Market Shows Activity Amid Slump

On the opposite coast from New York City, the Laguna Hills, CA-based Muller Co. has signed tenants to 180,000 square feet of leases valued at $41 million that fill one office campus to 100% occupancy and another to 88%. The recently completed transactions include new leases and lease renewals at Torrey Pines Court in La Jolla in San Diego County and Main Street Town Center in the Orange County city of Santa Ana. The property that is now 100% leased is Torrey Pines Court at 3366 N. Torrey Pines Court in La Jolla—a 200,000-square-foot, five-building office park, where the newly completed leases total 118,000 square feet. The remaining leases were at Main Street Town Center.

While many of the deals these days are renewals, some observers expects tenants to start moving to better buildings in a flight to quality to take advantage of lower rents, Studley pointed out in a recent report on the San Diego office market that was published on GlobeSt.com. As Studley SVP Mike Labelle said in the GlobeSt.com report, despite a slowing of overall activity in the most recent quarter, "The market has yet to see the pervasive flight-to-quality that generally kicks off a recovery and, with space still in ample supply, most tenants see little need to rush leasing decisions."

The expected flight to quality also figured in Los Angeles-based Mesa West Capital's decision to fund a $44 million floating rate loan for an office building in Glendale, CA recently. A fund sponsored by CB Richard Ellis Investors that paid all cash for the 420,000-square-foot 500 N. Brand Ave. office building in December 2008 is the borrower. Mesa West director Steve Fried told GlobeSt.com that the loan was unusual in that 500 N. Brand is a "transitional asset" that is only 65% occupied and, "There are not many lenders out there looking to finance transitional assets right now." Nonetheless, Fried says that Mesa West considered 500 N. Brand a good risk for a number of reasons despite its less-than-stabilized occupancy and declining office market fundamentals. "This is a high-quality asset with a great sponsor," he says. He says that Mesa West believes 500 N. Brand will be able to increase occupancy because of its excellent location, the quality of the class A building and the flight-to-quality of tenants from lower-class to higher-class properties. Built in 1990, and renovated in 2002, 500 N. Brand is a 22-story LEED Gold certified tower at the center of Glendale's Central Business District.