Nonlocal investors produced the bulk of activity last year in Orange County’s commercial real estate market, the first year since the onset of the recession that distressed deals didn’t make up a large portion of sales activity.
The 10 largest sales in the office, industrial, apartment and retail sectors had a combined value of about $1.7 billion. That was down about 10% from 2012 and about $300 million off the most active year in the past decade: 2010.
This Business Journal Special Report features Orange County’s top 10 office and industrial sales and leases and the largest apartment and retail sales (see listings starting on page 20).
Sales are ranked by dollar amount and leases by square footage.
CoStar Group Inc. provided the data, which is supplemented with details of other transactions reported by the Business Journal during the year.
Equity Office Re-Emerges
Local investors took a backseat to out-of-town money in a bulk of the headline-making sales as nonlocal buyers made nearly $1.3 billion worth of the purchases represented in the special report.
Chicago-based Equity Office Management LLC was the most active buyer of any product type, with three office purchases represented in the listing that combined for nearly $263 million. The deals, which totaled about 1.3 million square feet, re-established it as a major presence in the local market. The company had been OC’s second largest landlord before selling its local portfolio in 2007 as part of a $2.9 billion deal with Los Angeles-based Maguire Properties Inc.
Equity Office’s recent buying binge appears to be continuing this year. The company is said to be close to a $130 million deal to buy the Griffin Towers office complex in Santa Ana, sources familiar with the impending deal said.
Out-of-town office investors, and Equity Office in particular, believe OC’s office market is on the upswing and due for rental appreciation, according to area commercial brokers.
Pricing for local offices, whose top 10 deals made up nearly 40% of the combined value of all four product types last year, has a ways to go to return to peak-market prices of 2006 and 2007, brokers say. That’s not the case in other large office markets along the West Coast.
Among local investors, Newport Beach-based Olen Properties made the largest purchase of 2013 with a $73.5 million deal for the 16-building Irvine Oaks Executive Park in the Irvine Spectrum.
It was the largest local purchase for Olen in more than five years. The company is OC’s second largest office landlord, with a portfolio approaching 7.5 million square feet.
The two largest deals among owner-users in the county last year were MemorialCare Health System’s $67 million purchase of the Fountain Valley office complex it had been leasing for its headquarters, and Rosemont, Ill.-based beer distributor Reyes Beverage Group’s $56.7 million buy of a new OC facility in Huntington Beach in what was last year’s biggest industrial sale.
One noticeable name largely absent from this year’s listings: Newport Beach-based Irvine Company, OC’s dominant landlord, whose lone top deals entry was a 74,000-square-foot office lease renewal for law firm Stradling Yocca Carlson & Rauth PC.
Irvine Co. made one large local apartment purchase during the year, for the remaining ownership interest in a portfolio of nearly 5,000 units in OC and San Diego. The deal, believed to be worth more than $100 million, wasn’t included in our listings, which exclude large portfolio deals involving nonlocal buildings.
Bank Deals Down for Now
Bargain hunters appeared to be largely out of luck in 2013, with distressed property sales and lender-driven deals—a large portion of the area’s largest deals from 2009 to 2012—at a minimum in this week’s top deals listings.
The largest sale of a property with known financial issues was for Savi Tech Center, a business park in Yorba Linda purchased by Hines Interests LP and Oaktree Capital Management LP for a reported $54.4 million, good for the No. 2 spot among industrial sales.
The property had been foreclosed on by Miami-based LNR Property Corp., which in turn sold Savi Tech Center via an online auction in October at a fraction of what prior ownership valued it.
Close to $500 million worth of distressed deals were annually on the top deals listings a few years ago before dropping to about $100 million in 2012 and less than $80 million last year.
Not all of OC’s distressed deals had made it out of the system by the end of 2013. Nearly $250 million in office sales in Orange and Anaheim were completed by special servicers just last month.
Those deals, for City Tower, 500 Orange Tower, Stadium Towers Plaza and 3800 Chapman, will likely be included in next year’s top deals listings.
Development Up
Bank-driven deals are on the wane, but development-driven sales and leases appear to be on the upswing.
The largest office lease reported last year was the 157,200-square-foot Shady Creek Medical Center that’s expected to break ground this year at Alton Parkway and Sand Canyon Avenue in Irvine.
Newport Beach-based Hoag Memorial Hospital Presbyterian announced last year it would lease the bulk of the property, which is being developed by San Diego-based Pacific Medical Buildings LLC.
Another San Diego-based developer and investor, Merlone Geier Partners, made the largest retail purchase in OC last year with its eyes on a major redevelopment.
The company paid about $110 million for the 847,000-square-foot Laguna Hills Mall, which is expected to undergo a major renovation over the next few years to upgrade the 40-year-old property.
