The Michelson, a 19-story Irvine tower considered to be one of Orange County’s premier office buildings, is on the market for sale and could draw a record-breaking price from investors.
New York-based landlord Emmes Group of Cos. has owned the 536,000-square-foot building for about three years and put the tower on the market earlier this month, according to real estate sources.
New York-based brokerage Eastdill Secured, whose local operations are based in the Michelson, has the listing for the building, along with Orion Property Partners in Irvine.
The building, located in the Park Place mixed-use campus near John Wayne Airport, is going to market without an asking price, according to marketing materials.
Prominence
A sales price in excess of $200 million looks likely, considering the building’s prominence and tenant base, as well as the prices that institutional investors have paid for other top-tier offices in Irvine over the past two years.
“If it isn’t the premier office building (in OC), it’s one of a handful at that level,” said Kurt Strasmann, senior managing director for the OC operations of CBRE Group Inc.
Tenants at the building include Hyundai Capital America, which has its name atop the office; Jacobs Engineering Group Inc.; and law firms Gibson, Dunn & Crutcher LLP, Greenberg Traurig P.A., Jones Day and Bryan Cave LLP.
Irvine-based LA Fitness International LLC inked a deal to move its headquarters to the building this year, taking 91,000 square feet of space. That brought the Michelson’s occupancy rate to nearly 94%.
How high investors bid up the Michelson remains to be seen.
Sources said Emmes could be looking for a sky-high price of between $500 and $525 per square foot, which would put the building’s value at close to $275 million. That price would likely set a record for a single-building office sale in OC.
A high price is warranted, said Andy White, director of the office leasing practice for Irvine-based brokerage 360 Commercial Partners.
“It is definitely among the top 10 best assets in OC,” White said. “It brings a metropolitan feel, which is why a lot of corporate tenants have gravitated toward it.”
The building’s prominence and image has allowed Emmes to ink new leases at above-market rents the past few years while some other landlords have offered discounts to land tenants, White said.
Monthly rents at the building average about $3.33 per square foot, with a few tenants at the building paying in excess of $4 per square foot.
The property is expected to bring in net operating income ranging from $16.2 million and $18.8 million over the next three years, according to marketing materials.
A sale would bring a third owner to the Michelson office tower, which was built in 2007.
The tower—originally called 3161 Michelson—was built by Los Angeles-based Maguire Properties Inc., which now operates under the MPG Office Trust Inc. name.
Maguire sold the tower—which was initially slated to hold the headquarters of defunct subprime lender New Century Financial Corp.—to Emmes in a move to shed debt a few years after the building opened.
Emmes paid about $160 million, or $300 per square foot, for the building, which it renamed The Michelson.
It’s one of two Emmes-owned office properties in OC. The other is a Newport Beach office complex that holds the headquarters of chipmakers Conexant Systems Inc. and spinoff Mindspeed Technologies Inc.
Institutional investors and real estate investment trusts were buyers of two other recently built offices in the airport area in recent years and would appear to be the most likely type of buyers of the Michelson building.
Recent Comps
Boston-based institutional investor AEW Global paid about $108.5 million, or $345 per square foot, for the 2050 Main St. office tower in Irvine in the priciest office sale seen in OC last year.
Los Angeles-based Kilroy Realty Corp. in 2010 paid about $103 million, or nearly $380 per square foot, for an office located a few blocks from the airport at 2211 Michelson Drive.
It’s not known whether Newport Beach-based Irvine Company, OC’s biggest office landlord, would be interested in buying the office. The company’s apartment division has a 980-unit project that’s expected to break ground this summer on the southern edge of the Park Place campus.
Irvine-based LBA Realty, which owns the remainder of the office buildings at Park Place, along with retail buildings at the mixed-use campus, is known more for making value-added investments in buildings with high vacancies. LBA is not expected to bid for the office, according to sources.
