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Steadfast finds hot ticket in for-sale office
market.
Steadfast Commercial Properties is finding that developing
offices for sale is a hot ticket in Southern California. With interest
rates remaining at historic lows, small business owners are taking
advantage of the opportunity -- wherever and whenever -- to own
their own offices.
Steadfast normally builds properties from the ground up, but President
Robert M. Murray is currently remodeling an existing building
to satisfy the requirements of a 1031 exchange. The company bought
a 36,000 s.f. two-story office building for $5.5 million in Orange
County, Calif. The property which will be divided into two buildings,
is near the John Wayne Airport.
Murray plans to reposition the property and then market the buildings
for about $238 per s.f., which is the average rate in South Orange
County. That equals about $4.28 million
Like Steadfast, CT Realty is also spending time these days
developing small office product for sale. As Crittenden reported
earlier this month, the company purchased 7.4 acres of land for
$6.75 million from Equity Office Properties Trust. CT is
building eight offices, totaling 58,000 s.f., on five acres. It
sold the remaining 2.5 acres to Todd Development, which will
build 30,000 s.f. of medical condos.
Small offices for sale, is a hot trend in south Orange County these
days. In fact, most of the planned office development in the county
has been in small buildings like those being developed by Steadfast
and CT Realty. Small office properties have added up to more than
one million s.f. of new inventory so far this year. Of those 25%
have been pre-sold before completion. The average asking sale price
is $215 per s.f., with the best Class A space in Orange County selling
for $260 per s.f.
Buildings with less than 20,000 s.f., are the biggest sellers in
today's Orange County market, according to Grubb & Ellis.
It's a market that is starting to see an economic rebound. Vacancies
are down nearly two points to 14.2%, and net absorption is a positive
1.1 million s.f. so far this year. That's up substantially from
the 209,586 s.f. absorbed during the same period last year. In Q3
of 2003 alone there was 637,150 s.f. of office space absorbed countrywide.
Steadfast will be dividing its Irvine building because the company
doesn't believe the market will support 36,000 s.f. for one user.
Project Manager James Palda does believe, however, that the
market will support two 18,000 s.f. buildings. Therefore, once the
City of Irvine gives the project it's final blessing, the
building will be divided into two office buildings.
Additionally, Steadfast will upgrade the entire façade and
landscaping, add an entryway and separate the operating systems.
Other improvements will include repairing the roof, adding a second
AC unit, and replacing windows.
The building will remain two stories, but some improvements to
meet ADA requirements will have to be added. And because the structure
was originally built to include R&D space in a portion of it,
less parking was required back in 1977. So Steadfast is adding 35
parking spaces as well. Construction, which is expected to begin
this month, should only take two months.
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