Mark Mueller of Orange County Business Journal reports:
Newport Beach-based real estate investor Greenlaw Partners has bought a high-end Ontario office complex in what looks to be the priciest office sale the Inland Empire has seen in a few years.
Greenlaw partnered with Chicago-based private equity real estate investor Walton Street Capital LLC to buy the Waterside Center office park, a three-building office complex next to Ontario International Airport.
The 303,000-square-foot project, which includes a trio of midrise offices located between the San Bernardino (10) Freeway and the airport, changed hands at the end of January for about $34 million, or roughly $112 per square foot.
That’s more than double the price of the highest office sale reported in the Inland Empire in the past year, according to brokerage data.
It’s also believed to be the biggest investment sale in the region since 2007, said Kevin Shannon, vice chairman for the Torrance office of CBRE Group Inc., which brokered the sale.
The deal still looks like a bargain for its new owners compared with the project’s valuations during the last commercial real estate boom.
The then-two-building campus, part of Ontario’s Centrelake business park, traded hands for a reported $53 million in 2007. A third office was built on the campus over the next year.
The campus was expected to have a valuation of nearly $125 million upon the completion of the third building, according to the project’s prior owners, Beverly Hills-based Hileman Co. and Pacific Coast Capital Partners LLC of Los Angeles.
Waterside’s valuations soon fell as office vacancies in the area grew and rents nosedived amid the economic downturn.
The project counted an occupancy rate of about 40% at the time of the recent sale, Shannon said.
Waterside Center’s three buildings were all built between 2005 and 2008, and run from three stories to six stories.
The newest building at the complex is also the largest, totaling 142,602 square feet. That building is empty, accounting for a majority of the vacancy at Waterside Center.
The property, located near the intersection of Guasti Road and Haven Avenue, also is entitled to hold a 150-room hotel, which has yet to be built.
Tenants at Waterside Center include the University of Phoenix and manufacturer Brady Corp.
“The Inland Empire experienced more pain than other markets,” said Shannon, who worked on the deal with colleagues Scott Schumacher, Ken White, Darla Longo, Barbara Emmons and Philip Woodford.
Ontario’s office market totals about 4.5 million square feet—approximately the same size as Brea’s. Ontario ended 2011 with an availability rate of just under 25%, according to market data from Newport Beach-based Voit Real Estate ServicesClass A buildings in the entire Inland Empire office market total about 6.7 million square feet of space, and have a current availability rate of about 24.5%, according to Voit’s data.
Expect to see other examples of some sizeable Inland Empire office projects in the area getting sold at steep discounts this year, Shannon said.
Another Orange County-based investor, Newport Beach-based Davenport Partners Inc., paid a reported $15.6 million for Ontario’s Towers at Riverwalk office campus last October.
That deal was 2011’s priciest office sale in the Inland Empire, according to brokerage data.
Waterside Center was sold by New York-based Gramercy Capital Corp. which had been a lender on the project. Regulatory filings show Gramercy taking the Ontario property from its prior owners over in mid-2010.
Greenlaw and its financial partners has made a series of similar acquisitions to the Waterside Center deal over the past few years, buying largely-empty office projects at steep discounts to their peak-market prices.
In the most prominent example, Greenlaw, Walton Street and Westbrook Partners LLC of New York paid about $56 million for Irvine’s 2050 Main Street office tower in 2009, when the building was about half-full.
After leasing up the tower, the investors sold the building late last year for about $108.5 million to an affiliate of Boston-based AEW Global in Orange County’s largest —and likely most profitable—office sale of 2011.
Other area buildings to draw investments by Greenlaw and Walton Street include 4000 Metropolitan Drive, a 183,000-square-foot office located next to The Outlets at Orange shopping center that was bought in late 2010 for just under $12 million.
That office—where the Federal Bureau of Investigation signed a 20-year, 100,000-square-foot lease last year—is rumored to be going on the market later this year and could fetch close to $50 million, according to real estate sources.