People are aware of the Inland Empire’s rapidly growing market and the fulfillment center trend that’s sweeping Southern California. Amazon, Walmart and many others continue to be pioneers in logistics and door-to-door fulfillment, but the side of the market people are missing is the smaller, more locally sourced user, the groups that service these large international companies. It’s a common theme that when the big guys grow into space there’s normally a contingent of smaller users behind them ready to take down the small- to mid-sized product. This trend has never been more true than it has over the past 12 months. As million-square-foot buildings continue to be leased out by these massive conglomerates, the smaller product has been flying off the shelves. There was a concern in early 2016 that this size range was going to be overbuilt, but due to 8.5 million square feet worth of gross absorption through the first three quarters in the 100,000- to 300,000-square-foot size range, that idea has become a misconception. We’re now sitting with a deficiency of product driving lease rates and sales numbers higher than ever. Lease rates in this size range have jumped about 8 percent over the past year …
LOS ANGELES — Kilroy Realty Corp. has purchased The Sunset, a 179,000-square-foot mixed-use development in the West Hollywood submarket of Los Angeles, for $210 million. The property is located at 8560-8590 Sunset Blvd. on the famous Sunset Strip. The seller, Broadreach Capital Partners, acquired the asset from Apollo Real Estate in 2006 for $105 million. The Sunset occupies 2.2 acres along Sunset Boulevard. It features a 72,000-square-foot office tower and a three-building retail plaza atop a 107,000-square-foot subterranean parking structure. The transaction also includes three billboards atop the retail buildings that were fully leased in December 2016. The complex is 88 percent leased with a large fashion and health/fitness presence, including Equinox, SoulCycle, H&M and Oliver Peoples. The site previously held the headquarters for Playboy Entertainment. The Sunset is adjacent to CIM’s $365 million Sunset La Cienega mixed-use project, which will include residential units, a hotel and ground-floor retail space. HFF’s Ryan Gallagher, Michael Leggett, Bryan Ley, Andrew Harper and Tim Geiman represented Broadreach in the transaction. — Nellie Day
The Orange County apartment market is currently enjoying strong fundamentals that comes from several sources. These include robust renter demand, strong local economy and historic low interest rates, all of which make for a perfect storm. As more renters enter the market due to strong employment numbers, it gives way to new household formation. While home prices in the region escalate, more would-be homebuyers are being priced out of the market and forced to remain in the rental pool, further driving competition for suitable housing and pushing rents to new levels. Orange County developers are responding to a growing demand for new multifamily housing developments, many of which are Class A projects targeting high-end tenant bases and price points. Many older properties, such as Class C or C+ buildings, are enjoying the blow back from these new developments when tenants seek out lower rents when compared to top-tier projects, resulting in robust rent increases. Investors looking to place capital in today’s multifamily market are taking advantage of strong fundamentals and cheap debt. Transaction volume has increased more than 10 percent in the past 12 months, with notable sales volume in the northern end of Orange County. Confident that upward rent …
The Orange County office sector continues to see falling vacancy rates, positive net absorption and rising asking rates. Orange County has beaten the U.S. national average for office vacancy since the fourth quarter of 2014. Office vacancy fell to 8.9 percent in the third quarter, down from 9.4 percent in the second quarter and 9.9 percent in the first quarter of 2016. We continue to see positive net absorption to the tune of 626,900 square feet, but that number is down from 730,844 square feet in the second quarter, a difference of 15,044 square feet. Asking rates continue to trend upward from $27.61 per square foot to $27.73 per square foot annually. Class A buildings lead the way, with asking rates averaging $32.89 per square foot. Class B and C buildings come in at $26.28 per square foot and $21.57 per square foot, respectively. These are all good signs for the new development coming to market in 2017. One of the more notable projects to soon come to fruition is 400 Spectrum Center Drive in Irvine. This 466,696-square-foot, Class A office tower is expected to be complete in the third quarter of 2017. This will be the sister tower to …
San Francisco and San Mateo counties boast above average employment numbers and wages and have been strong all through the current business cycle. Over the past four quarters ending in June, organizations in these counties, along with Marin County, (henceforth referred to as “the metro,”) have created 30,750 new jobs. This expansion of the metro’s labor force by 2.9 percent far exceeds the national average over the same time period. Businesses are expected to create 40,000 new positions this year and employment growth will reach 3.7 percent. Hence, the metro’s economy has created substantial demand for housing and apartments are leading the way, as the high cost of single-family homes, rigorous regulation, and the infill nature within the metro has constrained deliveries during previous years in the cycle. There are multiple major projects that will boost the rate of completions significantly above previous years in the cycle. Builder activity will surge to a multi-decade high with 6,440 apartments slated for delivery, exceeding the 1,488 units brought to market in 2015. The majority of completions will target the South of Market (SoMA) and South San Mateo County submarkets. Vacancy rate in the metro will register a 110-basis-point increase in 2016, rising …
Financial markets worldwide have seen dramatic volatility in this past 12 months. The Bay Area economy and new hiring have cooled, while the San Francisco housing and condo markets have started to normalize after four feverishly overheated years. We are hearing about a big jump in apartment vacancy rates, with more apartments for rent than we’ve seen in many years just as rental rates begin to decline from recent all-time peaks. As would be expected, preliminary indicators show a transition to a cooler market when it comes to apartment building sales activity. However, as illustrated in the charts below, we haven’t seen any significant changes in the statistics. The second half of 2016 will undoubtedly provide more insight regarding the speed and scale of any market condition changes. San Francisco multifamily assets that contained more than five units experienced a plateau in cap rates year over year between 2015 and 2016. However, this same product experienced an increase in dollars per square foot, price per unit and average sale prices. The politics of new home development in San Francisco are not for the weak of heart. There are vocal disagreements between neighborhood and homeowner associations, developers, affordable housing advocates, tenant’s …
IRVINE, CALIF. — Quality Care Properties, the spinoff of HCP’s ManorCare skilled nursing portfolio, has begun trading on the New York Stock Exchange under the symbol QCP WI. QCP is now a completely separate company from HCP (NYSE: HCP), one of the largest seniors housing REITs in the United States. QCP is also classified as a REIT following the spinoff. HCP common stockholders received one share of QCP common stock for every five shares of HCP common stock they held on October 24. Stockholders will receive cash in lieu of fractional shares of QCP. Barclays and Morgan Stanley were financial advisors to HCP, and Skadden, Arps, Slate, Meagher & Flom LLP and Paul, Weiss, Rifkind, Wharton & Garrison LLP served as legal counsel.
HAWTHORNE, CALIF. — Carter Validus Mission Critical REIT II Inc. (CVMC REIT II) has acquired the 288,000-square-foot AT&T Hawthorne Data Center in the Los Angeles suburb of Hawthorne for $79.5 million. CVMC REIT II, a non-traded REIT headquartered in Tampa, Fla., will assume the existing net lease with AT&T Corp. as part of the transaction. The previous owner was Israel-based Red Sea Group. The one-story, powered shell data center is located on a 15.9-acre site and includes an on-site substation delivering a 12,470-volt, 22.5 MVA (mega-volt amp) commercial power service feed. An eight-foot iron fence surrounds the site, with guarded gates on the east and west ends of the property. Security features include 24-hour on-site security staff, closed-circuit monitors, secure keycard access, biometrics scanner and alarmed doors. AT&T Corp., a wholly owned subsidiary of AT&T Inc., is a provider of IP-based services to multinational companies and serves more than 3.5 million business customers. “The acquisition of the AT&T Hawthorne Data Center represents an opportunity to invest in a mission-critical property with a strong brand affiliation,” says Michael Seton, president of CVMC REIT II. “We strive to be a true capital partner for our tenants and are excited to expand our already …
SAN FRANCISCO — A European investor has purchased the iconic Tiffany & Co. building in San Francisco. The 11-story property is located at 360 Post St. on Union Square. The San Francisco Business Times reported the purchase price at approximately $135 million, or $1,400 per square foot. The 96,882-square-foot building features luxury retail and office space, including 75 feet of prime retail frontage on Post Street. The sellers, Greenstone Realty Advisors LLC and 360 Post LP, acquired the building in 1995 for $22 million. The property has served as one of Tiffany’s flagship locations for nearly 20 years, as well as the U.S. headquarters for Chinese airline Cathay Pacific. The space is situated near the Powell Street BART/MUNI station. The Powell Street cable car and Central Subway line, scheduled for completion in 2019, are also within walking distance. Kazuko Morgan and Seth Siegel of Cushman & Wakefield represented the sellers in the deal. — Nellie Day
SAN RAFAEL, CALIF. — Marin County officials have broken ground on MGH 2.0, the $535 million replacement for Marin General Hospital in the Greenbrae submarket of San Rafael, just across the Golden Gate Bridge from San Francisco. The original hospital opened in 1952. It will continue to operate throughout the construction process. Phase I of MGH 2.0 will include two new towers that house 114 private rooms, an expanded emergency department and six new operating/procedural suites. The buildings will feature rooftop gardens, balconies and natural light in every patient room to support a healing environment for patients and families. The new facilities are scheduled to open to patients in mid-2020. Once Phase I is complete, work will commence on a five-story, 100,000-square-foot ambulatory services building and a second parking structure. The project team has already completed MGH 2.0’s first parking facility, a five-level structure with rooftop solar panels that will be functional for both the current and future hospitals. McCarthy Building Cos. is building the hospital, which Perkins Eastman designed. The hospital is represented by Vertran Associates, which specializes in healthcare capital projects and provides project management. — Nellie Day