2211 Michelson, the 12-story tower built by Houston-based Hines Interests LP and partner Crescent Real Estate Equities LP of Fort Worth, Texas, is up for sale.
Brokers expect the Irvine office building to set a benchmark for investors in Orange County commercial real estate.
“We’ve decided that this is a good time to sell the asset, having originally purchased the land six years ago,” said Hines Vice President Paul Twardowski, who heads up the company’s OC development and investment operations.
The sale “will enhance our ability to reinvest in (OC), and we are already actively pursuing new acquisitions,” Twardowski said.
Hines is the majority partner in the building.
A price tag for the nearly full, 265,000-square-foot office, which opened its doors near the peak of the market in mid-2007, hasn’t been disclosed. The white metal paneled tower, a few blocks from John Wayne Airport, is being marketed for sale by Eastdil Secured LLC.
Real estate sources not involved in the sale said the building’s owners are seeking prices approaching $375 per square foot or more, which would put the asking price near $100 million.
Whether that asking price will hold up in a down commercial real estate market is the million-dollar question.
Several local investors told the Business Journal that they’d be surprised to see a deal get done at a price higher than $300 per square foot.
There hasn’t been a prominent local office tower to trade hands at a price approaching $300 per square foot since Maguire Property Inc.’s newly built 3161 Michelson traded hands a year ago for that price, or $160 million, 40% below its construction costs.
Pricing has continued to fall since then, but there are signs the market may be stabilizing as investors make their way back to the market, industry watchers said.
“Pricing for trophy properties is firming up. I think we’ve hit the bottom” on capitalization rates for high-end buildings, said Kurt Strasmann, managing director of brokerage services for Newport Beach-based Voit Real Estate Services.
The most expensive office sale so far this year was for Santa Ana’s Griffin Towers complex. That $90 million deal, which closed last month, went for about $164 per square foot.
If there’s any local building that’s likely to command a high sales price, it could be 2211 Michelson.
The building entered the market in demand three years ago after more than a decade of no construction. It was soon followed by five other towers built near the airport and the Irvine Spectrum, which added close to 2 million square feet of high-end office space to the local market.
Of those six buildings, 2211 Michelson has had the most success getting its space leased up.
The building’s about 95% full and counts a number of financial services and real estate tenants, including Wells Fargo & Co.’s Wachovia, Pathway Capital Management LLC and Bixby Land Co.
The tower’s developers believe the building’s environmentally-friendly features helped land it tenants. Officials call 2211 Michelson “Irvine’s greenest building.” It was among the first buildings on the West Coast to get certified for its sustainable design.
2211 Michelson would join Maguire’s 3161 Michelson (now known as The Michelson) and Opus West Corp.’s 2050 Main Street as newly-built towers that have been put up for sale during the downturn.
If the sale of the Hines building goes through, only three of the six office towers built during the boom—those owned by Newport Beach’s Irvine Company—will remain in the hands of their developer.
Maguire’s building was sold to New York’s Emmes Group of Cos. in the largest office sale of 2009, while a partnership including Newport Beach-based Greenlaw Partners paid about $56 million, or about $177 per square foot, for 2050 Main Street, which was sold after its developer went bankrupt last year.
Hines isn’t believed to be in the same financial straits as the other two recent office tower sellers.
Hines, a real estate developer and investor, made its jump into the OC market in mid-2005, when it and Crescent bought the 1.2-acre site for the Irvine office for a reported $12 million. The total construction cost for the tower was estimated to be about $90 million.
Since then the company has bought, and subsequently sold, a high-end industrial building in Irvine. Hines also opted to walk away from a tentative plan struck in 2007 to turn 53 acres of land next to Angel Stadium of Anaheim into offices and apartments as the local market soured.
Staying in OC
Hines officials said the company has no intention of leaving the OC market and will continue to maintain an office in Irvine.
“We are confident that the vibrancy in the Orange County market will return quickly, and we already see the signs of such growth,” Twardowski said.
The company still has one big development site in Irvine on its books, a 16-acre block of land at Jamboree Road and Michelson Drive where an office campus has been proposed, according to Twardowski. The company intends to develop the site “over time,” he said.