There have been a lot of newspaper articles, accusations, and even at least one ballot item over the last several years dealing with developer Mike Harrah’s desire to build an office tower of over 30 stories on Broadway in downtown Santa Ana.
If built, this tower would be the tallest in Orange County. Concerns about impact on the neighborhood, traffic on nearby streets including Broadway, Main and 17th Streets, the footprint of the building’s shadow, and other issues have made this one controversial project. Also at play of course has been the role of city leaders in advocating for this project.
In the meantime, the demand for office space has plummeted. The latest bit of news on that front is that Maguire Properties, a downtown Los Angeles commercial real estate property owner that scooped up several Orange County properties in Orange County just a few years ago, said on August 11 (According to Business Week Magazine) that it will default on seven of its buildings, most in Orange County.
Seems the problem is an increasing vacancy rate and declining office lease rates which do not generate enough income to carry the debt financing for the buildings. In other words, they are upside down.
The thought of an upside down skyscraper in Santa Ana is a little disconcerting. Mr. Harrah has over the years proven that he can do just about anything, but build a brand new upside down sky scraper? Not a good idea. Perhaps it is time to pull the plug.
I wonder what recourse the City has to rescind the entitlements if milestones aren’t met – speficically performing lease agreements. You’d think that they would have protected themselves from a never-ending saga. The approvals were granted three or four years ago, right?
There is a tight credit crunch going on, too. Commercial paper defaults are supposed to peak next year and into 2011.
I think that OBP dream was dreamed up during the bubble years.
Maguire and OBP are not similar. Maguire bought those OC assets in the height of the boom and the decision to walk away has nothing to do with the occupancy of these sites. In fact, most of the Maguire buildings are fairly well tenanted up. The issue with Maguire is one of property value and debt load.
Despite what some would like to believe, and with revisionist history afoot, I would remind the readers that like it or not the voters approved OBP – which was the affect of the ill-fated referendum to overturn it. A majority of voters approved of the project.
Since the owner has a development agreement with the city, rescinding the entitlements would be no easy task.
This is from a OC Regiter article of March 2009:
Shiny Irvine tower costs builder $50 million loss
March 2nd, 2009, 6:22 pm · 28 Comments · posted by Jon Lansner
UPDATE FROM REUTERS: Maguire, whose stock fell Tuesday following the release of its fourth-quarter results late on Monday, said it had a qualified buyer for a 19-story building at 3161 Michelson Drive, in Irvine.
How the subprime fallout continues in surprising ways.
Ailing office landlord Maguire Properties said today that it will take a $50 million write-down on its gleaming, signature, 19-story 3161 Michelson office tower overlooking the I-405 at near John Wayne Airport.
The Irvine building — which opened in 2007 — was once supposed to be the new home for New Century Financial, the once-giant subprime lender than went bust two years ago. Reports put the building’s construction tab in the ballpark of a quarter billion bucks.
Without that major tenant, and a sinking economy, Maguire is now peddling the half-million-square-foot tower — which has a $170 million mortgage on it. All told, LA-based Maguire lost $96 million in the fourth quarter vs. $44 million loss a year earlier.
I recall talking to Maguire founder — and now ex-CEO– Rob Maguire back in 2005 when the company was in a buying and building spree in Orange County. He told me then, of Orange County: “We love the dynamics … It’s got what any right-thinking developer would be looking for.”
Oh, well.
The reason for the loss as stated by Maguiere Properties:
“Without that major tenant, and a sinking economy”
The nature of the agreement and vote is realy irrelevant. It is a business argument for the developer. Without the tenants and a strong economy, it is a no go.
The article above supports that the lack of a major tenant and the failing economy is what decides the process on a project of this type.
This is exactly what The developer of OBP is facing.
Over But Not Out makes perfect sense.
“Since the owner has a development agreement with the city, rescinding the entitlements would be no easy task.”
That depends on the nature of the agreement and whether the City protectected itself. Of course with these mega-monster projects a lot of folks in City Hall don’t want it to fail because that would make them look bad and because they spent (or used) a lot of political capital to make it happen.
Cities can kill approved entitlements by not extending performance milestones and by refusing to approve assignments of entitlement rights to switcheroo developers. Of course they have to want to kill a project first.
#4: 3161 Michelson was recently sold for $160M and OCBJ reports today that Allergan is looking at one or more other McGuire properties. The occupancy isn’t as low as some may think. Again, there apples and oranges for many reasons. I certainly wouldn’t take real estate advice from a dentist.
#5: I read the DA. It won’t be easy. And you can’t just “kill” an approved entitlement like a DA. There has to be substantial evidence to support it. That is a relatively high threshold.
When all is said and done, people just can seem to get over the fact that this is what the voters of SA want. After all, the voters APPROVED the project. Let the developer make the decision about whether the project is marketable; the voters have already determined the use is appropriate.
#6,
3161 Michelson was recently sold for $160M and OCBJ reports today that Allergan is looking at one or more other McGuire properties. The occupancy isn’t as low as some may think. Again, there apples and oranges for many reasons. I certainly wouldn’t take real estate advice from a dentist.
What is your problem? You write an opinion. I follow up with my opinion and you talk about advice from a dentist, when I did not offer any advice , except my opinion.
Why is it OK for you to post but you have a problem with my post? Besides I quoted Maguire properties on their explanation for their failure. Take up the real estate advice – apples to oranges – issue you have with them.
“Again, there apples and oranges for many reasons. I certainly wouldn’t take real estate advice from a dentist”
Again, the apples and oranges here is that the buyer is a on site owner. Not affected, dependent on a major tenant and less affected by a failing economy due to owner occupied.
Why should we take advice from you? Are you a real estate agent? Not that that would give you alot of smarts in real estate. You can’t keep your oranges and apples apart.
No one is arguing that the developer should do the business decision.
When is the Clowncil going to realize that this project should have never been approved and rescind the permit and just go ahead and zone it for open space with a real Central Park?
If the Clowns in charge want to better SA, then what better opportunity to beautify the city than with a much needed park?
Has anyone been to Boise, ID?
Have you seen the size of Ann Morrison Park. Not only is the size of the park impressive but also the utilization of it. There must have been every type of sporting event (except ice hockey, it’s summer) being practiced in that park!
Also, there is another park just across the road that is home to a zoo, discovery museum, lake w/paddle boats, picnic areas and a several children playgrounds!
If any of the local SA Clowncil had any type of intelligence, they would begin a park project like they have in central Boise, ID