This article originally appeared in Orange County Business Journal.
October 16, 2023
Newport Beach-based real estate investment firm Buchanan Street Partners has made its largest local acquisition in recent years, spending $71 million for a 301,328-square-foot industrial campus in Buena Park.
The Newport Beach office of institutional investor TA Realty LLC sold the five-building complex for roughly $236 per square foot, property records indicate.
The deal, which marks a 73% premium over its prior sale in 2016, is the priciest sale for the product type this year in Orange County.
“This is a sizable acquisition in our backyard of Orange County, which is where we want to continue to grow our investment portfolio,” Buchanan Senior Vice President Matthew Haugen told the Business Journal.
The complex, located just south of the Santa Ana (5) Freeway near Knott Avenue, was 99% leased at the time of sale to a mix of tenants with “rents well below market,” Haugen said.
The deal fits into a renewed investment strategy for Buchanan, which has been prioritizing assets with optionality during a choppy period for commercial real estate.
In addition to increasing rents down the line, Buchanan also has the option to choose from multiple exit strategies in the future, including selling to investors or owner-users due to the buildings being on separate parcels.
Raising Rents
TA Realty paid nearly $41.1 million for the buildings at the end of 2016, or nearly $139 per square foot.
The five buildings are located at 7050-7150 Village Drive in “one of the tightest industrial submarkets in the country,” according to Haugen.
Full-building tenants at the campus, located a little more than 2 miles north of Knott’s Berry Farm, include furniture design and manufacturing company MashStudios; Camel Grinding Wheels; and Japan-based fire alarm manufacturer Hochiki, which has been a tenant for more than 15 years.
Some tenants at the campus are paying monthly rents less than $1 per square foot, which is well below the average; overall, current rents are roughly 35% below market.
“We will gradually increase rents as leases expire,” Haugen said.
Medical Office
The acquisition is the second local deal in the past year for Buchanan.
At the end of 2022, it paid $28.1 million for a 120,354-square-foot office property in Laguna Hills, and is currently working through the entitlements process to convert it into a medical office, in another sign of the firm’s recent strategy.
“We have already signed new leases with medical tenants for the property, signaling the demand is there,” Haugen said.
“We’re focusing on real estate that has optionality and allows us to add value for our investors,” Haugen said.
Elsewhere in Orange County, Buchanan is executing its investment strategy for a retail complex in Fountain Valley.
In 2021, the company paid $24 million for E405 Euclid Shops, a 92,000-square-foot showroom retail complex just north of the San Diego (405) Freeway on 4.9 acres.
It quickly sold off one of the buildings at the complex, and divided the other two buildings into seven retail showrooms. It has since sold four of the seven commercial condominiums for upward of $440 per square foot.
Three of the condos sold to owner-users.
“We are having pretty large success in owner-user sales, with such buyers still looking to invest in quality assets,” Haugen said.
Owner-User Market
This demand has been showcased in other Buchanan deals outside of Orange County.
In Diamond Bar, Buchanan acquired two office properties on one parcel, and subsequently split them into separate parcels, selling one office to an owner-user.
It’s working on a similar success story in Henderson, Nev., where it has separated a four-building office complex into two parcels and is selling one of those parcels to an owner-user at a price “well above what an office investor would be willing to pay.”
“Our flexibility is allowing us to carry out successful business plans despite the negative news surrounding office properties,” Haugen said.