An $875 million financing deal for the Irvine Company provides a rare glimpse into the operations and balance sheet of Orange County’s dominant office landlord.
The Newport Beach-based real estate owner and developer is close to finalizing a commercial mortgage loan package that’s tied to 4.8 million square feet of office space it owns in Orange and Los Angeles counties.
That’s believed to represent only about 12% or so of Irvine Co.’s total office portfolio on a square-foot basis, although the financing deal includes some of the landlord’s most prominent office properties.
Buildings that are getting mortgage loans placed on them include properties at the Jamboree Center and Irvine Towers office complexes in Irvine, as well as a pair of towers in Newport Center.
Also getting debt placed on them are the company’s two office properties on the Westside of Los Angeles—Fox Plaza and Westwood Gateway—as well as 8001 Irvine Spectrum Drive, a tower in the Irvine Spectrum.
The financing counts an assumed loan-to-appraised value of 49.7%, according to a report from Chicago-based bond rating agency Morningstar Inc.
$365 PSF
The cumulative $1.77 billion appraised value of the 10 individual properties involved in the deal translates to a $365-per-square-foot price, and the deal counts an appraised capitalization rate of 5.56%, according to Morningstar’s data.
Pricing for the $875 million transaction, which is being managed by Wells Fargo Securities and JPMorgan Securities, is expected to close this week, with the loan package taking effect by mid-May.
The 10-year loan carries an interest rate of about 3.18%.
The buildings had been debt-free, according to the Morningstar report.
Irvine Co. officials declined to comment on the financing deal, citing quiet-period restrictions.
The landlord “is putting debt on buildings that have never had debt,” said one real estate source familiar with Irvine Co.’s operations. “It looks like (Chairman Donald Bren) is developing a war chest.”
Some of that war chest appears likely to go toward other office acquisitions by Irvine Co., which already counts an office portfolio approaching 40 million square feet in California.
Last week the company confirmed it bought Park Square, a 31-acre office park in Santa Clara that had been owned by RREEF.
Irvine Co. is believed to be paying close to $100 million for the 465,000-square-foot office campus, one of several Silicon Valley office purchases it has made in the past few years.
The landlord is the largest office owner in the state, with properties in OC, L.A., San Diego and Silicon Valley.
The company has long prided itself on keeping a low level of debt for its investment property division, although sources familiar with the landlord’s operations said it’s not unusual for the company to seek out loans, especially given its ability to get financing at such low interest rates, as seen in this deal.
Highlights
Morningstar’s report, which provides building-specific details for the individual properties involved in the financing deal, has its share of highlights.
Fox Plaza, a 34-story tower in Century City, counts the highest appraised value of any property getting financed, at $436 million.
610 and 660 Newport Center Drive, a pair of Newport Center offices with tenants including law firms Stradling Yocca Carlson & Rauth P.C. and O’Melveny & Myers LLP, has a combined appraised value of about $295 million.
The highest rent paid at the two Newport Center buildings appears to be for Merrill Lynch, which is paying monthly rents close to $6.30 per square foot for about 7,400 square feet of space it rents at one of the buildings. That’s more than triple the average office rent paid for higher-end offices in OC.
Irvine Co. notes that with the upcoming opening of the 20-story, 650 Newport Center Drive office for Pacific Investment Management Co., a number of companies that do business with Pimco have been actively seeking space in the area, which could push up rents.
The five office buildings of Jamboree Center in Irvine are appraised at about $455 million, while Irvine Towers is appraised at $270 million.
Irvine Co. is said to own about 83% of the higher-end offices in the area around John Wayne Airport and Newport Center, according to the Morningstar report.
