such a per-acre price would translate to about $31 million for the land used to hold the new gym site.
It’s unknown whether the city considered building the indoor gym at the Great Park, which counts an abundant amount of developable city-owned land and has an expansive collection of sports parks.
The $97 million price tag, on a price per square foot basis, stands much higher than other recent comparable deals in Orange County.
Among expensive deals, the county’s Sheriff-Coroner’s office bought a nearby flex building in Tustin, just off Red Hill Avenue, for $91 million, or $758 million per square foot, in 2022.
MGR Real Estate, by comparison, bought a 271,106-square-foot office tower at 2020 Main St. in Irvine for $53.7 million, or $198 per square foot, last quarter.
1 and 3 Banting, a pair of office buildings in the Irvine Spectrum, sold earlier this summer to an industrial developer for $60 million, or $434 per square foot. A time frame for that conversion project moving ahead hasn’t been disclosed.
