Value-Add Investors Find Limited Options

CERRITOS, CA—A partnership between the Koll Co. and Rialto Capital Management has purchased the Cerritos Tower, an 184,179-square-foot multi-tenant office building in Cerritos, CA from Winthrop Realty Trust. With below-market rents and room for occupancy growth, the property has significant upside; and as a result, the sale attracted ample interest from value-add investors, who are finding limited options at this point in the cycle, according to the seller's brokerage team.

“This was a widely marketed deal. We were in the market for three-to-four weeks and went through multiple rounds of bidding,” Paul Jones, a first VP of investment sales at CBRE, tells GlobeSt.com. “The interest level was very high because it was a value-add deal in Los Angeles County, but it is right up against the border of Orange County. One of the biggest selling points for Cerritos is that from a tenant base and an employee base, it is right in the middle and you can pull from both markets.” Jones represented the seller along with his colleagues Kevin Shannon, Ken White and Blake Bokosky. This is the second Cerritos office property the team has sold this month.  

Prior to selling the property, Winthrop executed a $1 million capital improvement plan, but there are still more common area renovations needed, according to Jones. The additional renovations along with the 74% occupancy rate and below market rents made this a perfect value-add project. “One of the biggest things, though, is that two retail properties that essentially share a parking lot with this office building are being completely renovated and will be great amenities for the office building down the road,” Jones adds. “The buyer liked how the asset fit in the marketplace. It is a well-known high-rise building right off the freeway, and they liked the improving retail. When you look at the overall cost basis to where they purchased it versus peak pricing and replacement costs, they felt very comfortable.” The buyer purchased the property for $30.5 million.

According to Jones, markets like Cerritos are primed for value-add investors because prices haven't been inflated and the properties still offer significant upside, compared to some of the core markets in California. “Value-add is getting a lot of interest and our market is very attractive compared with other markets along the West Coast, like Seattle, San Francisco and other core markets where buildings are selling for $500 to $800 per foot,” he says. “Orange County and parts of Los Angeles County are still a very attractive basis market and the fundamentals are going in the right direction, so there is a tremendous amount of value-add capital there.”

This is especially true for private value-add investors. On the institutional side, value-add investors are finding some great opportunities, often purchasing portfolios. Colony Capital, for example, recently scooped up a $200 million office portfolio from Bank of America.