A privately held Inland Empire real estate firm is looking to take advantage of the slowed office market in Orange County after going big for its first local acquisition, paying $92.5 million for Costa Mesa’s Canvas office campus.
Ontario-based MGR Real Estate, founded by new Orange County resident Michael Rademaker, purchased the five-office property totaling 551,000 square feet alongside the San Diego (405) Freeway from Chicago-based EQ Office.
The deal, which works out to about $168 per square foot, is among the largest office sales in Orange County in the past two years.
EQ Office acquired the campus in two separate deals totaling $102.8 million in 2013 and 2015; it then invested nearly $30 million in improvements to overhaul the traditional offices into a creative office hub and bring them together under a new name: Canvas.
The new price marks an 11% discount from the prior sale for the property, which sits on the opposite side of the 405 as Irvine Co.’s Pacific Arts Plaza office complex, near South Coast Plaza.
When considering the total $132.8 million that EQ invested in the asset, MGR’s discount is closer to 30%.
“Our timing was perfect,” Rademaker told the Business Journal.
“The office market isn’t bad, it’s the sentiment that’s bad. People are continuing to return to work, and the supply of office is dwindling from apartment conversions and a lack of new construction.”
Offices in the surrounding area have been seeing significant losses in value in recent months, with some nearby properties trading for half of their pre-pandemic price tags.
Canvas was about 62% occupied at the time of the sale earlier this month. Notable tenants at the campus include retailer 5.11 Tactical, PBS and Blue Shield.
The project—previously called South Coast Corporate Center and South Coast Executive Center—was built in 1988 and 1987, respectively, with renovations completed in 2020.
Upgrades included renovated lobbies in all five buildings, investments in offices and suites, upgraded infrastructure, new artwork and amenities, like a coffee shop, fitness facility and outdoor gathering spaces.
MGR Real Estate will keep the campus as an office hub for the long term.
“It’s a beautiful project in a great location. It’s time Canvas gets the reputation it deserves,” Rademaker said.
Efforts to increase the property’s occupancy include flexible lease terms, maintaining the current tenant roster, investing in vacant spaces such as adding furniture and having a competitive tenant-improvement allowance.
“We are going to work with each and every tenant and their needs today,” Rademaker said.
MGR financed the deal in part by a $55 million loan from Hankey Capital arranged through Newmark.
It’s the latest local office disposition for EQ Office, a unit of a unit of New York-based private equity giant Blackstone Group LP. The firm’s made over $275 million of area office sales this year.
In February, the company—previously known as Equity Office—sold the VKCC creative office campus in Irvine for $102.4 million to Irvine-based IRA Capital LLC.
EQ Office acquired VKCC as part of a portfolio deal in 2015, and kicked off a creative office conversion for the low-rise campus along Von Karman Avenue two years later.
IRA Capital is considering a redevelopment of the 24-acre site that’s a few miles from John Wayne Airport.
Less than two months after the VKCC sale, EQ Office sold the Griffin Towers complex in the South Coast Metro area of Santa Ana.
The 560,000-square-foot project—part of the 46-acre Hutton Centre mixed-use complex at the corner of MacArthur Boulevard and the Costa Mesa (55) Freeway—sold for $82 million, or roughly $141 per square foot, to a venture between Barker Pacific Group (BPG) and Kingsbarn Realty Capital LLC.
That represents a nearly 57% price drop from its last sale to EQ Office.
Scouting OC Opportunities
Rademaker, who resides in Pelican Hill with additional residential properties in Orange County, founded MGR in 1983.
The company owns and manages nearly 3 million square feet of office and retail assets in the Inland Empire, and manages a multifamily portfolio nearing 17,000 units.
It is looking to acquire additional local office assets over the next 18 months.
“We are currently making offers on high-rise office buildings in Irvine and Newport Beach,” Rademaker said.
He refers to MGR as a “family business,” and is privately funded with no institutional investors. Rademaker owns additional real estate assets outside of the MGR portfolio.