A prominent creative office in Tustin has sold, with yet another industrial conversion deal on the books for Orange County.
Los Angeles-based Rexford Industrial Realty Inc. (NYSE: REXR), among the most active industrial investors in Southern California over the past several years, paid $46 million for a 96,534-square-foot building at 15771 Red Hill Ave., located across the street from the northwestern edge of the Tustin Legacy development.
Rexford plans to redevelop the office property, known as Airspace, into an industrial facility after leases for the building’s long-term tenants expire. A date for the lease expirations wasn’t disclosed.
The deal comes three years after the building’s prior sale, when Foster City-based SteelWave LLC acquired the building for $23.5 million.
The latest sale works out to a price of nearly $477 per square foot, compared to $243 per square foot in the 2019 sale. On a land basis, the 6-acre lot traded last month for nearly $7.7 million an acre.
The acquisition adds to a growing pipeline of industrial conversion projects in Orange County for Rexford, which counts similar planned projects for sites in Orange, Santa Ana and Fullerton.
The real estate investment trust, valued around $9.5 billion as of last week, has spent nearly $270 million in OC since the start of 2021 to buy non-industrial properties that it expects to eventually redevelop into warehouses and distribution facilities.
Tricon HQ
SteelWave acquired Airspace in 2019 as part of a $49 million portfolio deal that included an adjacent industrial building at 1382 Bell Avenue. The single-story Bell Avenue building runs 120,000 square feet on nearly 6 acres and was not included as part of the recent Rexford deal.
The Airspace building has seen several sales and tenant changes over the past 14 years; it was once the home of jewelry maker Cookie Lee Inc., prior to its 2008 sale for $12 million.
The building was vacant at the time of the 2019 sale, but not for long. The new owners secured a 78,000-square-foot lease with a unit of Tricon Residential, a company that rents out single-family homes, as well as a 15,000-square-foot distillery and tasting room and a 3,000-square-foot coffee roaster and café.
Tricon, which counts a portfolio of more than 35,000 homes, has its headquarters in Toronto but counts a large local base.
Tricon’s top local official is Kevin Baldridge, the former president of the apartment division of Irvine Co., among the state’s largest apartment owners.
“Following the expiration of the current long-term leases, the company intends to redevelop the site,” Rexford said in a company statement. “The investment generates an initial 5.1% unlevered cash yield.”
$218M SoCal Spree
Rexford’s Tustin acquisition was part of a $218.4 million investment push for six Southern California assets announced in late June; all but Airspace are located in the Los Angeles market.
In the largest of the six buys, Rexford paid $49.1 million for a 121,066-square-foot building on San Pedro Street.
Rexford has repositioning or redevelopment plans for three of the properties.
The company’s year-to-date investments top $1 billion, with an additional $700 million in planned deals.
Southern California is “the nation’s most desirable industrial market with occupancy levels at essentially full capacity and an incurable supply-demand imbalance,” according to a statement from Rexford CEOs Howard Schwimmer and Michael Frankel.
In the 68 million-square-foot Greater Airport Area submarket of Orange County, the vacancy rate for industrial buildings was 1.6% at the end of the first quarter 2022, according to CBRE Group Inc. data cited by the REIT.
Local Conversions
In Orange County, Rexford last month paid $45 million for a shuttered Fullerton hotel with plans to convert the property into an industrial building.
The Hotel Fullerton is a 250-room hotel that opened in 1967 and closed during the pandemic; the 7.2-acre site will be redeveloped into a 140,000-square-foot industrial building. The site is already zoned for industrial use, and construction is slated to begin next year.
The acquisition marks Rexford’s second in Fullerton in the past year; the firm, which counts an OC portfolio approaching 4 million square feet, in August 2021 paid $24.2 million for a 5.8-acre industrial site, where it is building a 139,000-square-foot distribution facility.
Industrial vacancy rates continue to shrink to historic levels—OC’s rate was 0.9% at the end of the first quarter, according to CBRE—yet development options remain limited, prompting companies to source underused commercial sites for conversion projects.
For Rexford, the office market proved to be its biggest source of local dealmaking in 2021.
Over half of the $200 million-plus of OC purchases for the REIT last year were for office parks.
Rexford’s largest two deals here last year were the $105.3 million purchase of Santa Ana’s 370,000-square-foot Pacific Corporate Center, and Orange’s 191,000-square-foot Volt Campus, a 12.5-acre site between the Costa Mesa and Orange (57) freeways that it bought for $70 million.
Those buildings will eventually make way for industrial projects once long-term leases expire for the existing office tenants.
