The Orange County Transportation Authority is about to complete its purchase of a Santa Ana office high-rise as questions linger whether it is paying too much.
The Transportation Authority, a public agency that uses Measure M funds to improve Orange County bus operations, freeways and roads, confirmed escrow is scheduled to close on Oct. 28.
Board members for the Transportation Agency approved a plan in August to buy the 10-floor, 220,452-square-foot office building at 2677 N. Main St. in Santa Ana for $54.5 million, or $247 per square foot.
The public agency, per public documents, intends to spend another $61.2 million to $74 million for tenant improvements, plus $12.8 million on furniture, fixtures, equipment, moving and closing costs – on what would be Transportation Authority’s new headquarters.
Orange County Transportation Authority board members and staff defended the total expenditure of $128.5 million as cost effective. The building is located just north of the 5 Freeway and south of the 22 Freeway.
A spokesperson for the Transportation Authority told the Business Journal the agency deliberated whether it should continue leasing space or own its headquarters.
“With the current high cost of construction and a thorough analysis of the benefits to owning versus leasing, that property emerged as the most financially viable option because it is expected to save approximately $50 million over 30 years,” Eric Carpenter, a Transportation Authority spokesperson, told the Business Journal.
The Transportation Agency’s financial analysis found the total cost of buying the building at 2677 N. Main St., including operational expenses and tenant improvements, would be $204.6 million over 30 years.
Leasing comparable space over the same 30 years, according to the Transportation Authority’s financial analysis, would be $255 million.
“This acquisition is not just a financial decision, it’s a strategic investment in the future of our transportation agency,” Transportation Authority Chief Executive Darrell Johnson said in a statement.
OCTA also noted that owning its own headquarters would be preferable to leasing to “avoid future rent increases.”
The authority has an annual budget of $1.7 billion and 1,500 employees. Its current headquarters, which it has leased for more than three decades, is located half a mile north at 550 S. Main St. in Orange.
Ackerman: Waste of Taxpayer Funds
Spending about $130 million on an office building would be “financially irresponsible and a waste of taxpayers’ funds,” Dick Ackerman, a former California state senator who represented Orange County in Sacramento, said in an Oct. 7 letter to Transportation Authority Board Chair Tam Nguyen.
Ackerman said OCTA would need to lease at least two of the building’s 10 floors to other companies for the transaction to make sense in the long term. That financial outlook, Ackerman continued, was partially based on leasing office space at $4.70 per square foot, per month.
To put that price in perspective, one of the most expensive leases in Santa Ana is Cortica’s tenancy at 2500 Red Hill Ave. The neurological therapy company is spending $3.07 per square foot, per month, for its Santa Ana office space, per CoStar data.
Other offices sold in Santa Ana within the past 12 months include the nine-floor, 208,257-square-foot 1 MacArthur Place for $31.1 million ($149 per square foot), the 12-floor, 120,560-square-foot 2700 N. Main St. building for $18.6 million ($154 per square foot) and the 10-floor, 200,443-square-foot 3 Hutton Centre Drive location for $28.9 million ($144 per square foot).
City Centre II, a 4-story, nearly 100,000-square-foot office building at 765 The City Drive South in Santa Ana, sold for $233 per square foot, in September 2023.
Newport Coast executive Joe Wen paid $25 million, or $115 per square foot, for a 217,000-square-foot office tower at 4 Hutton Centre in 2023.
Mike Adams, a managing director at Stream Realty’s Irvine office, said paying a premium on a building as an owner-user comes with benefits that could save a company money in the long run.
1 MacArthur Place, 2700 N. Main St. and 3 Hutton Centre Drive were all purchased by investors, whereas Astiva Health Inc. is an owner-occupier of City Centre II.
“The benefits of buying an existing building would be quicker time to occupancy and immediate cashflow through the existing tenant base,” Adams told the Business Journal. “Also, buying an existing building eliminates the uncertainties associated with construction projects, such as cost overruns and project delays.”
Adams cited a few recent owner-user transactions, such as MicroVention buying 45 Enterprise in Aliso Viejo for $182 per square foot and the city of Irvine acquiring 17101 Armstrong for $226 per square foot.
Eric Purmort, a senior vice president for CBRE’s office properties practice, said the Transportation Agency predicted the deal to buy 2677 N. Main Street would save money in the long-term. CBRE handles the leasing for 2677 N. Main St., but Purmort is not part of the leasing team nor is he associated with the building sale.
“That’s a fair price for both sides,” Purmort told the Business Journal.
He added owner-occupier buildings often trade for a higher price than what an institutional investor would pay for the same property.
The building at 2677 N. Main St. is currently owned by Irvine-based Muller Co. Tenants leasing space at the 10-floor building include healthcare provider Aetna, insurance company Assurant and the law firm LaFollette Johnson DeHaas Fesler & Ames.
There are some vacancies at 2677 N. Main St., with the leasing team listing space at $1.95 to $2.90 per square foot, per month, according to CoStar Senior Director of Market Analytics Jesse Gundersheim.
