Work to Begin on Koll Project Near O.C. Airport

Orange County developer Donald Koll is beginning construction on an eight-story concrete and glass office building and parking structure--the first out of the ground in the posh John Wayne Airport area in seven years.

That may sound like a familiar refrain. In the last year and a half, buoyed by a rising market, developers have announced plans for more than half a dozen office buildings. But though dirt has been moved around and announcements sent out, no major construction work has begun until now.

Today, Koll will bring pile drivers to its site at Main Street and MacArthur Boulevard in Irvine and begin foundation work on the first, 178,000-square-foot phase of its $38-million Koll Center Irvine North complex, for which plans were announced earlier this year.

Developers usually strive to have the first building out of the ground in a booming market, because that allows them to capture more of the tenants who have been unable to expand in their current buildings. Although at least eight office projects have been announced for the area, Koll’s is likely to be the first to open.

The developer is so confident the area will prosper that it unveiled plans for a second, identical structure across Main Street, on land purchased in recent weeks from furniture manufacturer Dellarobbia, which had a distribution center on the site.

“Demand in this market is significant and there’s a lack of supply,” said Keith Ross, Koll senior vice president of development. “We’re very optimistic we’ll be pre-leased before construction is completed.”

The first phase of Koll’s building and its four-story garage is scheduled to open next year, in late summer or fall. Construction of the second building, which will be built from the same plans with minor modifications, is scheduled to begin in January for a 2000 opening.

By that time, brokers expect several other high-rise office buildings to dot the Orange County landscape. Phoenix-based developer Opus Southwest has ordered steel for another 12-story office building just yards away. General Electric Capital is expected to begin a second, smaller phase of 18-story Lakeshore Towers by the end of the year. And Lennar Partners recently purchased part of the former Fletcher Jones Mercedes-Benz site, where it will construct its own building.

Three other projects have been announced, but brokers say these may be real estate “pipe dreams.”

Expanding professional ranks have added to the development swarm near John Wayne Airport. Over the last three years, lawyers, accountants and other professional firms have leased an additional 1.5 million square feet in the pricey palm tree-lined area, making vacancies scarce and driving rents up to an average of $2.46 per square foot per month, according to Grubb & Ellis.

However, brokers say, the market has cooled at least temporarily in recent months as upscale industrial facilities to the south lure some tenants away. In the second quarter of this year, 330,842 feet of space was vacated in the airport area.

“I think some of these nice R&D; projects in Lake Forest and Irvine are bleeding the office projects,” said George Economos, senior vice president of office properties for Grubb & Ellis in Newport Beach.

These new research and development buildings are significantly cheaper than their office counterparts, leasing for $1.60 and $1.70 per square foot, instead of the $2.75 and $3 most of the proposed high-rises are commanding.

Brokers also caution that several big blocks of office space are coming back on the market, providing more choices for tenants. AT&T; is vacating several floors of its Spectrum high-rise and Fluor is moving to Aliso Viejo from its massive building near Jamboree Road and the San Diego Freeway in the next year.

But analysts say the additional buildings aren’t likely to glut the market or cause rents to plunge.