One of Orange County’s most valuable high-rise buildings is the latest to face a slashed valuation.
The Michelson office tower in Irvine, a 19-story trophy property at 3161 Michelson Drive, about a mile from John Wayne Airport, was once valued as much as $345 million.
As of June, that estimated valuation has been cut nearly 26% to $256 million, according to recent investor filings from the building’s owner, Manulife US REIT.
The latest valuation is down from $292 million around the end of 2022, the filings indicate.
The new price comes as the owner potentially considers a sale of its lone OC asset, which would add to a notable string of discounted local office sales over the past year as work-from-home trends continue and financing options for the sector become fewer.
The Michelson tower, running about 536,000 square feet, is near the intersection of the San Diego (405) Freeway and Jamboree Road, in the Park Place mixed-use complex.
Manulife, an owner of high-end office properties in the U.S., and whose stock (SGX: BTOU) is traded on the Singapore Exchange, recently hired a strategic adviser to explore options–including a potential sale–for several of its assets because of the downturned market.
“We have seen healthy interest from a broad range of counterparties including local and international real estate developers, REITs and private equity players” when it comes to such strategic partnerships, according to Tripp Gantt, the REIT’s CEO.
REIT Acquisition
Toronto-based Manulife Financial Corp., the financial services company best known in the U.S. for its John Hancock Life Insurance Co. division, paid a reported $277 million for the Michelson tower in 2012.
At the time, it was the priciest single-building office sale ever in Orange County.
In 2016, Manulife packaged the Irvine property, along with other buildings it owns in the U.S., in an initial public offering that was listed on the SGX.
It was the first-ever REIT listed on the Singapore Exchange that focuses specifically on U.S. properties. The Michelson building was bought by the REIT for $317.8 million at the time of the IPO listing, though the REIT said its valuation was higher, at $328.6 million.
Value Changes
Just prior to the pandemic, its valuation was estimated by the REIT at an all-time high of $345 million, or about $645 per square foot.
A year ago, the REIT placed a $317 million valuation on the tower, estimating it had lost about 8% of its value, or $28 million, since the onset of the pandemic.
In February, it chopped off another $25 million in value for the tower, with an estimate of $292 million, according to regulatory filings. That price works out to about $545 per square foot.
The latest filings mark another $36 million drop in value for the tower, working out to a price of about $478 per square foot.
A sale near that discounted per-square-foot price, if completed, would still be among the tops for OC offices in several years. High-end offices in OC’s more desirable markets rarely exceed $400 per square foot when sold.
The building is now nearly 83% occupied, down from the 91% occupancy rate at the end of last year.
Hyundai Capital, the leasing arm of the Fountain Valley automaker, takes nearly 100,000 square feet of space at the building. LA Fitness also recently renewed it lease at the building for its headquarters, CoStar data indicates.
LA Woes
The Irvine office’s valuation, while off some $89 million from its peak, has held up better than other Southern California offices in the Manulife REIT’s portfolio.
In downtown Los Angeles, the REIT’s 35-story Figueroa tower now counts a $174 million valuation, a steep decline from $315.2 million a year ago. Other towers in downtown LA have traded at even steeper discounts this year.
