| Hello, Orange County! Allow us to introduce ourselves. We’re the largest commercial real estate publication in the US, publishing local People Magazine-like issues in each of 17 cities. Today marks our first in Orange County. We try to keep them lively, photo-heavy, personality-oriented, highly informative, and mercifully short. |
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| Last week, we squeezed some expert knowledge from Orange County's top CRE pros—two all-star panels moderated by Allen Matkins partner Drew Emmel and Grubb & Ellis EVP Greg May at the Island Hotel in Newport Beach. (The program was so big—including 350 attendees—we needed an extra day in February.) |
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| Drew, a partner in Allen Matkins’ Orange County office, said things are definitely picking up: Folks are doing deals, financing’s available, and the CMBS is coming back to life from its coma. “But there’s still a lot of uncertainty.” He kicked things off with a discussion about the macro risks affecting real estate such as the presidential election, the eurozone mess, and the price of oil and gas |
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| A eurozone consensus was not to be had, but the negative impact from the cost of oil was something everyone could agree on. What concerns Sares-Regis managing director John Hagestad most is the price of gas and our lack of a national energy policy—$5 per gallon gas would be a significant drag on our economy. Speaking of which, Jerry Brown’s elimination of redevelopment agencies in California has cities panicked that they’ll be forced to honor commitments made by their RDAs in redevelopment’s waning days. “This is a train wreck and it’s getting worse.” He challenged everyone to get involved in this election cycle “because we’re at a critical time in our country.” Sares-Regis started as two companies in the 1970s that merged in 1993. What’s the latest? It's buying all the remaining property that Boeing has for sale at Long Beach Airport. |
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| As an EVP with Jones Lang LaSalle, Ronda Clark specializes in tenant representation for large corporate clients including expansions for Experian, Corinthian Colleges, and Toyota Financial Services. She says the big guys aren’t waiting for the election. When the uncertainty was far greater a few years ago, “they all bore down and cut expenses, and they have a lot of cash now.” But skyrocketing gas prices will affect the growth of small businesses, which drive much of the economy, and ultimately would trickle up to the larger companies. Numerous properties are tied up and unavailable to tenants due to ownership issues, which also affects firms’ growth. |
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| An adoring crowd listens to USAA Real Estate Co Western Region managing director Steve Ames note that we’re still almost six million jobs down from where we were in ‘07. If we continue to add jobs at 200,000/month, it would still take until 2020 to reach full employment. “We need some good news to let people loosen up and start thinking about expansion, and not whether they’re going to survive.” USAA just completed and sold a $91M build-to-suit for Walmart, just broke ground on a 500k SF spec building in Moreno Valley, and bought a six-story office building in El Segundo. The company exists for one reason: to serve members who typically are related to the military. The company did $5B in transactions last year on a $9B national portfolio. |
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| Greg oversees Grubb’s OC operation with partner Jim McFadden. Referring to the pending deal with Newmark Knight Frank parent BCG, he says the merger will elevate Grubb. Greg recently did a survey of 4,000 to 6,000 SF office spaces on CoStar, just in the airport market, and found 240 options. Over the last six quarters, there’s been a distinct sign that the market is recovering though vacancy’s still high at 17%. |
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| According to Irvine Co Office Properties VP of leasing Tom Greubel, the landlord’s two most active sectors in 2011 were financial services (which includes two large deals with Pacific Trust and California Republic) and technology. Those sectors will continue to be strong in 2012. Tom’s group handles a 17M SF OC office building portfolio with 10 real estate pros and does all the leasing in-house. The most challenging markets? Oddly enough, Spectrum campus office (despite the company’s 96%-plus occupancy in Spectrum high-rise office space). The company pays a lot of attention to the front door—the tenants’ experience from the moment they park. “We put a lot of money in our spaces so they show well because there are numerous opportunities.” |
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| President Joel Stensby says KPRS Construction Services, which works all over SoCal including Hawaii, has had a 50% growth in volume over the past couple years. “The successful companies are trying to get into better office space at lower rents.” The company helped relocate Broadcom and improved Beckman Coulter’s space. From a tenant’s perspective, it really has to do with the availability in the market and the ability to move into better space. From a landlord’s perspective, he’s seeing a lot of repositioning of properties as people prepare for the cycle's continued growth, where somebody takes on a new property and needs new lobby work or a new elevator core. On the flip side, subcontractor failure is a big challenge. “The subcontractor community is cutting each other’s throats to get any job they can get.” |
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| It takes more than looks, charm, and personality to fill space. Greenlaw Partners founder Wil Smith (who has all those things) says the keys to success are relationships, flexibility, speed, and getting to the tenant rep. “They have 240 options; they’re going to show a handful of them.” The company is predominantly a JV operating partner for institutional equity with a 4M SF portfolio “and looking to grow.” He notes people are paying good prices for core properties, so “if you can manufacture core real estate, that’s where you need to be.” |
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| Overton Moore Properties CEO Timur Tecimer (right) said the firm’s doing a lot of development in the Inland Empire—OMP’s working with Steve on his Inland Empire project—and has been in business since 1972. What’s different between this cycle and previous ones? For one thing, the costs of capital and debt. “We have a 10-year T-Bill that’s been hovering from 185 to 215.” It wasn’t like that in the ’90s or 2000. The real estate recovery has been phenomenal and real estate is almost at peak values on the industrial end. But fundamentals still aren’t there yet. “We haven’t seen the big pop in rental rates.” |
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| Pointing to a drop in absorption after the middle of last year, Colliers director Bob Caudill said, “People went away on vacation in June and came back about three weeks ago.” The deals that happened in Q3 and Q4 were started in Q4 2010 and Q1 2011, and lot of it was driven by big tenants. Smaller tenants (under 5,000 SF) either went out of business, did a six-month renewal, or “moved into their house.” That said, the last three weeks has seen a dramatic uptick in activity with touring tenants of all sizes. Landlord reps’ biggest challenge today is that so many buildings are in special servicing, with “so many hoops and loops you have to go through that we no longer can be as time-sensitive.” Landlords that can react faster than any special servicer or receiver are at a great advantage, which is why as buildings trade, you see an absorption spike in the building that just sold. “New owner, new basis, new money.” |
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