A recently razed Irvine industrial site should test the appetite of developers for more apartment construction in the largely commercial area known as the Irvine Business Complex.
Los Angeles-based Kilroy Realty Corp. recently knocked down an industrial building it owned at 17150 Von Karman Ave., about a mile from John Wayne Airport. The real estate investor—whose Orange County holdings include the 2211 Michelson office tower in Irvine—aims to sell the one-time Delphi Connection Systems site to an apartment developer.
Kilroy initially envisioned condominiums on the site, and has incurred more than $6 million in entitlement and other preparatory costs for the project over the past few years, according to regulatory filings.
Apartments are now the hottest sector of the real estate market, both for development and acquisitions.
The 9.1-acre site on Von Karman is big enough for up to 469 apartments and could fetch around $30 million, or roughly $3.3 million per acre, according to sources familiar with the transaction. Kilroy executives told analysts this month a deal could be struck and completed by year’s end.
A transaction along those lines would likely be the among the priciest land sales in years in Irvine, reflecting surging investor demand for apartment complexes in the 2,800-acre IBC, a commercial area near the airport.
When Kilroy was considering putting the property on the market at the start of the year, estimates suggested the land would fetch about $40,000 per proposed apartment unit, or about $20 million.
The price now is likely closer to $65,000 per unit, harkening back to 2006 and 2007 levels, sources said. That’s when a number of former commercial properties being eyed for residential development in the IBC and Anaheim’s Platinum Triangle sold for comparable prices.
Land in the Platinum Triangle, situated near Angel Stadium, has yet to return to peak-level pricing but appears to be moving in that direction.
A3.8-acre site on OrangewoodAvenue sold in midyear for about $2.2 million per acre, approximately double what the land was worth a year or two ago, brokers estimated at the time of the deal.
The IBC also was eyed by residential developers for high-end condos near the peak of the market.
With the exception of Lennar Corp.’s Central ParkWest and a few other highrise condo towers, most of the several thousand housing units that have been built or gotten started on development in the past six years have been apartments.
Almost 1,200 apartments in the IBC are in early construction or planning stages, with the prospective Kilroy project the biggest. Other developers at work in the area includeArlington, Va.-based AvalonBay Communities Inc., Mill Creek Residential Trust LLC in Dallas and Chicago-based Equity Residential, according to Tim Strader Jr., a principal at Irvine-based development consultant Starpointe Ventures.
AvalonBay got city approval for a 179-apartment project near the Diamond Jamboree shopping center earlier this year.
Mill Creek got go-aheads on two others, totaling about 350 apartments in the area.
Last month, Equity Residential filed plans to build a 190-apartment complex nearby.
Rent Hikes
Economic indicators appear auspicious for developing apartments locally. New apartments built in recent years in the IBC are about 95% leased; Equity Residential last month projected a nearly 12% rent increase for its 3,500-unit OC portfolio during the next year.
The demand for apartments also could boost IBC’s commercial occupancy rates after some high-profile vacancies in the past few years.
At almost 160,000 square feet, the property that Kilroy recently knocked down was one of the larger commercial buildings on Von Karman Avenue between Main Street and the former Tustin Marine base to the north. It also was one of the more prominent buildings along that 2-mile corridor sitting empty for much of the past few years, along with the largely vacant Quintana office campus and a few industrial properties.
The wrecking ball has taken as many big chunks of industrial space in the Irvine Business Complex off the market in recent months as has any individual tenant. In addition to the Kilroy site, AvalonBay this summer knocked down a 49,000-square-foot manufacturing building to make way for a 179-unit complex going up next to a property it built a few years ago.
Another 125,000 square feet of older buildings could be knocked down to make way for other apartment projects in coming months.
