12-Story Project Near John Wayne Planned

IRVINE — 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.

Opus Southwest Corp. said Tuesday that it had 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 of about 250,000 square feet.

The 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.”

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 ‘90s. The 24-story Palladian World Center in Glendale is to begin construction in coming weeks.

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

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

Koll Center Irvine, which houses headquarters for Taco Bell and Fidelity National Title and offices for Wells Fargo Bank, already has a development agreement with the city of Irvine for its site.

Officials say Opus, which is the largest commercial developer in the nation, has deep enough pockets to finance the development itself if need be.

Once Opus hires an architect to draft plans for the glass and granite building, it can take plans to the city for review. And barring any major complications, city officials say it can break ground.

“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.

It 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 start on two more office buildings totaling 650,000 square feet and an adjacent parking structure.

The land for the development was provided by SPI/Irvine Holdings, an investment group headed by Dallas real estate investor Richard Squires. It purchased the land for $10 million last January from the Resolution Trust Corp., which had taken it back from a development partnership of Koll Co. and Beverly Hills-based Columbia Savings & Loan in the early 1990s.

*

Although builders such as Opus and K. Young, which is developing the Glendale project, shoulder greater risk by not waiting for 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, the vacancy rate in the airport area is averaging only 6.16%, and less for the type of top-quality space Opus wants to build, according to CB Commercial.

This shortage has pushed rents up to an average of $1.83 per square foot per month--still well below the new 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.. It has developed more than 10 million square feet of industrial, office and retail properties throughout California, New Mexico, Nevada and Utah.

It entered Southern California last year with the intent of buying and building industrial and office properties. Its first purchase was in Foothill Ranch, where it will begin building in September the first 84,000-square-foot building of a three-phase project.

“We feel California in general will be the mainstay of our business for the next few years,” Marshall said.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Latest Addition

Opus Southwest Corp. and SPL/Irvine Holdings will construct a 12-story, 250,000-square-foot office building.