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Sunday, Apr 14, 2024

Buyer Tapped for Former Downey HQ

A winning bidder was picked last week to buy the former Newport Beach headquarters of Downey Financial Corp., according to brokers involved in the sale.

The name of the bidder and the price being paid for the Bayview Corporate Center buildings wasn’t disclosed by the Federal Deposit Insurance Corp., which seized Downey’s assets in late 2008.

The mystery over who’s set to buy the complex adds drama to the sale, which already might be the most watched commercial real estate deal here this year.

A persistent rumor among real estate sources not involved in the deal had Newport Beach-based bond and mutual fund manager Pacific Investment Management Co. as the possible winning bidder.

Pimco representatives last week denied the speculation, saying the company, part of Germany’s Allianz SE, didn’t bid on the former Downey buildings, which total about 320,000 square feet near Jamboree Road and South Bristol Street.

Another source close to the auction said the winning bidder possibly is a European buyer taking advantage of the euro’s strength against the dollar.

The source described the winning bidder as a newcomer to the area, which presumably would discount speculation that it could be Pimco parent Allianz.

The sale of the office complex is slated to wrap up by the end of the month. That’s presumably when the new owner will be named.

Bayview Corporate Center arguably is the most prominent office site in Newport Beach after the Newport Center offices around Fashion Island.

The former Downey complex has two six-story office towers connected by a three-story atrium. Two years ago—at the height of the office market—the buildings could have sold for close to $400 per square foot, according to market watchers.

That would have put the value of the now largely empty complex at about $130 million.

Of course, no one is talking about $400 per square foot today.

$50 Million

Last week’s winning bid was said to be between $140 per square foot and $175 per square foot, according to brokers and others familiar with the deal.

That would put the price of the buildings at around $50 million.

Local brokers at Cushman & Wakefield Inc. involved in the sale said the complex saw a good amount of interest and bids in the past few months.

Real estate owners and investors are wondering whether the sale will set a benchmark for an office market that’s bound to see more distressed sales in the next couple years.

The pending sale was a main point of talk among attendees at the RealShare Orange Coun-ty real estate conference in Irvine late last month.

“We think (the complex is) worth about $80 per square foot,” said Bill Halford, chief executive of Irvine-based real estate investor Bixby Land Co., at the conference.

That would put a price for the buildings at a little more than $25 million, or about half of what is estimated to have been the winning bid.

Halford said his estimate is based on empty space at buildings, which were gutted by Downey’s failure and heavy cutting at the savings and loan operator before its implosion.

Los Angeles-based CB Richard Ellis Group Inc. now is the biggest tenant at Bayview, which is about a third full.

Along with branches and deposits, Down-ey’s administrative operations were turned over to Minneapolis-based U.S. Bancorp and moved to the Park Place office campus in Irvine.

Brandon Birtcher, chief executive of Irvine-based developer and real estate investor Birtcher Development and Investment Co., said he was working with foreign investors interested in buying the buildings. He said he advised them to pass on it.

“The question is: Are we at the bottom? We don’t know yet,” Birtcher said.

A higher price could be justified if a new owner had a large tenant lined up or planned to occupy the building itself, sources said.

That’s one reason the buzz popped up around Pimco. The company rents space in several Newport Center offices. It lease for its headquarters at 840 Newport Center Drive is for about 180,000 square feet and expires in about five years, according to brokers.

The auction for the property, overseen by Florida’s Prescient Inc. along with Cushman & Wakefield, listed the minimum bid for the property at $59 million, or $184 per square foot.

Big Drop

Even if Bayview sells at that price, it will be about as big a drop as any OC trophy property has seen during the downturn.

Another high-end office building, the 3161 Michelson office tower now known as The Michelson, traded hands in June for about $160 per square foot, or about 40% below the 19-story building’s construction cost.

About a year ago, Downey looked to sell Bayview in a last-ditch effort to raise cash. The price being discussed at the time was an aggressive $325 per square foot.

Offers at that time were said to have come in well below Downey’s asking price.

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Mark Mueller
Mark Mueller
Mark is the Editor-in-Chief of the Orange County Business Journal, one of the premier regional business newspapers in the country. He’s the fifth person to hold the editor’s position in the paper’s long history. He oversees a staff of about 15 people. The OCBJ is considered a must-read for area business executives. The print edition of the paper is the primary source of local news for most of the Business Journal’s subscribers, which includes most of OC’s major corporate and community players. Mark’s been with the paper since 2005, and long served as the real estate reporter for the paper, breaking hundreds of commercial and residential real estate stories. He took on the editor’s position in 2018.

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