Foreclosure + Forecast=Future Upside

ORANGE, CA-The CB Richard Ellis Strategic Partners US Opportunity 5 fund has taken ownership of the 386,000-square-foot Orange City Square office and retail project after buying a non-performing first mortgage note secured by the property and foreclosing on it. The new owner, citing its forecast for improving market conditions, sees upside in the class A property through the potential to fill the 40% vacancy at the project, which is a four-building campus composed of 373,775 rentable square feet of office space and 12,392 rentable square feet of retail space on approximately 14 acres along the Garden Grove (SR-22) Freeway at the City Drive South.

“Our forecasts call for a strong market recovery to take hold within the next 12-18 months as employment begins to recover, resulting in improved office occupancy levels and strengthening rents,” says principal Phil Hench of CBRE Strategic Partners US. Hench notes that the ownership’s new basis in the property is substantially lower than peak pricing and replacement costs and that the new owner is well-capitalized.

Opportunity 5 fund acquired the note secured by Orange City Square in a transaction in which the seller was represented by the CB Richard Ellis team of Bob Smith, Paul Jones and Karen Scholte in the company’s Newport Beach office. The team also recently brokered the $14.75 million sale of an 89,063-square-foot office building in the City of Orange in conjunction with Kevin Shannon of CBRE’s South Bay office.

Smith, commenting on the Orange City Square transaction, describes the property as “an institutionally owned and maintained class A mixed-use campus” that “is positioned to capitalize on the county’s rebound and forecasted growth over the near-term.” CB Richard Ellis Investors is planning a capital improvement campaign that includes the firm’s 5-Star Worldwide service program designed to provide services and amenities to further enhance tenant satisfaction. The 5-Star program combines a concierge service, building conference center, fitness center and other services.

Additionally the new owners will initiate a marketing campaign to rebrand the property, highlighting the new ownership, leasing and property management. CBRE Strategic Partners U.S. Opportunity 5 fund is a commingled private equity real estate fund sponsored by CB Richard Ellis Investors and raised from institutional investors in the United States, Europe and the Middle East.

In the other City of Orange transaction, the CBRE team represented an undisclosed pension fund that sold the 89,063 square foot building at 725 Town and Country Rd. to Scientific Investments LP with Cypress Office Properties as its adviser. The five-story, class A building sits on 3.1 acres and is 90% leased to multiple tenants.

Smith says that the property “provides the buyer the unique opportunity to purchase a strategically located, high-quality office building that has demonstrated consistently high occupancy.” This is the second office building to sell on Town & Country Road since June, when 999 Town & Country, a 99,551-square-foot building, was purchased by Kilroy Realty for $22.25 million.