More Tenants Deciding Time Is Right to Buy : Real estate: Commercial lessees who see lowest prices in years find it often makes sense to purchase the property instead.
As they survey Orange County’s commercial real estate market, where prices are at their lowest levels in years, tenants who have been leasing are wondering if the time might be right to buy.
Increasingly, companies that plan to lease a substantial amount of new office space or to sign up for more space in a building where they already have operations are finding it makes good business sense to buy the property outright, local brokers say.
A recent example is Sterling Casualty Insurance Co.’s June 30 purchase of 20351 Acacia St., a two-story building in Newport Beach. The insurance company will move out of its space in Van Nuys and relocate its headquarters to Newport Beach, said Steve Sheldon of the brokerage Sperry Van Ness, which handled the transaction for the seller.
Shibley Horaney, owner of the insurance company, bought the building for an undisclosed amount from Guardian Bank, Sheldon said, and will move the company, as well as several other Horaney businesses and 65 employees, by year’s end.
“We’ve seen an upsurge in users buying buildings. I think there is a real market trend here,” said Mark E. Van Ness, co-founder of Sperry Van Ness, an investment real estate brokerage in Newport Beach. “The prices have come way down, and vacancy is very high.”
Brokers cite other examples of successful deals by users--companies that occupy the buildings they own. Among them are recent purchases by fast-food chain In-N-Out Burger, Bristol Park Medical Group, a medical services company, and even the city of San Clemente.
A study by Charles Dunn Co., a commercial real estate brokerage based in Los Angeles, found that since the beginning of the year nine out of 12 sales of non-class-A office buildings in Orange County were to buyers who intended to occupy a portion of the space. (Class A office space refers to a relatively new building in a prime location and with a high occupancy rate.)
“We constantly tell ourselves that local buildings are being bought by bottom fishers, but we found that in fact the buyers are people who have very good businesses in the county,” said Ken Hulbert, a broker who conducted the Charles Dunn study.
The drop in real estate prices, availability of Small Business Administration loans and eagerness on the part of some financial institutions to get rid of properties have all contributed to the trend, brokers said.
Plans to lease more space in a building it already occupied quickly turned into buying plans for the city of San Clemente. Last month, the city bought a 55,328-square-foot building for $2.7 million after determining that doing so would cost less than continuing to lease 25% of the building. The city plans to add 4,000 to 5,000 square feet to the three-story building at 910 Calle Negocio in San Clemente during the next few months.
“It was cheaper for us to buy, obviously because of the recession and the glut of office space in the county,” said Paul Gudgeirsson, director of San Clemente’s office of management and budget. “We looked at it from both a savings perspective and a long-term investment perspective.”
In May, after negotiating a lease for six months, the Bristol Park Medical Group decided to buy a 108,785-square-foot office complex in Irvine for $6.5 million. Doing so was “more cost-effective,” said George Economos, a broker with Grubb & Ellis Co. in Newport Beach. Economos estimated Bristol Park’s initial saving at as much as 20% and a potential for 50% in long-term savings should vacancies decline and rents increase.
Also in May, In-N-Out Burgers purchased the Irvine Tower, which it plans to occupy, for $15.2 million--about $79 a square foot.
