In 1973, history of sorts was made in Orange County when a three-story, glass office building appeared on MacArthur Boulevard near what is now called the John Wayne Airport.
The building, occupied by the Coldwell Banker real estate brokerage, was then the tallest for miles around. It was part of what was to be one of the airport's first major business complexes. And it was a gamble for its builder, the Newport Beach-based Koll Co., because until then the county's only prestige corporate address was nearby Newport Center, which boasted several high-rise office buildings with ocean views.
Because of the Coldwell Banker building's rather unimaginative, although eye-catching mirrored-glass architecture, it was often derisively referred to as "the flash cube."
Equally inauspicious for the county airport's emergence as a business center was the belated realization that something was amiss--there was no place for employees to eat at noontime. As an afterthought, a restaurant mall was built just off the San Diego Freeway to which office workers had to drive.
But now, barely 12 years later, the area within a two-mile radius of John Wayne Airport and close to the San Diego Freeway is rapidly turning into one of the most sophisticated business centers in Southern California, as developers compete to build the tallest, trendiest structures with the most amenities.
"Gorgeous, gorgeous facilities are going in," said Lora King, head of facilities management for the Rolm Corp. King has been shopping for 55,000 feet of new office space in Orange County for that high-tech communication company's Southern California headquarters.
Encouraged by a new availability of financing, a fresh allocation of commercial zoning in Irvine and Orange County's continuing economic expansion, developers have been tripping over each other trying to get office projects built.
The unprecedented office building activity is creating a large glut of office space in the airport area that's not expected to be fully occupied for at least the next two years, according to area brokers.
About 13% of the airport area's office space now is vacant. Studies by both Grubb & Ellis and Coldwell Banker project vacancy rates could climb to 20% by year-end because of the binge of new construction. The existing 10.6 million square feet of office space in the airport area will increase by about 37% to 14.5 million square feet when the buildings now under construction are complete.
'A Tenant's Market'
"It's a tenant's market right now," said Jim Wolf, senior associate at the real estate consulting firm of Al Gobar & Associates. To nab large tenants, building owners say they are offering between one and two months' free rent for every year to which a tenant commits to a long-term lease. They are also throwing in generous office improvements and parking concessions.
Jim Bryant, the regional managing partner of Alexander Grant, a national accounting firm needing 16,000 square feet of prime office space in the airport area--and therefore considered a hot prospect--said that he bargained for a month, playing one prospective landlord against the next, for concessions. Finally, he said, he settled on a Koll building because, among other things, he was promised a $60,000 to $100,000 spiral staircase between the 10th and 11th floors that the firm will be leasing.
But beyond lease enticements, some of the county's biggest developers--such as the Irvine Co., the Koll Co. and C.J. Segerstrom & Sons--are seeking a competitive edge by offering a broad array of tenant conveniences, from dining and athletic clubs to pedestrian shopping and restaurant plazas, to concierge services, high-tech telecommunications and security systems, hotel conference facilities, sculpture gardens and office buildings wrought with imported tile, marble or granite.
These new office buildings are the highest-priced in the county, with the most expensive full service rents hovering above $2.50 a square foot, and are aimed at the county's creme de la creme tenants--the law and accounting firms and corporate giants that want prestige quarters to reflect their image and impress their clients.
"Everyone is offering rent concessions, so we are competing more with amenities," said John Pierce, vice president of marketing for Koll Center Irvine. "We are not going to build boxes anymore."
"In an excellent market there is no need to build an expensive building," said Mike Meyer, managing partner at the Newport Beach office of the Kenneth Leventhal & Co., a real estate accounting and consulting firm that helps developers analyze the economics of office projects.
But in today's fiercely competitive market, he said, those Orange County developers who can afford it are playing a game of one-upmanship. He said they are investing 15% to 35% more on high-quality buildings in the hope of reaping stronger long-term profits.
Low Rate of Return
Because of today's rent concessions, Meyer said, the expensive new buildings will immediately show a low rate of return of about 9.04% until their current leases expire and are renegotiated at full rent. Less glamorous buildings can return 10.1%, Meyer said.
But over time, he said, premium buildings tend to age more gracefully, suffer fewer vacancies and are forced to make fewer rent reductions than their low-budget counterparts.
Segerstrom's Center Tower, which just opened this month, is the tallest in the county, with 21 floors. Rising beside the Orange County Performing Arts Center, the Segerstrom building is clad in polished Napoleon red granite and encircled by water and sculpture.
Not only is Center Tower the first to have an executive dining club as a tenant, but its lobby ceiling is trimmed in gold leaf. The multilevel garage that it shares with the arts center is studded with theatrical lights and features an atrium planted with bamboo.
"We are after the guy who wants the best possible address in town," said Chase McLaughlin, who oversees Segerstrom & Sons' high-rise office developments, of which Center Tower is the crowning glory. Leasing agents for the tower also brag that its higher floors are the most expensive office space in town, charging up to $2.75 a square foot with services. The top two floors haven't been priced or marketed as yet.
"Other people are lowering their rates; we are raising ours," said Chip Collins, an agent with Frost Trinen Partners, which is handling the tower's leasing.
Despite the hoopla, the Center Tower is still less than 40% leased. Brokers said that now that the building is open, leasing should improve.
McLaughlin said that Center Tower meets a surfacing demand in Orange County for upscale office space. The county's maturing economy, he said, has spurred the growth of local firms that are looking for room to expand. Also, he said, in recent years major law and accounting firms have decided to greatly enlarge their presence--and upgrade their profile--in the county.
"Ten years ago to have a tenant larger than 10,000 square feet was unusual," he said. "Now a 50,000-to-60,000-square-foot lease isn't unusual."
Claims of Prestige
Center Tower isn't the only project claiming to be the county's most prestigious.
Developer Tony French, for instance, contends that the office complex that he and his partner, Chuck McKenna, are building at 19000 Von Karman Ave. in Irvine is "absolutely top of the line."
Their project, called "The Atrium," is distinguished by a 10-story-high and 180-foot-wide glass-enclosed atrium linking twin office towers.
Buildings seeking to convey a top-quality impression no longer count on reflective glass facades to steal the show. Whereas Segerstrom's Center Tower is built of imported granite, French and McKenna's $65-million Atrium building is sheathed in green English slate.
And the tall new office buildings that the Irvine Co. is constructing near the airport gleam of light-hued travertine marble that is quarried south of the Tiber River on the outskirts of Rome. Travertine happens to be the material favored by the company's chairman and principal owner, Donald Bren.
Focus on Building Materials
Just the mention of building materials stirs the competitive juices of Orange County's developers and their brokers. Some competitors take potshots at the Irvine Co.'s penchant for travertine, noting that it is not the highest grade of marble.
"Travertine is not the best Mercedes but it is a Mercedes, and granite is a Chevrolet and glass you wouldn't use in a Volkswagen," retorted Samuel E. Haynes, the Irvine Co.'s senior director of marketing and leasing in the company's commercial office division.
At a time when other developers are building flamboyant architectural creations, the Irvine Co. is sticking primarily to tried-and-true squares and rectangles, said Haynes. He described the Irvine Co.'s premier office project, MacArthur Court, across the street from John Wayne Airport, as a "classic square," beside which the Atrium and Center Tower are "gimmicky and trendy."
Aside from architecture, some developers are making large investments in paintings and sculpture for lobbies and courtyards. Costa Mesa developer Henry Segerstrom has commissioned international artists such as Isamu Noguchi, Charles Perry, Jim Huntington and Jean Dubuffet to produce sculpture for his Center Tower office complex. A 1.6-acre sculpture garden featuring the California Scenario by Noguchi is valued at more than $1 million.
The Koll Co. has embarked on its own ambitious plans to install artwork in its 95-acre Koll Center Irvine office, hotel and retail development that straddles the San Diego Freeway.
For example, in one lobby of a building already constructed in Koll Center Irvine are 7- to 12-foot-high pieces of sculpted glass that visitors and workers can view. In the building's other lobby a painter and sculptor have collaborated to create the illusion of a rotunda.
Pierce said that the Koll Co. intends to "go one step better" than the Noguchi Garden by creating large pedestrian plazas for office workers to enjoy at lunchtime and after work. He said that six granite office buildings will surround a lushly landscaped plaza the size of the Los Angeles Coliseum that will have a lake, streams and sculpture.
The Koll Co. also is trying to create, on a smaller scale, a day and night activity center in Irvine, much like Segerstrom has been developing next to its huge South Coast Plaza shopping mall in Costa Mesa, complete with clothing, stationery and other retail stores as well as free-standing hotels, theaters and restaurants.
Earnest C. Wilson Jr., a partner in the architectural firm of Landon Wilson Mumper, which has designed many of Koll's office buildings over the years, said that today's prospective tenants are "looking for a place, rather than a single building on a street."
Pierce stressed that "office buildings are where we (the Koll Co.) make our money" and therefore everything the firm is planning for Koll Center Irvine, from the selection of art to the choice of restaurants, theaters and hotels, is meant to attract and keep office tenants. He said, for example, that the hotels will provide business conference rooms, the theaters will host stockholders' meetings and a 50,000-square-foot athletic and dining club will offer Koll Center tenants reduced membership fees.
Even some individual projects such as the Atrium are planning restaurants, gift stores and dry cleaners on their first floors. Frequently they also offer car washing and detailing services and a hotel-style concierge who can be called upon for anything from making travel arrangements to catering a party to picking up a busy executive's clean shirts from the laundry.
In today's market, tenants are in no hurry to sign a lease. "There are more lease proposals floating around than I have ever seen before, but not a lot of deals are being consummated," French said.
The reasons why a tenant ultimately chooses one building over another can be very individualized or highly subjective.
King said the Rolm Corp. has chosen to lease three floors in a Koll Center Irvine high-rise, in part because the building has a computer-controlled security system. The system will enable the company to restrict employees to certain floors, depending on their level of clearance, by having them use card keys in the elevators.
Impressed by Facilities
King said she was also impressed by the nearby shops, restaurants and theaters planned in Koll Center that will give Rolm employees an opportunity to avoid rush hour traffic after work.
"They won't have to jump on the freeway like every other fool," she said. "They can get their laundry or see a movie or do something else constructive for an hour and a half" before going home.
After a year's search of all the top-drawer office buildings near the airport, Claude Kordus, partner and regional manger of Hewitt Associates, a management consulting firm, said that he chose to move the firm's Western regional offices to larger quarters in a new Hutton Centre building in Santa Ana. He said that he was particularly impressed by the project's extensive landscaping, including a picturesque lake that laps up to the window of what will be his employees' cafeteria. Kordus said he was so impressed by the Hutton Centre building that he signed a 15-year lease arrangement and acquired a 30% ownership interest in it.
"Each building has its own spiel," said Gary Schwager, general counsel and corporate secretary for Geneva Cos., a fast-growing firm in Santa Ana specializing in assisting corporate mergers. The company has decided to take 2 1/2 floors in one of the new Metro Center buildings being developed near Costa Mesa's South Coast Plaza by Transpacific Development Co. and New England Mutual Life Insurance Co.
While Metro Center claims to have one of the county's most sophisticated computerized telecommunications systems, costing about $5 million, Schwager said his firm "didn't know to ask about the telephone system." Rather, he said, the company liked the centralized location of the building and felt a "good chemistry" with the landlord.
Nor did Metro Center offer Geneva a shabby deal. Schwager said that for signing a 5-year lease, the company got nine months free rent, free parking and free tenant improvements and the right to put its name on the building.