FDIC Goes Upscale in 5-Year Office-Lease Deal With Irvine Co.
The FDIC is going upscale in Orange County by leaving Park Place for Park Plaza.
In one of the larger office lease deals in Orange County recently, the Federal Deposit Insurance Corp. said Monday that it will move out of Park Place and across the San Diego Freeway into seven floors in the Irvine Co.’s posh 20-story 4 Park Plaza office tower here.
The Irvine Co. and the FDIC declined to disclose how much rent the bank agency will pay under the five-year lease. But industry sources estimated it to be about $16 million.
The speculation is that the FDIC got a good deal to park in the posh Park Plaza building because it is a large tenant and the county’s high vacancy rate--about 23%--has kept rents low for the past five years.
“If the market wasn’t where it is today in terms of the high vacancy rates, it’s probable this deal couldn’t have been done,” said Al Masters, a Coldwell Banker broker who represented the FDIC.
Even so, the federal agency was reluctant at first to release much information about the deal because of the building’s fashionable address. The move will leave a big vacancy in the Park Place office building on Michelson Drive across the freeway, which Dallas developer Trammell Crow bought from Fluor Corp. several years ago.
The FDIC insures customers’ deposits in federally chartered banks and liquidates the assets of insolvent banks and some savings and loans. The Irvine office handles liquidations in Arizona, New Mexico and Southern California. Locally, it is handling the assets of failed American Diversified Savings Bank in Costa Mesa and Consolidated Savings Bank in Irvine.
With bank and thrift failures way up in the last few years, the FDIC is operating a growth industry in a market where other office users--fearful of the recession--are cautious about expanding.
The FDIC office now leases 103,000 square feet at Park Place. It will occupy 160,000 square feet at the new building. The FDIC employs 550 people and is already cramped in its current offices, the agency said. And it is trying to hire an additional 85 employees.
The FDIC considered but rejected staying at Park Place because it would have to sublease from other companies floors that weren’t contiguous. The agency had been there since 1985.
In today’s competitive market, local landlords will offer low rents and other concessions to tenants, such as attractive allowances to finish out and customize the offices.
The Irvine Co. signed such a sweet deal with the Los Angeles law firm Gibson, Dunn & Crutcher in late 1989 for five floors in the 4 Park Plaza building, or 111,000 of its 400,000 square feet. With a big tenant signed up, the giant Newport Beach landowner started construction on the building soon after.
But there was still some pressure to lease more of the building. It opens in June, and Gibson Dunn doesn’t move its local office in until nearly a year later. The FDIC, on the other hand, can move in by July, when its lease at Park Place expires.
With the FDIC signed up, the Irvine Co. building is now 70% leased before the end of construction and assured of getting at least some rent almost from the moment it opens. “That saves a great deal of carrying cost for the landlord,” Masters said.
It is the fifth and last office tower at the company’s Jamboree Center office park at Jamboree Road and the San Diego Freeway. It is also the third of three 20-story office towers at Jamboree Center, the tallest buildings near John Wayne Airport. Jamboree Center also includes a Hyatt hotel.
Some real estate brokers said they were surprised that a government agency had picked such an upscale address. Jamboree Center is considered one of the nicer business addresses near the airport.
But the market is so bad that rents at Jamboree Center, brokers said, have stayed close to the rest of the market. They average about $1.65 to $1.70 a square foot per month on a five-year lease at Jamboree Center, not that much more than less fashionable and older buildings. At that rate, the FDIC’s rent at Jamboree Center would be about $16 million, not counting whatever amount the Irvine Co. allows the FDIC to customize its seven floors.
Steven Carr, head of the FDIC office, said the Irvine Co. offered the best and most convenient deal of the 20 or so buildings the FDIC looked at in the airport and South Coast Plaza neighborhoods since last spring.
“It was picked purely on an economic basis,” Carr said.
The Irvine Co. has owned the land under its buildings for so long, experts said, that the total costs of its projects are probably less than those for many other developers and it can afford to make better deals for tenants.
“The rationale is possibly that rents aren’t going to go up much in the next five years anyway,” one broker said, “so why not get a tenant in there now?”
