Shopping Center Draws Heated Investor Interest
The Orange County Register
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Glittering office towers dominated the five biggest sales by dollar value in Orange County last year, with one shopping center tossed into the mix.
The top sales, worth $831 million, were compiled from information by Bethesda, Md.-based market tracker CoStar Group Inc., commercial brokers and press reports.
Sale prices for 2005's biggest deals involving offices, shopping centers and industrial buildings reached and in some cases, surpassed the high-water mark of the late 1980s.
Brokers said that investors from pension funds to private companies aggressively competed for the county's premium properties.
And investors and brokers expect 2006 to be an even stronger year $130 MILLION: The Century Centre, Irvine MARK RIGHTMIRE, THE ORANGE COUNTY REGISTER MORE PHOTOS for sales than 2005. They're betting on strong job growth and limited construction of new buildings to lure more investors. Winning 2005's intense bidding on local properties meant investors accepted lower initial returns with the expectation that commercial-property rents are rising, said Bob Smith of CB Richard Ellis Inc.
For example, office rents are poised to rise 10 percent or more annually over the next couple of years, Smith said. Another selling point of local properties is limited competition from new office buildings, Smith said.
And any new building will be pricey because of spikes in the price of steel and other building materials. In addition, finding suitable land is tough. Housing developers are buying commercial buildings or land zoned for commercial development for homes.
"You are not going to see new high-rises built for cheap," Smith said.
The biggest O.C. sale in 2005 was San Francisco-based RREEF Funds' purchase of three office high-rises and other facilities in Costa Mesa.
The pension fund advisor bought MetroCenter at South Coast, which was listed for $249 million. The actual sale price was not disclosed.
MetroCenter's listing price works out to $317 per square foot for the nearly 786,000-square-foot office complex. In the late 1980s, office high-rises traded around $300 per square foot, according to CB's Smith and other brokers.
The purchase of the twin six-story office buildings at Bayview Corporate Center in Newport Beach set a new per-foot standard. Pension-fund advisor AEW Capital Management of Boston paid $117 million and at $369 per square foot, that's the highest perfoot cost in the Voit Cos.' local database.
Jerry Holdner, a researcher with developer Voit,expects prices to break $400 per square foot this year. Bayview was constructed in 1991 and newer buildings should command higher prices, he said.
Shopping centers also drew heated investor interest, said Reza Etedali, head of retail brokerage REZA Investment Group in Irvine.
Buying competition was so intense that investors accepted initial returns of 5 percent for the best centers, Etedali said. As recently as three years ago, similar returns were 7 percent.
A big reason for the decline: an immense amount of money chasing real estate, Etedali said. He said pension funds and foreign investors are buying securities backed by real estate.
"This capital is coming primarily from Wall Street," Etedali said.
O.C.'s second-largest sale last year was by San Jose-based investor DJM Capital Partners Inc. It got shopping center Bella
Terra in Huntington Beach for $225million. DJM bought the roofless mall, formerly the site of Huntington Beach Mall, amid a major redevelopment. The investor teamed with a unit of Detroit's General Motors Acceptance Corp. to close the deal.