Plans have been filed to tear down five offices in and around the city’s Pacific Commercentre building park spanning about 370,000 square feet. They would be replaced with three industrial buildings totaling nearly 380,000 square feet, according to city documents and parties familiar with the proposed transaction.
Newport Beach-based industrial developer Western Realco is heading one portion of the roughly 22-acre project, while an affiliate of Denver-based Black Creek Group would handle the redevelopment of the site that holds the largest office used by Panasonic, a nearly 145,000-square-foot office and R&D building at 26200 Enterprise.
Both developers were expected to close on their respective properties this month. A sales price for either transaction has yet to be disclosed.
Panasonic, a maker of in-flight entertainment systems for airlines, last year announced plans to relocate its local operations to a smaller footprint at the Park Place office campus in Irvine.
Its leases at the Lake Forest properties are set to expire by early 2022, according to brokerage data.
Once the company fully vacates the properties, construction on the industrial project should begin, sources tell the Business Journal.
Winning Sector
The deals mark the latest example of the industrial sector’s growing clout in OC, as Amazon and other e-commerce firms have looked to increase their last-mile distribution networks in the area.
The industrial sector has emerged as a clear winner among commercial real estate product types in the wake of the coronavirus, and developers have increasingly eyed conversion projects to increase the county’s share of industrial inventory which now totals about 240 million square feet. Vacancy rates in OC now run under 3% for the industrial sector.
Rising rents are contributing to developer interest.
CBRE Group notes the average monthly asking lease rate for industrial buildings in OC rose 4.7% during the first quarter to $1.12 per square foot, “reaching a record high.”
With undeveloped land in short supply, builders of warehouses and distribution facilities have increasingly tapped underutilized retail properties and older business parks for their projects. The Lake Forest deal suggests investors are now eyeing offices—whose future remains murky as employees slowly return to on-site working—as a growing source for conversions.
The most notable recent example in OC of an office site being turned into an industrial project is in Huntington Beach, where an eight-story office last used by Boeing was demolished, and is now set to become a new 260,000-square-foot hub for Amazon.
No tenants for the proposed projects in Lake Forest have been disclosed.
Western Realco, Black Creek
The Pacific Commercentre office properties expected to be demolished—located at 26110, 26140, 26160, 26250 and 26200 Enterprise, near the edge of the Nakase Nursery housing development site off Bake Parkway—have been owned by two local office investors: Menlo Equities and Drawbridge Realty. Those properties were listed for sale after Panasonic announced plans to relocate to Irvine.
Western Realco, among OC’s most active industrial developers the past decade, with an emphasis on Brea and Fullerton, is expected to buy four offices that Menlo Equities acquired in a pair of transactions in 2012 and 2015 for a cumulative $35.4 million.
In a separate deal, Black Creek is expected to buy Drawbridge’s 114,906-square-foot building, the largest office on 8.8 acres at the nine-building complex.
Cushman & Wakefield had the listing for the buildings; the brokerage team involved in the deals includes Jeff Cole, Ed Hernandez, Nico Napolitano and John Harty. CBRE Group’s David Dowd is also involved in the Menlo Equities sale.
The two developers are in varying stages of the entitlement process to build new industrial facilities to replace the offices that were originally built in the late ’90s by developer Gale & Wentworth.
Western Realco is planning to build two industrial buildings totaling 145,000 square feet and approximately 67,000 square feet, respectively.
Black Creek, meanwhile, will head the construction of a single 172,000-square-foot facility, according to documents filed with Lake Forest’s planning department.
Panasonic to Irvine
Thousands of planes have Panasonic’s gear for watching movies, TV shows, shopping, playing games or making phone calls. With close to 2,000 area workers near its peak, Panasonic at one point was Lake Forest’s second-largest employer, after Oakley, but its headcount has declined in recent years.
The company, which remain OC’s third-largest aerospace and defense company by employee count, struck a deal last August to occupy nearly 260,000 square feet of space at the Park Place office campus near the intersection of Michelson Drive and Jamboree Road, just off the San Diego (405) Freeway and a mile from John Wayne Airport.
At the time of the Park Place lease, company officials said Panasonic would maintain a small office in Lake Forest.
Two other buildings currently occupied by Panasonic in Lake Forest include 26211 Enterprise and 26111 Enterprise, owned by Pacific Realty and Warland, respectively.
Those buildings are also said to be on the market, though no deals have been announced.
Apria Healthcare is the other remaining large tenant at the Pacific Commercentre campus, occupying about 100,000 square feet across two buildings. Similar to Panasonic, those leases will end at the start of next year.
