Lake Forest shopping center The Orchard has traded hands for $122 million in the most expensive commercial property sale seen in Orange County so far this year.
Schottenstein Property Group Inc., a Columbus, Ohio-based owner of more than 21 million square feet of shopping center properties across the country, closed on the buy of The Orchard earlier this month, according to brokers for CBRE Group Inc. who worked on the deal.
The nearly 281,000-square-foot property changed hands for about $434 per square foot, with a capitalization rate—the expected initial return from rents—of close to 6%, said Phil Voorhees, senior vice president for national retail investment group of CBRE Group.
Los Angeles-based developer Westrust Inc. sold the 13-building Lake Forest property, which runs along El Toro Road, near the San Diego (I-5) Freeway.
Westrust redeveloped the 25-acre property about five years ago, spending an estimated $80 million on the project, which opened up in multiple phases amid the last recession.
Previous Use
The site previously housed the Saddleback Valley Plaza, which was built nearly 40 years ago.
It’s the first commercial property sale of any type in OC to top $100 million this year, according to brokerage data.
Only two shopping centers in OC are believed to have traded hands for more than $100 million in the past few years, with the last being Seal Beach’s Shops at Rossmoor, which sold for a reported $125.9 million in late 2011.
Affiliates of Boston-based real estate investor AEW Capital Management bought the Seal Beach property, which will count about 400,000 square feet of retail space after adding new buildings to the center later this year.
3rd Property
A third retail property now on the market—the 466,000-square-foot Anaheim GardenWalk—also is expected to command a price in the $100 million range.
Schottenstein now has an ownership stake in close to 825,000 square feet of retail space in Orange County, according to the company’s website.
A bulk of those shopping centers, including properties in Fullerton and Laguna Hills, are owned through ventures with other partners. The Orchard is believed to be the largest local property that Schottenstein owns outright.
Schottenstein has been looking to grow its Southern California portfolio, and has bid on some other large retail properties in the region over the past year, said Voorhees, who works out of CBRE’s Newport Beach office.
Anchors
The Orchard has an open-air look, with a main street of smaller shops, boutiques and restaurants running alongside similarly designed larger stores. Its architecture is intended to reflect the area’s history of citrus growing.
Anchor tenants include a Ralphs, Staples, TJX HomeGoods, and PetSmart. Restaur-ants include a Lucille’s Smokehouse BBQ, Corner Bakery Café and Lee’s Sandwiches. The center struggled to fill a few mid- size stores at the center during the height of the recession but now is about 94% full, according to brokerage data.
A bulk of the center’s remaining vacancy is said to be space once used by Shoe Pavilion, which vacated a 23,000-square-foot space following its 2008 bankruptcy.
The center brings in more than $8 million in rent annually, according to marketing materials for the property. Annual rents at The Orchard are projected to rise to more $10 million over the next 10 years.
Westrust did “quite well” in the sale, according to Voorhees, who brokered the deal with colleague Todd Goodman.
One complicating factor in the sale was a $100 million, 6.5% conduit loan that had to be assumed as part of the transaction, Voorhees said. The loan matures in early 2017, and requires monthly payments of $544,000, according to brokerage data.
