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Monday, Dec 5, 2022
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$64M Sale for South OC Creative Offices

5-building complex trades for $285 PSF

A joint venture involving Irvine-based commercial investor Kelemen Co. and Las Vegas-based Kingsbarn Realty Capital have snapped up a creative office campus in Laguna Hills.

The duo paid nearly $63.8 million for HERE, a five-building, 223,974-square-foot office hub on about 16 acres between Mill Creek Drive and Moulton Parkway, west of the San Diego (5) Freeway.

The sale of the low-rise campus is among the larger local office deals of the year; while other investors have been buying older office properties with an eye on industrial redevelopment, the new owners of HERE plan to keep the site primarily as an office park.

The deal, which works out to about $285 per square foot, is tops for office deals in the city of Laguna Hills since the end of 2020, when a medical office building near MemorialCare Saddleback Medical Center sold for $80.6 million, property records indicate.

Newmark’s Kevin Shannon, Paul Jones, Brunson Howard and Brandon White represented the sellers, Cigna Realty Investors and Cruzan, which paid $46 million for the site in 2015.

Campus Plans

The Laguna Hills office building opened in 1989 and was 84% leased at the time of sale.

The new owners plan to bring occupancy rates closer to 95% and operate the campus for at least the next five years, according to Tibor Kelemen, who founded Kelemen Co. in 2017.

“We are bullish in the long-term on creative office, particularly low-rise offices,” Kelemen told the Business Journal. The sellers “have done a great job converting the project into a creative office hub in a Spectrum-adjacent market.”

“They’ve done most of the heavy lifting, we now want to lease up the remaining spaces and improve the cash flow.”

Newmark indicates the new owners may later seek to sell the buildings to individual investors, or perhaps eye multifamily redevelopment opportunities.

For now, Kelemen will manage the property and has already signed on Motion Fitness as a tenant to occupy a 3,500-square-foot fitness amenity space at HERE.

“We’re also signing on a new coffee shop operator and are looking at bringing on a small-scale farmers market to come during the week,” Kelemen said. “In today’s office market, there’s a huge focus on amenities.”

OC Dealings

The campus, previously called Lakehills Corporate Park, includes five two-story buildings. It was last renovated in 2017 when it was revamped into a creative office building in a $13 million investment that upgraded lobbies, corridors and restrooms.

Amenities include lake and mountain views, an outdoor lounge, a fitness facility with showers and lockers, a conference center, surface parking and multiple open-air patios.

It’s the first local office buy for Kelemen Co. since 2018, when it paid $106.8 million for Irvine’s 10-story Atrium tower near John Wayne Airport. That complex, home to Bistango restaurant, totals 302,877 square feet.

OC Focus

For Kingsbarn, the deal is the latest Orange County investment for the commercial investor, which has made its mark on the local office market with a series of deals totaling more than $180 million in the past year.

In April, Kingsbarn acquired an Anaheim office building from Pendulum Property Partners of Irvine for $32.5 million. The 105,480-square-foot building is the largest component of Stadium Crossings, a six-parcel property just north of the city’s baseball stadium that also includes restaurant space.

Kingsbarn was also part of ventures paying $45.5 million for the Fullerton Towers complex near the end of 2021, and $40.5 million for Lake Forest’s Palm Terrace complex—home to Del Taco’s headquarters—last June.

The firm, with a regional base in Newport Beach, calls itself a real estate private equity firm that invests on behalf of high-net-worth individuals, family trusts, foundations, and institutional investors.

Occupancy Up

Kelemen Co., which now owns about 1 million square feet of office and industrial space in Orange County, has been more active on the disposition front of late.

The firm has sold four of five buildings at the The Parc office campus in Irvine, which it acquired in 2018 for $42 million. The deals thus far top $50 million, with each office trading near $400 per square foot.

Kelemen wrapped extensive renovations on its Atrium building in 2020, which is now seeing increased tenant use after being hit during the pandemic.

“Our physical occupancy is around 55% to 60%, which is up from 20% to 25% a year ago,” Kelemen said.

Future Deals

Kelemen said it hopes to partner with Kingsbarn on additional office deals, especially as looming recessionary environments bring about new opportunities.

Demand for well-positioned offices remains steady in Orange County, according to Newmark, even amidst remote-work patterns and a higher interest rate environment.

“Going forward, resilient and attractive pockets of the market will fare better than others, especially as the market remains in a wait-and-see position as it navigates the current economic climate,” the Irvine office of the brokerage said in a statement.

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