Big deals are blossoming in Orange County’s commercial real estate sector. But the local market’s bread and butter deals—small and mid-sized sales and leases—also are starting to see an uptick, according to local brokers.
“I’m as busy as I’ve ever been—maybe not as profitable, but there’s been a big improvement in activity (in recent months),” said Steve Economos, director of the office brokerage division for Irvine-based 360 Com-mercial Partners and one of the area’s top brokers for small office sales.
The number of deals involving tenants looking to buy buildings in the $5 million to $20 million range are rising, said Economos, who currently has about 20 local listings on the market.
“It’s not at the clip we were seeing at the peak of the market, but it’s still good,” he said.
Leasing volume also is picking up for smaller-sized offices.
“There’s a lot more movement for deals in the 3,000 to 10,000 (square foot) range,” said Brian Childs, executive vice president and branch manager for the Newport Beach office of NAI Capital Commercial.
Last year was Childs’ busiest in terms of leases, with deals averaging about 10,000 square feet.
“It was pretty amazing—people are trying to lock in low (rental) rates,” he said (see related report, page 30).
Price Cuts, Better Economy
The uptick in activity can be attributed to falling prices, signs of an improving economy and interest rates that remain attractive to potential buyers despite recent increases.
“There’s a lot of migration,” said Childs. “Companies are taking advantage (of the market) to move from class B space to class A space, and to move from other parts of the county to the Airport Area.”
In the office market, lease rates are off some 30% from a few years ago, while sale prices are off nearly 40%, depending on whether the building trading hands is distressed or not.
For local industrial buildings, lease rates have fallen nearly 35% from the peak, while sale prices are down about a third.
Local tenants “agree the market has hit a low and are no longer postponing real estate decisions,” said Ian Britton, senior vice president for the Irvine office of Colliers International, in a recent market report.
Falling prices have helped drive sales for plenty of bigger-name properties in the area, such as last month’s $69 million sale of Irvine’s Quintana office campus, as well as plenty of full-floor office leases.
Small Counts
The smaller office deals matter because leases between 3,000 square feet and 20,000 square feet account for the bulk of the area’s lease activity, says Kurt Strasmann, managing director of broker services for Newport Beach’s Voit Real Estate Services.
For the last half of the year, the number of smaller office leases began picking up even as bigger deals at some of the area’s more prominent building grabbed most of the attention, Strasmann said.
In terms of sales, distressed properties are providing a lot of the deals of late.
“Banks are starting to let loose with these properties, especially for small, one-off transactions,” Strasmann said.
Most of the bank-driven deals are on the smaller end of the spectrum, according to Economos. Banks still might be reticent to foreclose on a $10 million building if it’s leased and they have a relationship with the owner.
But if a smaller building valued at just a few million dollars is underwater and
empty, a bank will be more likely to foreclose and put it back on the market, Economos said.
Larger buildings with ties to the mortgage industry still are making their way through the system as well.
Fremont Hub for Sale
Economos recently put a 39,000-square-foot-building in Anaheim Hills up for sale that was previously owned and used by locally-based Fremont General Corp. It had been a hub for the company’s subprime mortgage loan business.
The company fell into bankruptcy during the industry’s crash and its operations were bought by Signature Group Holdings LLP, a Sherman Oaks-based distressed buyout firm.
The building’s being offered for sale by Signature Group for about $6.6 million, or about $170 per square foot.
There’s still a number of prospective buyers on the market, according to Economos. “Not everyone suffered greatly in the downturn,” he said.
It might take more than price cuts to ramp up sales to levels seen a few years ago, said NAI Capital’s Childs, who represents tenants in leases. Right now, many prospective small-business owner-users are opting to lease.
“They’re sniffing around, but still leasing,” he said. “Prices haven’t dropped enough to make (sales) compelling for them.”
