The recent sale of a 199,834-square-foot office tower in the South Coast Metro area of Santa Ana may be a harbinger of good news for the sector in Orange County, according to local brokers.
3 Hutton Centre Drive—a 10-story building that’s part of the 46-acre Hutton Centre mixed-use complex at the corner of MacArthur Boulevard and the Costa Mesa (55) Freeway—sold late last month for $28.9 million, or $145 per square foot.
Though that pricing is about 43% below its pre-pandemic valuation—it last sold for $50.5 million in 2016—it traded hands at a higher valuation than its sister property, 4 Hutton Centre Drive, which sold in February for $25 million, or $115 per square foot.
Brokers hope this upturn in pricing is a sign that the worst is over for the troubled office market, which was hit especially hard by remote work trends caused by the pandemic and has been exacerbated by rising interest rates.
“They are physically very similar buildings,” Cushman & Wakefield’s Jeff Cole told the Business Journal, referencing 3 and 4 Hutton. This sale indicates that office pricing in Orange County may have bottomed and now on the rebound from the lows of earlier this year.
The buyer is listed in property records as 3 Hutton LLC. State records indicate that the Gardena-based LLC has ties to tire distributor Tireco Inc., which is also based in that city.
The seller was a joint venture between San Diego-based real estate investor and operator Cypress Office Properties LLC and investment management company Harbert Management.
A host of brokers represented the parties in the transaction, including some from Voit Real Estate Services, as well as Cushman & Wakefield’s Cole, Nico Napolitano, Brad Brandenburg and Kristen Bogler and CBRE’s Anthony DeLorenzo, Sammy Cemo, Bryan Johnson, Matt Pourcho and Nick Williams.
The new owner of 3 Hutton plans to hold onto the property as a long-term asset and increase its occupancy, sources say.
The building was 63% leased at the time of the sale.
Its best-known tenant is law firm Callahan & Blaine, which has its name atop the tower.
The building’s largest tenant is real estate property management software company Yardi Systems Inc., which handles around $900 million in sales and takes roughly 53,000 square feet at the office tower.
Other tenants include U.S. General Services Administration, tax controversy law firm Taylor Nelson Amitrano LLP, the U.S. Social Security Administration, financing and insurance company IPFS Corporation and investment management company MP Global Enterprises.
Lone Local Building
The sale is a local retrenchment for seller Cypress Office, which now counts just one OC asset: The Cascades, a 252,200-square-foot office complex near the 73 Toll Road in Aliso Viejo. The office campus, at 20 and 30 Enterprise, is in the 1.7 million-square-foot Summit office complex.
Cypress Office owns about 3.3 million square feet across Southern California, Denver and Phoenix.
Turning the Tide
4 Hutton, a 10-story office tower spanning 217,000 square feet, sold in February to a family office affiliated with Joe Wen, the founder of multinational conglomerate Formosa Ltd.
That sale marked a 54% price discount to its prior $54.8 million sale in 2019.
Broker optimism over the higher-priced 3 Hutton sale stems from increased private capital interest around local offices, due to an uptick in corporate migration from LA.
Many businesses in LA have plans to move to OC because of the area’s higher level of safety and more lenient tax laws for businesses, Cole notes.
The increased interest in OC follows years of price fluctuations for local office buildings, including Hutton Centre, which has seen some of the biggest shifts in pricing in recent years.
During better times, buildings in that area of South Coast Metro have approached $400 per square foot, more than double the prices they’ve sold for today.
About two months after 4 Hutton traded for less than half its 2019 valuation, the two-building Griffin Towers complex at the Hutton Centre sold for $82 million, or roughly $141 per square foot, down 57% from its last sale in 2014.