Long Beach Office Investment Remains Flat

Office investment activity in Long Beach has been flat this year, and likely will remain flat through 2019. Although sales volumes aren’t increasing, sales are healthy and there have been a handful of exciting deals bringing attention to the market, which is undergoing revitalization. Redwood Partners’ acquisition of the Hubb, a 210,428-square-foot creative office campus, from a joint venture between Singerman Real Estate and Ocean West Capital Partners is an example of such a deal. The property traded hands for $60.5 million.

“Office sales velocity has been flat to slightly declining the last two years overall. We expect this trend to continue in 2019,” Kevin Shannon, co-head of U.S. capital markets at Newmark Knight Frank, tells GlobeSt.com. “However, while we aren’t experiencing the robust sales velocity increases of some recent years, we are still enjoying very healthy sales volumes by historic standards. There has been an increase in suburban sales compared to CBD product which is in large part due to the complexion of many of the CBD ownership profiles in gateway markets which are frequently characterized by more permanent capital such as REITs, core funds and sovereign funds.” Shannon represented the seller in the Hubb deal along with NKF’s executive managing directors Ken White and Rob Hannan and senior managing directors Laura Stumm and Michael Moll. Long Beach has a lot of cachet for investors. It is the fourth largest city in California, a coastal market and proximate to the largest ports in the country. It is also a significant discount to other California markets. “The comparative basis advantage is huge as well which is appealing to investors late cycle,” explains Shannon. “For example, a new creative stabilized office deal in El Segundo would trade for well over $500 per square foot compared to less than $300 per square foot in downtown Long Beach for a renovated creative project like The Hubb.”

These benefits have improved in the last two years. “The discount to replacement cost and economic barriers to entry have become even more substantial given the spike in replacement costs over last two years,” says Shannon. “Also, Long Beach has the 24/7 energy typical of many CBDs with an abundance of new retail, hospitality and residential projects still coming online to improve the existing vibrant environment.  The residential market provides employer talent with ocean view product at a substantial discount to other coastal markets as well without sacrificing amenity access.”

As a result of these trends, the full range of capital sources are active in the Long Beach market. The Hubb deal, for example, was a local exchange buyer, but Shannon says that his team has also worked with foreign capital, core funds and high net worth individuals. On the Hubb deal, there was strong activity from a variety of capital sources, illustrating the activity in the market. “Buyer interest in The Hubb was good which reflects several current capital market trends,” says Shannon. “Capital has gravitated to secondary markets late cycle to get superior yield and basis plays compared to the primary coastal markets, and capital continues to be attracted to renovated creative product especially in cool urban environments.”