A three-month bidding war over an 89-acre site that houses a million-square-foot building designed by a famous architect in south Orange County is attracting close attention by developers.
The first bid on the so-called Ziggurat was posted June 5 for $70 million, the minimum amount set by the government agency overseeing the bid.
Two bidders, both unidentified so far, have been going back-and-forth since then. When one bidder posts a bid, the other usually responds with the minimum required $300,000 increase an hour before bidding is supposed to stop. At press time, at least 90 bids have been made – about one a day. The tactic has kept the bidding open and boosted the latest offer to $159 million at press time.
“In our world, this is a hotly watched property,” a source who works with four developers interested in this project told the Business Journal.
It’s understandable why there is so much attention for the 53-year-old building.
With property in south Orange County recently selling for about $4.6 million an acre, per CoStar data, this site could be worth $410 million.
The relatively low bids imply the risk involved, such as obtaining zoning for what could be a housing project with thousands of units as well as retail and commercial units.
The city of Laguna Niguel, however, has not committed to rezoning the property to allow for housing, making this site an even riskier purchase. The winning bidder buys the property as-is, with no guarantee it could be re-zoned for housing.
A Soft Closing Auction
The one-million-square-foot building was designed by William Pereira, who helped the Irvine Co. master plan the city of Irvine and the campus at the University of California, Irvine.
He also designed the PacLife Building in Newport Center, the futuristic restaurant in the center of the Los Angeles International Airport and the Transamerica Pyramid in San Francisco.
The building was originally intended for the Aerospace and Systems Group of North American Rockwell Corp., but the company never moved in.
The seven floors include a large, cavernous warehouse as well as a 500,000-gallon water tank, energy plant, cooling tower, one-million-gallon thermal energy storage tank, security buildings and a heliport.
Now called the Chet Holifield Federal Building, it housed federal government agencies such as the California Service Center for U.S. Citizenship and Immigration Services, Internal Revenue Service, U.S. Customs and Border Protection and U.S. Immigration and Customs Enforcement.
The agency overseeing the public auction, the U.S. General Services Administration, said plans are in place to relocate those departments to other locations.
Sukhee Kang, the former mayor of Irvine and the regional administrator of GSA’s Pacific Rim Region, said the federal agency is auctioning off the building to avoid high-cost repairs and upgrades.
Selling the Chet Holifield building, which was named after a Democrat congressman, would specifically save the federal government from spending $341 million on long-term repairs and upgrades.
“The sale of this land in Laguna Niguel creates an economic development opportunity in Orange County while generating proceeds for the U.S. taxpayer. We hope that it will serve as a catalyst for economic development in the surrounding area by introducing new tenants, businesses, and employment to the area,” Kang said in a statement.
The property, also called Laguna Ridge, initially was designated to be a historical landmark, which would limit the redevelopment options for any prospective developer. In an initial auction held in 2023, there were no bidders.
That historical designation was eventually removed, and the auction began with a “soft closing,” meaning a bidder could extend bidding for 24 hours by placing a bid before the posted deadline. The back-and-forth continues until the most recent bid at the most recent deadline is not outbid.
Bids must be raised in increments of $300,000. One bidder has been consistently submitting a bid almost every day this month, only to be outbid by a second bidder, by the minimum $300,000 bidding increment, within seconds and extending the auction another 24 hours.
The real estate broker who represents the winning bidder would earn a finder’s fee, ranging between 0.5% and 0.8% of the purchase price.
No Tips for Rivals
Located near the federal building campus are a mix of office, residential and retail uses. Retail tenants in the immediate area include Costco, Hobby Lobby, The Home Depot, In-N-Out, Kohl’s and Walmart.
The site, located at 24000 Avila Road, is currently a zone for government uses. The city of Laguna Niguel, according to a July memo, will oversee a process to change the property’s zoning, according to a July 23 city memo from Laguna Niguel’s Community Development Director Jonathan Orduna and Deputy Community Development Director John Morgan.
“There will be a review of the site’s development capacity limits to potentially update them to reflect current conditions,” Morgan and Orduna said in their memo.
Developers are tight lipped about their potential plans, not wanting to tip off competitors.
Brokers who spoke with the Business Journal said the one-million-square-foot federal building would likely be demolished to make way for residential development.
Sean Matsler, a partner and real estate attorney at Cox Castle & Nicholson, told the Business Journal that the winning bidder could transform the 89-acre property into any number of uses.
“I think the city is looking for a mix of uses, that could include some residential, but might also include commercial,” Matsler told the Business Journal.
He added that the city could ask the winning bidder to provide a public benefit, such as a performing arts center, in exchange for a zoning amendment to allow for commercial and residential development.
