The real estate affiliate of Washington merchant banking firm Carlyle Group has acquired the Gateway Towers office complex and adjacent land in Torrance, longtime home to the local offices of Japanese auto giant Nissan Motor Corp.
And Carlyle Realty isn't the only investor demonstrating confidence in the future of the South Bay office market. The purchase--the firm's first in Los Angeles County--is the third $50-million-plus sale in the South Bay within the last 90 days.
The buyers also represent different types of real estate investors, said broker Bob Smith, who helped negotiate all three deals along with colleagues at CB Richard Ellis.
Carlyle, which has its sights set on more Southern California income properties, bought the Gateway complex along the 190th Street commercial corridor from Nissan's U.S. real estate affiliate.
Three months ago, the real estate arm of Texas-based insurance company USAA purchased the eight-story Computax Tower from Japan's Hyogo Real Estate for a reported $52.1 million. A few weeks later, Beverly Hills-based real estate investment trust Arden Realty bought the 16-story 6701 Tower within the Howard Hughes Center development along the San Diego Freeway in Westchester for about $53 million from Prudential Insurance Co.
Smith noted that the sales illustrate three different "investor profiles": Institutional investor USAA looks for solid risk-adjusted, longer-term yields; Arden relies on its operational expertise to add value; and Carlyle seeks immediate yields for its funds' investors while placing bets on sub-markets it sees as temporarily undervalued.
Carlyle Real Estate's Newport Beach-based regional principal Bill Allen expects rents along the 190th Street corridor to improve over the next several years more than in such nearby but higher-priced sub-markets as Manhattan Beach and El Segundo, which have already seen rents jump during the last couple of years.
"Rents start to spike when vacancies get to 10% and below," Allen said. Recent reports peg vacancies within the corridor's top-quality buildings at about 13%, but the latest round of transactions are bringing the rate down to single digits, he said.
And the fully occupied Gateway complex, where the biggest tenants will remain Nissan and CB Richard Ellis, is "the best property in the sub-market," said Allen, who oversees Carlyle Real Estate's West Coast investment activities.
Smith and CB co-brokers Bill Peters and Bill Bloodgood, who worked on the Gateway Towers deal, declined to specify the price Carlyle paid Nissan for property, which includes land entitled for an additional 300,000-square-foot office building. But other real estate sources estimate the figure at about $53 million.
The South Bay has finally recovered from the defense and aerospace downturn "and now the work force fundamentals are great from the business standpoint," said Dave Doupe, managing director of Insignia/ESG Capital Advisors.
"Two years ago, the South Bay looked like downtown L.A.; some of the key employers were still downsizing, relocating or disappearing" through mergers, Doupe said. But now internal growth at remaining employers has filled a good portion of the vacancies, and rents have risen accordingly.
"Hopefully we'll see the same story repeated in downtown L.A.," Doupe said.