ORANGE COUNTY, CA-Buying properties at less than 70% of what it would cost to build them is attracting Asian office investors here, Anthony DeLorenzo and Paul Jones, investment brokers for CBRE, tell GlobeSt.com. To many foreign investors, buying in Orange County is a bargain compared to some other major West Coast markets.
As GlobeSt.com reported earlier this week, for the first time since the market’s peak in 2007, Orange County’s office transaction volume exceeded $1.1 billion in 2013, which is on pace with San Diego, according to CBRE. DeLorenzo and Jones told GlobeSt.com that several groups are underwriting in Orange County, which is driving up prices. Among those investors is a fair amount of Asian buyers, DeLorenzo tells us.
GlobeSt.com: Are you seeing a high percentage of foreign buyers among the investor profiles for Orange County office?
DeLorenzo: Foreign capital has been a buzzword for the last two to three years. In 2013, it’s safe to say that foreign capital was a major driver in our market. We sold the hangar project, a $31-million deal, to a foreign buyer, and 8 Corporate Park to a Chinese buyer. We’re seeing more Asia-Pacific-type entities poking their heads around, and the big component is what’s going on in Asia. Domestic buyers are really looking for normalized returns and forecasted returns of +/-8% on a cash basis, but the Chinese don’t look at it like that—it’s more of a preservation-of-capital standpoint. They’re looking at core markets, particularly Irvine, which has a heavily Asian-influenced population. I don’t think you can sell an office building in Irvine that doesn’t have Asian capital looking at it.
Jones: There have been a few deals where we’ve seen Asian capital north of $25 million, but they’re mostly focused on the $20-million deals and below. Most Asian capital is prevalent in the $7-million to $25-million range, and most acquire financing.
GlobeSt.com: We’ve heard that the Chinese are not as much focused on the trophy assets as the practical aspects of the business. Is this true?
DeLorenzo: “Pretty” is always one of the major factors, but they are also very focused on replacement cost. What attracts them to Orange County is that buying a property is probably 60% to 70% of what it costs to build. So they’re not just jumping into junk—it has to be valuable.
GlobeSt.com: What is it like to be successful younger brokers among older, more seasoned professionals? Is it challenging?
Jones: I think it’s definitely shifting to a younger brokers’ market. There are lot of guys under the age of 35, and then there’s a big jump up to 55 because back in the tech days, everyone got out of real estate—not just on the brokers’ side, but on the owners’ side as well. I think about this often: if we didn’t crash in ’07 and ’08, a lot of guys in their 50s would have retired in ’09. The big fundamental shift going on is in who’s making the decisions.
DeLorenzo: I look at it as a kind of advantage. When the Japanese were buying in the early ’90s, many in the industry who went through that now wear that as a badge of honor. But some of the guys who had been through the ’90s say these last three or four years have been even more challenging. It will positively affect us in the future. We have that experience of knowing what a terrible market looks like, and it will help us position our clients when the market is good because we have that perspective.