Los Angeles-based landlord Kilroy Realty Corp. is starting to make a bigger name for itself in Orange County’s office market after snapping up its second large building in as many months.
The company recently spent $22.3 million for a 98,551-square-foot office building at 999 Town and Country Road in Orange.
The $226 per-square-foot price tag is believed to be the fifth priciest office sale seen in OC so far this year, and the most expensive non-medical office transaction of 2010 in North OC.
That price tag could be attributed in part to the building’s steady tenant.
The entire building’s leased to engineering company Aecom Technology Corp. through 2018. Aecom has two five-year options to extend the lease.
The Orange buy comes a little more than a month after Kilroy was involved in OC’s most expensive office deal of the year, the $103 million purchase of the 2211 Michelson office tower in Irvine.
Those two acquisitions nearly doubled publicly traded Kilroy’s local office space. It now owns about 650,000 square feet of office space in OC. It also owns another 3.5 million square feet of industrial space in the area.
The company counts a market value of about $1.5 billion and is one of several real estate investment trusts that have been looking to add OC space to its portfolio, despite a local office market that’s been struggling to recover from the economic downturn.
OC’s office market ended the second quarter with vacancy rates at about 18%. Rental rates in general are off some 30% from a couple years ago.
Betting on Turnaround
Kilroy’s betting on a turnaround in the market, according to brokers who worked on the sale.
“They like the long-term and mid-term fundamentals in Orange County,” said Bob Smith, executive vice president for the Newport Beach office of CB Richard Ellis Group Inc., which helped broker the sale.
Kilroy has the money to invest now because it didn’t make much of an acquisition push in OC during the boom years of the local real estate market.
It hasn’t been shy about spending top dollar for buildings with steady rents.
In the case of the 2211 Michelson acquisition, which closed late last month, Kilroy paid $380 per square foot for the nearly full building. That’s about $50 per square foot more than any high-profile office in the area’s sold for in nearly two years.
For the Orange deal, Kilroy was attracted to the building’s predictable cash flow tied to its long-term tenant, according to Smith, who along with CB Richard Ellis’ Kevin Shannon, Bob Smith, Gary Stache, Paul Jones and Karen Scholte represented both sides of the deal.
Smith said they received about a dozen offers for the Orange building, a combination of private investors, pension funds and real estate investment trusts, both public and private.
Aecom, a Fortune 500 company, reportedly just completed a big renovation of its offices at the Orange building. The building has been home to Aecom’s Holmes & Narver architectural unit, part of DMJM Harris.
In addition to being a tenant, Aecom previously owned the building.
In 2006, its Aecom Management Services Corp. division sold the building to an institutional investor for a reported $25.5 million, or about 13% more than the latest sales price.
Records show the prior owner to be Boston-based Realty Associates Fund VII LP.
The Orange building comes with 6 acres of land that are entitled for future medical office development, according to brokers. The property’s location is close to regional medical centers including St. Joseph Hospital-Orange and Children’s Hospital of Orange County.