The Newport Beach office of institutional investor TA Realty has sold an Orange office building for $22.5 million—a 32% discount to what it paid for the property in 2018—to a California investor that has plans to redevelop the site into a multifamily complex.
Corona-based Watermarke Properties late last month closed on the acquisition of City Centre I, a 150,161-square-foot office building on 6.8 acres adjacent to the Garden Grove (22) Freeway and the Outlets at Orange shopping center.
Watermarke paid nearly $150 per square foot, or $3.3 million per acre on a land basis, for the site, which is currently zoned to allow for up to 60 units per acre, or about 408 units.
Several offices and excess parking sites in the vicinity of the Outlets, Orange County’s eighth-largest shopping center with some $308 million in taxable sales annually, have been earmarked for rental projects in recent years.
The office at 625 The City Drive South was built in 1990 and was roughly 50% occupied at the time of sale, according to CoStar Group records.
The City Centre site’s ground floor is intended for commercial retail, according to Newmark, which brokered the deal on behalf of TA Realty.
“City Centre I was an attractive covered land play in Central Orange County that received strong interest from a wide range of buyers and capital sources,” said Newmark Executive Managing Director Paul Jones, who worked on the deal along with colleagues Kevin Shannon, Ken White, Chris Benton, Anthony Muhlstein and Brandon White.
“The existing asset offered in-place cash flow, while the buyer secures entitlements for a new multifamily development.”
The transaction is the latest to showcase the drop in value for local commodity office properties in the wake of the pandemic.
Others include the $82 million sale of Griffin Towers—a 57% price drop—and the $25 million sale of 4 Hutton Centre—less than half its 2019 sales price.
TA Realty paid $33 million for the Orange office in 2018, working out to a per-square-foot price of $220.
It’s the latest notable local sale for the Boston-based commercial real estate investor.
The firm in 2021 sold a two-building office property just off the Costa Mesa (55) Freeway in Santa Ana that at the time was home to the headquarters for Iteris Inc. and others, for a reported $21 million.
In 2016, the firm was behind the sale of Centerpointe La Palma, the largest office complex in North Orange County, which traded hands for $106.1 million.
Around the same time, the company sold 4400 MacArthur in Newport Beach to Irvine’s Greenlaw Partners and the top two executives of Monster Beverage Corp., Rodney Sacks and Hilton Schlosberg.
TA Realty’s dispositions over the past several years include buildings in Irvine, Laguna Hills, Placentia and Santa Ana, in addition to the Orange, La Palma and Newport Beach deals.
Those sales have totaled nearly $350 million combined for the company, which invests on behalf of a variety of pension plans, endowments, foundations, family trusts and wealthy individuals.
Watermarke Properties has built rentals in OC before, and developed Adagio on the Green, a $130 million, 256-unit apartment project in Mission Viejo, in 2015 along with San Diego-based multifamily developer Wermers Properties.
Watermarke is headed by President Jeff Troesh. Another family member, Dennis Troesh, made a fortune as the prior owner of Corona-based Robertson’s Ready Mix, one of the largest ready-mix and construction aggregate operations in the western United States.
Mitsubishi Materials Corp. in Japan bought out the construction company in 2013 for a reported $2.2 billion. The Troesh family also had a large stake in data center operator Switch Inc. at the time of its 2017 IPO, according to reports.
Wermers also partnered with the Troesh family for the Park on First, a 603-unit apartment in Santa Ana that recently opened.
Some Orange County office buyers are waiting for even steeper discounts amidst those lower occupancy rates, and as maturity dates loom for debt deals across OC offices, Newmark’s Jones told the Business Journal last month.
Brokers expect additional local offices to trade in multifamily conversion projects, with investors sourcing such sites for land opportunities. Newmark has an additional OC office deal under contract with an apartment operator, the company previously said.
The multifamily conversion in Orange adds to a slew of redevelopment projects in the area over the past several years, with state and local mandates driving the push for more housing units.
Nearly 60% of housing units within a 1-mile radius of City Centre I are renter occupied, Newmark said, “signaling a strong renter demographic for a suburban market.”