Lincoln Property Back in Southland

Southern California’s office and industrial markets have cooled in the last year, but many investors still view the Southland as a good place to put money into commercial real estate, especially in comparison with other parts of the country.

That appeal to investors--particularly institutional investors--is one of the factors that Dallas-based Lincoln Property Co. is counting on to reestablish itself in Southern California.

Lincoln, which acquires and develops property in joint ventures with institutional partners, hired longtime Los Angeles commercial brokers Steve Walbridge and John Ghiselli in March to lead the company’s comeback here.

The pair recently completed their first deal for Lincoln, the acquisition of the 1.8-million-square-foot Cheli Business Park in Bell in a joint venture with a pension fund.

The Cheli purchase was a step back into the Los Angeles market for Lincoln, whose Western region broke off in 1998 to operate on its own as Legacy Partners. That left Lincoln, which had been prominent in Southern California for 30 years, without a presence here.

Other deals are in the works, Walbridge and Ghiselli said, and they are on the lookout for more. The company’s Los Angeles staff numbers seven and is moving soon from Westchester to downtown Los Angeles.

“Our game plan is to buy buildings on a value-added basis,” Ghiselli said. He and Walbridge will concentrate on buying existing office and industrial properties initially, although Lincoln also acquires and develops other types of properties. Nationally, the company owns 37 million square feet of commercial developments and manages nearly 100 million square feet of property.

“Value-added” is industry jargon for deals in which buyers can increase the value of an asset by renovating it, filling empty space with paying tenants or boosting the rents of existing tenants.

Ghiselli and Walbridge concede that boosting asset values is tougher today than it was even a year or two ago, when rents and property values were rising quickly, or in the post-recession years of the mid-1990s, when investors could buy at bargain prices and be almost guaranteed double-digit increases in property values in a short time.

Lincoln’s new executives are looking at “stabilized properties” as well as value-added deals, Walbridge said. The Cheli property, for example, is considered stabilized.

Among the prospective office deals Walbridge and Ghiselli are looking at are two properties on the Westside, both with substantial amounts of empty space.

Lincoln would acquire the buildings in partnership with joint venture investors, Walbridge explained, then fill them with new tenants. Typically, the company’s partners are institutional investors that own the majority interest in the property.

Institutional investors view Southern California as a safer place to buy commercial properties than Northern California or the middle of the country, said Jeff Cavanaugh, director of investments for PM Realty Advisors in Newport Beach.

“Southern California is one of the stronger investment markets in the country and is likely to remain so,” Cavanaugh said. Industrial and apartment properties are generally more popular with institutional investors than offices and shopping centers, which are prone to volatile peaks and dips, he explained.

Some institutional investors also may be turning to real estate for higher returns than other conservative investments, such as bonds, said Doug McEachern, a real estate managing partner with Deloitte & Touche in Los Angeles.

“The fundamentals here are still sound,” despite higher vacancy rates in some office and industrial markets, McEachern said.

Southern California appeals to Lincoln and its financial partners, Ghiselli said, because of real estate’s relatively stable performance and the region’s diverse economy and growing population.

Lincoln has no specific goal or deadline in terms of how much money it plans to invest, Ghiselli said, or how many properties it wants to acquire. “Our partners have a significant amount of capital that they want to deploy, but we don’t have any obligation to put money in deals. We won’t make any investment until we find the right deal.”