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Real Estate Bisnow
January 14, 2013 
Don't Fear
The Oversupply

The Orange County office market ended the year with gusto: vacancies down, absorption up, and the two largest developments under way are build-to-suits that won’t add to the market’s inventory. (The only downside to a fully leased building: Less chance of having that secret bathroom nobody else knows about to yourself.)
Voit VP Jerry Holdner tells us that 2012, tenants absorbed about 850k SF of Class-A space in OC, more than half of the total 1.6M SF of office absorption for the year. Allergan, CoreLogic, Gateway One, Greenlight Financial, LA Fitness, and Western Digital all expanded last year. Jerry tells us research-oriented companies will continue to relocate or expand in Orange County, which has the facilities to accommodate them, and a workforce with the skills they need.
Voit’s Q4 market report says office vacancies ended the year at 13.7%, down from 15.1% at the end of 2011. Jerry predicts upward pressure on rents in 2013 as absorption continues but new product continues to be sparse. Rents have been flat lately, with the average asking lease rate per month PSF at $1.88 in Q4, unchanged from the previous quarter. The two build-to-suits: a 469k SF new office for Hyundai in Fountain Valley (pictured) and a 480k SF project for Pimco at Fashion Island in Newport Beach.

Panema Canal Has Investors Eager
The Panama Canal expansion to be finished in 2015 is certain to spur major industrial property growth in SoCal coastal markets, but some investors are betting that all SoCal industrial markets are going to benefit from that Teddy Roosevelt-sized infrastructure improvement. Irvine-based CIP Real Estate principal Eric Smyth tells us "we plan to remain very active buyers through this year," particularly in the Inland Empire.

CIP’s strategy in the IE is to make long-term, value-add investments, as it did with Stone Haven Business Park—an 82k SF office and industrial project in Rancho Cucamonga. The company acquired the property in 2004, put $1M into renovations, and when the worst of the recession was over, aggressively marketed the property to bring occupancy up to 95%. Recently CIP sold Stone Haven to private investors for $10.7M, or $131/SF. Voit’s Michael Hefner and Lee & Associates’ Carol Plowman repped CIP; Lee & Associates’ Mike Long repped the buyer.

Other Investor Targets

Another OC-based investor, Buchanan Street Partners, is looking to put big money in Phoenix, to the tune of $100M during 2013. Buchanan prez Tim Ballard tells us that he thinks Phoenix has good long-term investment potential because assets there are competitively priced below replacement cost and market fundamentals are (at last) trending positive. The Scotsdale Airpark office submarket, he points out, is seeing vacancies below 10% for the first time in years. “Also, the area has a pro-business attitude, and it’s affordable for companies and their employees,” Tim says.

Buchanan already has about 800k SF in the Phoenix market, and kicked off its latest buying there recently with the acquisition of 8838 E Harford Dr, a value-add 66.8k SF office/flex building in Scotsdale Airpark. Built in 2000, the property was almost empty at the time of the sale, and the new owners plan to set aside funds for tenant finishes and other improvements.

The Big Check
Costa Mesa-based Talonvest Capital holds its latest philanthropic donation, $20k to Band of Brothers Foundation, an Orange County organization that supports children in need locally and internationally. The funds will provide food and medical attention, install windows and doors to protect against mosquito-borne disease, build kitchens and restrooms where none existed, purchase beds for kids, and buy new computers to advance education.
CREW-OC asked us to pass along that the deadline for nominations for the its SPIRE Awards has been extended to Jan. 25. So get those nominations in. Then send us ideas and suggestions to dees.stribling@bisnow.com.
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