O.C. Office High-Rise in the Works

Prompted by shrinking office-vacancy rates and spiraling rents, a Phoenix-based developer plans to build a speculative high-rise office building near John Wayne Airport, the first such project in Orange County in seven years and another sign that new commercial real estate development is beginning to come back in Southern California.

Opus Southwest Corp., said Tuesday that it has formed a joint venture with SPI/Irvine Holdings, the owner of the last remaining acres in Koll Center Irvine North, to build a 12-story office building with about 250,000 square feet.

The project would be one of the first high-rise office projects in Southern California to break ground before lining up all its tenants since the commercial real estate market softened in the early 1990s.

Among those projects is the 24-story Palladian World Center in Glendale, which will begin construction in coming weeks.

The projects are part of a resurgence in the commercial real estate market. In Orange County, analysts say plans for close to 2 million square feet of new office buildings are underway from Brea to Aliso Viejo, although many of the projects will line up tenants before they build.

The Open Southwest project, which carries a price tag of around $50 million, is expected to break ground in the first quarter of 1998--with or without tenants. It will open in the first quarter of 1999, officials said.

“The market has been improving in the last 18 months,” said Paul Marshall, Opus vice president of real estate development. “We want to be the first out of the ground with a new building.”

Developers like Irvine Co. and Trammell Crow Co. are also readying office-building plans for the John Wayne Airport area, confident of the area’s commercial real estate revival.

“We think it’s a very positive sign that the economy is coming back and major developers are willing to invest in new office structures,” said Irvine City Manager Paul Brady.

The project is the first of three office buildings that the Opus/SPI partnership plans to build at two sites near the San Diego Freeway and MacArthur Boulevard in Irvine.

As demand increases, it will build two more office buildings totaling 650,000 square feet and an adjacent parking structure.

Although builders such as Opus and K. Young, which is developing the Glendale project, shoulder greater risk with no committed tenants, analysts say they stand to reap greater rewards from the pent-up demand in the market if their project is built first.

“A lot of existing tenants are trying to expand and finding their options are relatively limited,” said Alan Beaudette, senior vice president with CB Commercial Real Estate Group Inc.

Already vacancy in Orange County’s airport area is averaging only 6.16%--less for the type of top-quality space Opus wants to build, according to CB Commercial.

This shortage has pushed monthly rents up to an average of $1.83 per square foot, still well below the building’s proposed rent of $2.30 to $2.60.

“There is tremendous demand in the market right now and rates are firming up fairly quickly,” Marshall said. “We think by the time we have completed construction we will have fairly extensive leasing.”

Opus Southwest is one of six regional companies operated by Minneapolis-based Opus Group of Cos., the country’s largest developer, according to a study by National Real Estate Investor magazine.