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ORANGE COUNTY, CA-The county’s office market, struggling to recover from subprime mortgage troubles and the US economic decline, has recorded one of its largest office leases of the year. Hyundai Motor Finance Co., signing a 100,000-sf lease, offers a measure of hope for Los Angeles-based Maguire Properties REIT, the winner of the top deal.

The Maguire REIT was one of the hardest hit by subprime mortgage industry problems when New Century Financial Corp. collapsed. Not only did New Century occupy 267,000 sf of office space in Maguire’s Park Place project in Irvine, but it was slated to lease about 190,000 sf at 3161 Michelson Dr., which is one of Maguire’s newest developments and Hyundai’s new address.

The Hyundai lease is a bright spot for both Maguire and the Orange County office market, which posted negative net absorption of about one million sf for 2007 and has been struggling to recover this year. According to the latest report from Orange County-based Voit Commercial Brokerage, negative net absorption totaled more than 1.1 million sf for the first two quarters of this year. Vacancy has climbed to 14.46% compared to last year’s second quarter rate of 8.95%. The average rental rate has slipped to $2.69 per sf from $2.76 per sf in Q2 2007, according to the Voit report. It says that the total amount of office space available in the 107-million-sf Orange County market, including both direct and sublease space, reached 19.76% in the quarter, up from 13.2% in Q2 ’07.

CBRE also figures the negative net absorption at nearly one million sf for the first two quarters of this year, but with about 111,000 sf of positive absorption in the second quarter. Grubb & Ellis Co. sees it as 124,000 sf of negative net absorption in the second quarter and more than 917,000 sf of negative net for the year.

Maguire’s president and CEO Nelson Rising was asked to comment about the Orange County market by financial analysts during the REIT’s latest earnings conference call. “There are some who think that things are stabilizing,” he said, going on to describe the conditions that led to the Orange County office market plunge as “a perfect storm” resulting from the subprime mortgage industry collapsing at the same time as substantial new space came on line. He added that the convergence also occurred “at the same time the Orange County economy was very, very badly hurt by the slowdown in construction.”

Nonetheless, Rising sees a solid long-term future for the county’s office market. “Three years ago. Orange County was perceived to be one of the greatest markets in the country,” he said during the conference call. “It’s my view that, three years from now, it’ll be similarly perceived.”

The 3161 Michelson Dr. building is part of Maguire’s 105-acre Park Place mixed-use campus that is adjacent to the Santa Diego [405] Freeway at Jamboree Road and Michelson Drive. Maguire this summer retained Eastdil Secured of New York City to start marketing Park Place, which already includes 2.3 million sf in nine buildings and is expected to be fully developed over the next five to seven years.

Rising said Maguire is “aggressively marketing the Park Place campus,” which in addition to its existing office space includes retail shops and entitlements for additional office, retail, residential, hotel and other uses. “It’s too early for us to have any feel on pricing but we are encouraged by the amount of interest that has been shown for this asset,” Rising told analysts.

Maguire plans to use proceeds from the sale of its Orange County assets to pay down debt and fund other general corporate purposes. In August, the REIT sold another Orange County asset, 607,000-sf Main Plaza for nearly $211 million to Shorenstein Properties LLC of San Francisco. And earlier this month, it sold the 324,000-sf City Plaza Tower to an affiliate of Hudson Capital LLC of Los Angeles.

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