Investors took a shine to Orange County’s newest-built commercial properties last year, paying top dollar for many of them.
The combined total value of the 10 largest sales in the office, industrial, apartment and retail sectors was about $1.9 billion in 2012.
That’s up about 24% compared with 2011, and only about $100 million shy of 2010, which saw the largest cumulative total for the 10 largest deals across the four sectors since the last market peak.
This Business Journal Special Report features the 10 top sales and leases of 2012 in the office and industrial markets, as well as the largest apartment and retail sales (listings start on page 26). Sales are ranked by dollar amount, with leases listed in order of square footage.
Data was provided by CoStar Group Inc., supplemented with details of other transactions reported by the Business Journal during the year.
The listings reflect a shift from the bargain hunting that followed the last real estate crash. Investors last year focused more of their attention to higher-end, recently built properties rather than distressed buildings going cheap.
Some $640 million worth of the 40 top deals featured in this issue involve properties less than 6 years old.
Most of the deals involved largely leased-up properties, and commanded prices in excess—well in excess, in some cases—of going rates for other area property sales.
Buildings believed to have been in some form of financial distress at the time of their 2012 sale, on the other hand, totaled less than $100 million of the total for the 40 biggest deals.
That’s down from about $350 million from our Top Deals listings a year ago.
The gap between what investors were willing to pay for new (and full) buildings compared with high-end properties with significant vacancies was on full display at the Michelson office tower in Irvine, which was the priciest individual local sale of the year.
Manulife
Toronto-based Manulife Financial Corp. paid $277 million, or about $517 per square foot, for the Park Place office. It was about 93% leased at the time of the sale, with Hyundai Capital America, LA Fitness and several law firms among its tenant base.
The office, built in 2007 next to the San Diego (405) Freeway, was sold by New York-based landlord Emmes Group of Cos.
Emmes paid about $160 million for the building in 2009, when it was about half-full.
A point of comparison sheds light on the premium trend here: The 19-story Michelson traded hands for only about $90 million less than what foreign investors are paying for the US Bank Tower in downtown Los Angeles, the tallest building on the West Coast at 72 stories.
Singapore-based Overseas Union Enterprise Ltd. said last week it will pay $367.5 million, or about $262 per square foot, for the US Bank office, which runs 1.4 million square feet and is about half-full. The Michelson commanded nearly twice the price of the Los Angeles skyscraper on a per-square-foot basis.
“It’s going to take some time” to lease up the L.A. tower, said Kevin Shannon, vice chairman for Los Angeles-based CBRE Group Inc., who represented Overseas Union in the buy. Downtown L.A. “is a contrarian market” right now, he said.
The US Bank tower is being sold by Los Angeles-based MPG Office Trust Inc., whose divestitures of its OC office portfolio over the past five or so years have been a frequent source of large office sales.
MPG, which sold Emmes the Michelson office tower in 2009, was involved in only one office sale in this year’s Top Deals list, for Stadium Gateway in Anaheim. That 273,000-square-foot building went to Beverly Hills-based Kennedy Wilson for $56 million.
Office transactions have typically combined to be the largest property type listed in our Top Deals section for several years, and that’s the case again this year, although by not as wide a margin as usual.
The top 10 office sales listed in this week’s edition total about $626 million, which is down a modest $8 million from 2011 figures and 25% off 2010 levels.
The tamped-down total for offices came as some prospective OC office buyers waited to see if improving occupancy rates seen for area buildings will translate into higher rents before making any deals, Shannon said.
“We haven’t really seen the rents move yet,” he said.
The red-hot apartment market was the second-busiest product type for last year’s Top Deals, with a cumulative $560 million spent in the 10 largest reported transactions of 2012.
Recently built properties that saw changes in ownership included Santa Ana’s Skyline at MacArthur Place.
The upscale, two-tower apartment complex has held the distinction of being OC’s tallest residential project since its 2008 construction.
Essex Property Trust Inc., a Palo Alto-based apartment owner and developer, paid $85 million to buy out a partner’s roughly 50% stake in Skyline, a 349-unit complex that it first acquired in a March 2010 joint venture. That was good for the No. 2 spot among apartment deals for 2012, behind the $121 million buy of Club Laguna, a 431-unit complex in Laguna Beach.
The $122 million sale of The Orchard shopping center in Lake Forest took the top mark among retail sales for 2012. Columbus, Ohio-based Schottenstein Property Group Inc. bought the 281,000-square-foot property, which opened up in several phases amid the last recession.
The top 10 retail sales of last year sold for a combined $407 million.
Northgate Gonzalez Market, a grocery chain that targets Latino shoppers, made the largest purchase of an individual industrial property last year, paying a reported $45 million for the Anaheim building that serves as the company’s headquarters.
The grocer had been operating under a 15-year lease for the nearly 384,000-square-foot property, which opened in 2010 and is the largest industrial building built in the county in several years.
The top 10 industrial sales of last year sold for a combined $265 million. That total doesn’t include the blockbuster $350 million sale of Los Angeles-based Kilroy Realty Corp.’s local industrial portfolio, which closed at the end of the year (see story, Batch of Blockbusters, page 22).
Large institutional sales of portfolios of separate buildings aren’t included in our annual listing.
