Office Backer Betting on Platinum Triangle

By Mark Mueller
Orange County Business Journal Staff
Last updated: December 4th, 2006
www.ocbj.com

REAL ESTATE: Tower stands to bring airport-area rents to Anaheim

The Anaheim office market is one of the tightest in the county. It hasn’t seen a sizable office tower built in nearly 20 years.

At the same time, Anaheim is downright affordable by the standards of the John Wayne Airport area, where rents easily are 20% higher.

So can a 22-story office tower proposed by Newport Beach-based Steadfast Cos. bridge the divide, providing new space at rents on par with those expected at other buildings going up around the airport?

Steadfast likely will have to charge monthly rents of $3 or more per square foot to offset construction costs—in a city where most office space goes for $2.25.

The developer is betting on the Platinum Triangle, the area around Angel Stadium of Anaheim where Lennar Corp. is spearheading the building of high-rise condominiums, shops and restaurants.

So far, Steadfast is the first to propose an office tower for the area.

“It’s risky, but it can work,” said Barry Katz, managing director for the Anaheim office of CB Richard Ellis Group Inc. “If it is built a couple years out from now, it will be one of the only games in town.”

But could it support airport area rents?

“The Platinum Triangle has the makings of becoming a landmark area,” Katz said. “I think the rates charged there could end up being competitive with those in the airport area.”

Steadfast recently submitted early plans to the city of Anaheim to build a 22-story tower at an industrial site that runs along East Orangewood Avenue, on the edge of the Platinum Triangle.

At 320 feet, the building would be Anaheim’s tallest office tower. It’s the second largest office development proposed for the county, behind Mike Harrah’s One Broadway Plaza planned for Santa Ana.

A number of condo high-rises planned for the Platinum Triangle would go higher than Steadfast’s proposed office tower. The tallest condo tower, proposed by the Aliso Viejo office of Lennar, would go as high as 32 floors.

The Steadfast building would hold 572,000 square feet of office space, along with 15,000 square feet of shops and a 1,735 space parking structure.

“This project is consistent with what we’re trying to do in the area,” said Sheri Vander Dussen, Anaheim’s planning director. “We want to provide opportunities for people to have jobs next to where they live.”

So who would occupy the office space?

Anaheim’s office towers draw different tenants than in Irvine, where the bulk of the county’s office development is focused. Typical Anaheim tenants include banks, insurers and administrative offices.

They’re less likely to pay the high airport area rents that law, accounting and other firms pay, said Randall Parker, managing director for Newport Beach-based brokerage Travers Realty, which represents tenants in lease deals.

“Central Orange County has always been priced lower than the airport region,” he said.

Office rates in the Anaheim area now are about 50 cents less than the county average. Some more prominent offices in the area, including older towers owned by Equity Office Properties Trust, now charge about $2.90 per square foot, per month.

“Some buildings (in Anaheim) are already beginning to push the $3 mark,” said Louis Tomaselli, senior vice president for the Orange office of Voit Commercial Brokerage LP. “I think the stadium area can support that rate structure.”

With lower land prices in Anaheim, Steadfast could break even with rents closer to $3 per square foot, said Kurt Strasmann, managing director for the OC operations of Grubb & Ellis Co.

In Irvine, $3.50 is seen as the magic number to offset high land and building costs.

A lack of new space in Anaheim could help Steadfast land the tenants—and the rents—needed to make the building economically feasible, CB Richard’s Katz said.

Anaheim has seen nearly no major office development—and no new towers—in recent years.

As a result, the city’s vacancy rate is among the lowest in the county at less than 5%.

Earlier this year, Silver Oak Development LLC, an Anaheim Hills-based developer, announced plans to build a three-story, 62,500-square-foot office building in Anaheim Hills.

Steadfast, which has built more than $500 million of projects in California, Oregon and Washington, has a number of hurdles to clear before the office tower makes its way to construction.

Rezoning the site from industrial to office use, general plan amendments and issues on height still need to be addressed, Vander Dussen said.

Unlike the bulk of the projects slated for the Platinum Triangle, the East Orangewood Avenue site is at the edge of an area already designated for office development, which could help the approval process.

The site, near the city line with Orange, now is home to three industrial buildings, including the headquarters for Win-Dor Inc., a maker of replacement windows and doors.

More office development could be on the way for the area.

Another developer, San Francisco’s AMB Property Corp., has plans for a 100,000-square-foot office building in the heart of the Platinum Triangle, along with about 1,200 homes. AMB’s office building likely would total about 12 stories.

Also, proposals for the city’s redevelopment of another 51-acre plot of land next to Angel Stadium still are being considered.

Assuming the city doesn’t land a football team and stadium, developers have proposed building office towers along with homes and shops.

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