Hines Interests LP and Oaktree Capital Management LP have closed on their second major Orange County office property acquisition in as many weeks, adding the eight-story State Fund building in Santa Ana to their joint portfolio.
The two real estate investors last week closed on the purchase of the 229,989-square-foot office at 1750 E. Fourth St., which is near the intersection of the Santa Ana (I-5) and Costa Mesa (55) Freeways.
The building—also known as the State Fund Building—is considered to be part of the Xerox Centre campus, which includes the namesake 15-story tower that’s one of the best-known office buildings in Santa Ana.
The office that traded hands last week was sold by the State Compensation Insurance Fund, California’s largest provider of workers’ compensation insurance.
The office, built in 1994 on 2.8 acres, is one of several in the state that the insurer has been looking to sell.
The State Fund will lease back about half of 1750 E. Fourth St. under a long-term lease, while the remainder of the building is available for lease.
Terms were not immediately disclosed for the sale or lease-back.
A sale price in the neighborhood of $40 million, or $175 per square foot, would appear likely when considering other deals for higher-end but moderately leased buildings in the property’s vicinity.
Rob Bickel, Patrick Inglis, and Thomas Maloney, local brokers with Chicago-based brokerage JLL, represented the State Compensation Insurance Fund in the sale.
10th Deal in OC
The deal marks another local transaction between Hines, the Houston-based real estate investor and developer, and Los Angeles-based private equity firm Oaktree Capital.
The two companies have partnered on close to 2.5 million square feet of office purchases in OC over the past few years, including the purchase last month of Brea Place, a six-building collection of offices in Brea that total nearly 560,000 square feet.
“We look forward to adding 1750 East Fourth Street to our Orange County real estate holdings,” said Oaktree Managing Director Ambrose Fisher. “This is our 10th project with Hines in Orange County and our 18th with Hines globally.”
Oaktree had about with $86 billion in assets—a mix of real estate, debt, equities and other investments—under management as of March.
Its recent local buys with Hines come with a bright outlook for lease rates here.
“Orange County is projected to be among the highest rent-growth markets in the U.S. over the next five years,” said Hines Managing Director Ray Lawler, who leads the company’s development and investment office in Irvine.
Hines now owns more than 3 million square feet of offices in OC, including deals done on its own and with other investors such as Oaktree.
“This property provides us the opportunity to add significant value through leasing and the continuing improvement of Orange County’s market fundamentals,” Lawler said.
Hines said it has assumed on-site property management responsibilities on behalf of the new ownership group.
OCTA Out
A sale of the building had been expected since late last year, but an owner-user was initially envisioned as the most likely buyer.
The Orange County Transportation Authority had been eyeing the office for a new headquarters and administrative building, and was close to completing a purchase of the building near the start of the year.
The county’s transportation agency ultimately switched course and decided to renew the lease for its current space at the Union Bank Square office complex in Orange under a 15-year deal.
The initial deal for OCTA to buy the State Fund office was valued at about $42.5 million, according to OCTA staff reports.
The agency had earmarked nearly $65 million for the purchase, factoring in tenant improvements and other costs, according to its staff reports.
In the proposed deal with OCTA, the State Compensation Insurance Fund lease-back provision was envisioned to run close to 77,000 square feet. The sale to Hines and Oaktree calls for it to lease back roughly 100,000 square feet.
A factor in OCTA’s decision to stay at Union Bank Square was a concern that the lease-back provision wouldn’t leave enough space for OCTA to comfortably house its operations.
About 450 OCTA employees work in the Union Bank Square offices in Orange, which is just north of the Garden Grove (22) Freeway near the Westfield MainPlace mall.
