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Posts Tagged ‘class b’

Orange County Office Leases Pick Up as Owners Get Aggressive on Rents

Tuesday, March 9th, 2010

Office Leases Pick Up as Owners Get Aggressive on Rents

San Francisco-based Shorenstein Pro-perties LLC completed the largest office acquisition in Orange County for 2008 when it paid nearly $211 million for Irvine’s Main Plaza complex near John Wayne Airport—more than twice the price paid for any other local office complex that year.

Now the owner of the twin 12-story, Main Street building—a national investor that’s shown no signs of being in financial distress—is making news again in OC, with one of the more hard-hitting leases seen for a high-end office in Irvine.

SullivanCurtisMonroe Insurance Ser-vices LLC recently moved its headquarters to Shorenstein’s 1920 Main St. building, leasing 25,237 square feet of space. The insurance brokerage, which relocated from an older building down the street, also got its name on top of the building.

The seven-year lease is for $4.4 million, which puts monthly rents at a bargain-basement price of about $2.08 per square foot.

The lease is one of the most aggressive transactions to take place in the airport area in the past 18 months, according to Jake Stickel, a broker with the Newport Beach office of CB Richard Ellis Group Inc.

For similar higher-end offices around John Wayne airport, monthly asking rents have been running about $2.50 per square foot. Near the peak of the market, those rents were more than $3 per square foot.

“The rental rate the tenant was able to lock in at this class A property is comparable to the rent they were paying under their previous lease in a class B building,” said Stickel, who represented the insurance com-pany along with CB Richard Ellis Group Inc.’ Carol Trapani and Tasha Monroe.

Trend

Expect to see more eye-opening leases as existing and new property owners in OC look to weather the ongoing slow office market, tenant brokers said.

Local owners with strong balance sheets, including Newport Beach’s Irvine Company—and presumably Shorenstein—would rather fill up their buildings now at below-market rates than continue seeing their buildings remain empty during what’s expected to be a slow recovery for the local market.

Meanwhile, owners that bought distressed properties in the last year at steep discounts are hoping to leverage their cash positions to make deals that other financially-strapped landlords can’t afford.

“It’s a tenants’ market, as everyone knows,” said John Tumminello, principal for Newport Beach-based investor Greenlaw Partners.

Late last year, the company partnered with San Francisco-based Westbrook Partners and Chicago’s Walton Street Capital LLC to buy Irvine’s 2050 Main St. office tower.
Source: www.ocbj.com

The Definitions of Class A, Class B and Class C Office Space

Wednesday, March 3rd, 2010

One very common question clients ask us is “What’s the difference between Class A, Class B and Class C office space”, so I thought I should explain.

Commercial office space is typically categorized as Class A, Class B, or a Class C. The difference between these classifications does vary somewhat according to the local market and class B and C buildings are generally classified relative to Class A buildings.

Office buildings are bunched into these classifications according to their quality, amenities and general characteristics, but most differentiating factor between each three classes is that of price.

While there is no definitive formula for accurately classifying office space as the interpretation of the classes is somewhat subjective. However, below is a general description of each class:

CLASS A
Class A office buildings are the most prestigious and high-image office buildings in their marketplace with the best construction, competing for premier office users with rents above average for the area. Typically at least several stories high and accompanied by parking structures, Class A office buildings have high quality standard finishes and infrastructure, state of the art systems, exceptional accessibility and amenities and a definite market presence. Class A office buildings are also well-located, have good access, are professionally managed, and typically owned by institutional landlords. Class A office buildings are, not surprisingly, the most expensive. Currently, Class A office space in Orange County is typically leasing for as low as $1.80 per square foot full service gross up to over $4.00 per square foot full service gross.

CLASS B
Class B office buildings are typically low-rise versions of Class A office buildings, but lack the high-image and level of amenities and features, such as covered parking, that Class A office buildings have. They are generally well located and well managed and, compete for a wide range of tenants with rents in the average range for the area. Building finishes are fair to good for the area and systems are adequate, but the building cannot compete with Class A at the same price. However, Class B office space is generally considered the Currently, Class B office space in Orange County is typically leasing for as low as $1.50 per square foot full service gross up to over $2.00 per square foot full service gross and is generally considered the “best value” office space.

CLASS C
Class C office buildings typically encompass every building that does not fit into Classes A and B. Class C office buildings are low rise, often wood construction, older buildings, often located on the periphery of major commercial office centers. Class C office buildings often require extensive renovation due to their age and suffer from a degree of obsolescence in their infrastructure, which may not be suitable for certain tenants. They compete for tenants requiring functional space at below average rents that are so concerned with image or curb appeal. Currently, Class C office space in Orange County is typically leasing for as low as under $1.00 per square foot full service gross up to over $1.50 per square foot full service gross.

Orange County Industrial Real Estate Market Summary by Kurt Strasmann of Voit Real Estate Services

Wednesday, February 17th, 2010

Kurt Strasmann, Managing Director of Brokerage Services at Voit Real Estate Services, is speaking on the Orange County Industrial Real Estate Market at the IREM (Institute of Real Estate Managers) Conference today.

Here is an overview of what he will be discussing:

1. Vacancy is at 6% currently and we expect vacancy to move up to around 6.75 to 7% by year’s end. Starting in 2011 we expect the vacancy to slowly start moving down again. To give you a perspective the low in vacancy was in the 3rd quarter of 2007 at 3%. Right now the average down time for a vacant building is approx. 12.2 months

2. Availability rate – includes direct vacancy and all sublease availability and is a good indicator of where vacancy is headed. Right now it is at 10.85%. We expect it to hold steady, maybe inch up to 11% and slowly come down by year’s end. Again the low was in 3rd quarter of 2006 at 4.35%

3. Net Absorption: 2009 was an extremely difficult year with approx. 5 million sqft of negative absorption. We see a negative absorption in 2010 by approx. another 1 million sqft. To give you a perspective from 2005- 08 we had an average of 1.25 million sqft. of positive absorption. The high was in 2004 with over 5.5 million.

4. User asking lease rates: Currently the average asking lease rate is $.59 NNN down from the high of $.80 NNN in Jan of 2008- 2 years ago. We see another 5 to 10% maximum downward pressure on rents through the end of the year. Keep in mind these are asking rents, thus effective lease rates are approx. 10-15% off these numbers.

5. User asking sale prices: Currently the average asking sales price is $101 per sqft down from $150 per sqft in Jan of 2008. About 33% decline. We expect to see another 10% decrease in sale prices unless an onslaught of distressed assets hit the market where we potentially another 20% reductions. Again these are asking prices. Sales have been few and far between and generally are far below the average asking price.

6. Investment Market: For stabilized in place market rents on quality assets we see cap rates at 7.5%. For Class B and C product we see cap rates in the 9-10% range. By comparison in 2006 and early 2007 cap rates got down to the 5.5 % range.

7. Future Activity: Activity has increased and it is becoming steady. Private companies and larger corporations are finally making decisions and get deals done vs. last year at this time when nothing was being done. We see this trend slowly increasing as people get used to conducting business in this environment. We are still at least a year away from having any pressure for price appreciation. –Simple too much supply.

8. Distressed Assets: On the industrial side, not much to look at this point. We do see this picking up in the second half of the year. Interesting to note when quality assets are priced aggressively there is no shortage of buyers. Multiple buyers emerge at the right price.

9. Best Opportunities:

a. Users looking to buy or lease product. We are near the bottom and 2010 should be near the low point. If a quality asset comes up that is priced to the market, there is great financing and with no new construction in place – very limited downside. Need to hold 5-7 years
b. Leasing – great time to move up in quality of product and lock in great lease rates for 5 years.
c. Investors- if you can buy at market rents- terrific long term opportunities. We just have not seen much available for sale. Watch out for the class B and C product because vacancy will be very tough.
d. Note Sales- we have seen a few opportunities here and hope note sales will emerge more on the industrial side. The problem is finding a lender that has written off the asset and has priced the note for a market sale.

10. Key indicators to watch:

a. Job Growth: 2009 was negative in OC of 49k 2010 is predicted to have 1,500 positive job growth 2011 should start to see better numbers.

b. Consumer confidence: slowly moving up from the lows of Jan 2009.
c. Retail Sales: low was in Nov 2008 and it has slowly moved up.
d. Port Traffic: LB/LA numbers are still off by 30% but they have increased since the lows of Jan 2009.

Forecast: 2010 will be better than 2009 for everyone. Slow and steady recovery – kind of an L shape recovery. All Four indicators are moving in the right direction, but at very slow pace.

4th Qtr 2009 Orange County Office & Industrial Real Estate Market Reports Just Released!

Tuesday, January 12th, 2010

Orange County Office and Industrial commercial real estate is stabilizing

Voit Real Estate Services has just released it’s latest 4th quarter 2009 commercial market reports for the office and industrial real estate sector. Voit’s 2010 Commercial Real Estate Market forecasts and a complete list of reports for Office, Industrial, Flex, R&D and Retail commercial real estate for Orange County, San Diego County, Riverside County and Las Vegas are available on www.voitcts.com. Click HERE to view the reports.

Highlights for the Orange County Office Market are:

Vacancy – Up
Net Absorption – Down
Lease Rates – Down
Transactions – Down
Construction – Up

While the above trend is similar to that witnessed in the 3rd quarter 2009, it is clearly slowing and we are still expecting the market to rebound in late 2010. A typical early indication of this is the increase in construction activity and the fact that asing lease rates are already rising on many of the more sought after Class B office buildings.

For more information or impartial advice on what Voit’s market data means for your business and how to take full advantage of the “Tenant’s Market” to reduce overhead and realign your real estate with your business plan, contact Stefan Rogers at 949.263.5362.

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