Louis Tomaselli and Mitch Zehner of Voit Commercial Brokerage are currently marketing BKM Red
Hill Business Center (left), a two-story multi-tenant
office building comprised of 24,839 square feet located at 3191 Red Hill Avenue in Costa Mesa. The
former Lamborghini Orange County site (below) is
being marketed for sale by Voit Commercial Brokerage. It’s a 36,735-square-foot site comprised of
two freestanding buildings in Santa Ana.
disparity that exists in today’s unsettled
market, where sellers and buyers can
look at the same property with the same
basic numbers and come up with wildly
divergent valuations. “There’s a very
large disconnect,” says Campbell, a longtime player in the Orange County market. “Reality is starting to set in a little
bit. The amount of risk we were willing
to take for X percentage IRR two years
ago has changed dramatically. In order
to take that same amount of risk now,
our IRR needs to be one-and-a-half
times more than it was two years ago.
“In the last two months, everything has
come to a stop,” he adds. “The world fell
apart. We had several deals all ready to
go and then the company’s board said,
‘Whoa, let’s figure out what this means.’ ”
The OC Airport/South Coast Metro
area serves as a microcosm of the larger
forces buffeting the commercial real estate scene. In addition to disagreements
on valuations, an unsettled economy has
firms delaying leasing decisions, and
those with contracting business are being
forced to give back space—either directly
or indirectly by putting it up for sublease.
As a result, the Airport/South Coast
Metro area has seen leasing activity decline, vacancies rise and little new development activity take place across almost
all product categories.
million square feet year to date. The extra
space has weakened landlords’ positions,
with average asking lease rates dipping to
$2.81 per square foot from the $2.99 per
square foot average that landlords were
demanding in the third quarter of 2007.
And the full scale of the pain has not
yet been reflected in the latest numbers,
if you look at anecdotal evidence. The
most recent turmoil on Wall Street has
further spooked decision-makers, says Jeff
Ingham, a tenant rep broker with Jones
Lang LaSalle’s Newport Beach office.
Law firms, life sciences-related businesses
and other tenants in the office market were “still growing as of three weeks
ago.” That is no longer the case, he says.
“This is a very good time to strike
a lengthy deal,” Ingham adds.
OFFICE
No industry has been as hard-hit by the
recent turmoil as the banking and financial services sector, and that has had a
correspondingly devastating effect on the
local office market. Major potential deals
that could have helped ease the glut of
office space coming back on the market
have gone away or have been temporarily
shelved.
For example, certain unnamed brokers
report that Wachovia recently was in the
market for two floors of office space and
had been eyeing one of the 13-story class
A Century Centre towers off of Main Street
in Irvine. But as a result of that firm’s recent acquisition by Wells Fargo, what could
have potentially been one of the larger
office deals in the area has gone away.
Landlords certainly would have welcomed the significant absorption that deal
would have represented. As of the end of
the third quarter, the Greater Airport submarket (which includes the South Coast
Metro area) boasted one of the highest
vacancy rates in the county: 15.9% compared with 12.8% a year ago, according
to CB Richard Ellis. That submarket has
seen 317,927 square feet come back on
the market in the last quarter and almost a
INDUSTRIAL
This same hesitancy to commit to deals
has seeped into the industrial market.
Louis Tomaselli, a senior vice president
with Voit Commercial Brokerage’s Irvine
