Four Orange County office buildings have sold to a joint venture that is planning to raze them all and replace them with two new industrial buildings totaling roughly 223K SF.
It won’t be the last office-to-industrial redevelopment, Orange County real estate professionals say, given the high demand for modern industrial space in a market known for little available land and older industrial stock.
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The buildings at 26110, 26140 and 26160 Enterprise Way in Lake Forest sold in one transaction. The price wasn't officially disclosed, but the properties traded hands for $30.5M, according to real estate data site Reonomy. The fourth building, 26250 Enterprise Way, sold separately for $14.2M. Both transactions closed on April 30, public records show.
The buyer was a joint venture of Western Realco and RREEF Property Trust. A representative for RREEF declined to comment on the transaction, and Western Realco didn't respond to a request for comment.
Cushman & Wakefield Vice Chairman Jeff Cole, Managing Director Ed Hernandez and Director Nico Napolitano represented both parties in both sales. David Dowd of CBRE was also part of the transaction on the 26250 Enterprise Way site.
“The sale of this campus marks a significant shift in our market cycle as fully functional, high quality low-rise office product is being razed for the redevelopment of new Class A industrial product,” Cole said in a statement. “This exchange is certainly reflective of the positive outlook for future demand for light industrial supply in Orange County.”
All four properties are zoned for light industrial, according to the city of Lake Forest’s online records.
“More of this is expected until the office market improves to pre-pandemic levels, though there are limited opportunities of this type with the potential for industrial zoning,” Hernandez said in an email.
Some of the sites that do exist are already being scooped up for that purpose. Kidder Mathews Executive Vice President Rick Putnam says he knows of at least two such deals in progress. The lack of modern industrial product in LA and Orange County is butting up against the “relative lack of take-up” of suburban office buildings, leading to deals like this one, Putnam said.
Kidder Mathews’ Q1 2021 report, released in early April, placed Orange County’s overall average asking rents at $1.03 per SF on a triple net basis at the end of the quarter, but Putnam said rents for brand-new product are closer to $1.25 per SF now.
“Industrial rents are now in a place where buying an office building almost for a market price and demoing that building down to flat land equals a price basis in the land that allows you to build an industrial building,” Putnam said. “That’s making office building acquisition and demolition economical for spec industrial builders.”
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