Real estate watchers had been expecting the Irvine Company to go on an office-buying binge since last year, when Orange County’s dominant real estate owner and landlord struck a financing deal to free up nearly $875 million in cash for potential acquisitions.
The Newport Beach-based company delivered in a big way with a single deal last week when it agreed to buy 300 N. LaSalle, a Chicago skyscraper, for $850 million.
The deal is believed to be the most expensive individual property purchase for Irvine Co., as well as the priciest office buy ever by an Orange County real estate company.
The acquisition of the 1.3-million-square-foot tower is expected to close in about a month and is likely to set several marks for pricing in the Windy City, too.
At $850 million, it’s the most expensive office sale ever recorded in Chicago, topping the $840 million sale of the 110-story Sears Tower—the city’s tallest building, now called Willis Tower—in 2004.
It’s also believed to be the most expensive Chicago tower sale on a per-square-foot basis, at about $652, according to local reports.
The prior per-square-foot high was for the 2010 sale of the 300 N. LaSalle tower, when it was bought by an affiliate of another Newport Beach-based real estate company, KBS Realty Advisors, for $655 million.
KBS bought the building when it was about 93% occupied. It’s now completely full, according to the Irvine Co. Law firm Kirkland & Ellis LLP is the building’s largest tenant.
The building’s quality—it was built by Houston-based Hines Interests LP and opened in 2009—and location along the Chicago River justify the price, according to officials involved in the transaction.
“It’s a unique opportunity for us; it’s one of the best buildings in the country,” said Doug Holte, president of Irvine Co.’s office division, who previously headed the Orange County operations of Hines.
“The Irvine Company is purchasing one of the best, if not the premier, office [properties] that [have] been developed in the past 20 years,” said KBS Chief Executive Chuck Schreiber, who runs the real estate investment company along with President Peter Bren.
Bren is the brother of Irvine Co. Chairman Donald Bren, the wealthiest real estate owner in the U.S.
Third Investment
The purchase of 300 N. LaSalle marks Irvine Co.’s third office investment in Chicago, the only market outside California where the company is known to own offices.
It paid $625 million in 2010 for a 48-story office tower in Chicago called the Hyatt Center. The company followed that up the following year by buying a 50% stake in the 51-story UBS Tower for a reported $310 million.
While the skyscrapers of Chicago bear little resemblance to other key Irvine Co. office markets like the Irvine Spectrum or Newport Center, there are some similarities in terms of tenants seeking a good mix of living, shopping and entertainment options near their offices, Holte said.
Both here and in Chicago, “there’s incredible demand for buildings that offer efficiency and convenience” to other community amenities, Holte said.
Irvine Co. doesn’t have plans to invest in other property types in Chicago, Holte said.
The privately held real estate company hasn’t disclosed how it plans to finance the purchase of 300 N. LaSalle.
It completed a $875 million financing deal for 4.8 million square feet of office space it owns in Orange and Los Angeles counties about a year ago. Most of those properties were not believed to have debt tied to them at the time of the financing, which was part of a commercial mortgage loan package.
The landlord “is putting debt on buildings that have never had debt,” said one real estate source familiar with Irvine Co.’s operations, at the time the financing deal was struck. “It looks like [Donald Bren] is developing a war chest.”
Local Focus
Holte said the latest Chicago deal doesn’t reflect a shift in investment plans for Irvine Co. in its home state—where it owns close to 500 office buildings.
“We continue to have an ambitious growth plan in California,” he said.
Irvine Co. is gearing up to build a 20-story premier office in the Irvine Spectrum later this year. The 450,000-square-foot development would be the largest tower in the Spectrum.
The company is also marketing lease space at 520 Newport Center Drive, a 21-story building slated to open around the end of the year.
Another Irvine Co.-built tower in Newport Center is fully leased to Pacific Investment Management Co. Pimco is set to officially change its address to the new building this week, according to the bond investor.
Irvine Co. also has office projects under way in La Jolla and the Silicon Valley.
