Investor hawks 2 Calif. offices

Real Estate Alert, June 23, 2004

A privately held firm is asking $53 million for a pair of Southern California office properties that may appeal to value-added investors.

Commercial Ventures, a Brentwood, Calif., firm headed by Richard Nathan, has hired Grubb & Ellis' Torrance office to market the properties, which are located in the San Diego suburb of Mission Valley and the San Fernando Valley community of Encino. The properties are available separately or as a package.

Because the properties have high vacancy rates, a buyer paying the asking price would receive an initial annual yield of just 5.6%. But the yield would jump to about 8.2% if the average occupancy rate, currently 76%, were raised to 95%.

The larger property is the 196,000-square-foot Mission Center Office Park, which is valued at $30 million, or $165/sf. At that price, the buyer's initial annual yield would be a mere 5%. But the buyer could bump up the yield to 8.1% by filling a substantial amount of the Mission Valley property's 40,000 sf of vacant space.

The main tenants in the low-rise campus are County of San Diego, California Teachers Association, South Coast Title and Equity Access. The county's 53,000-sf lease expires next year, and it's unclear whether the longtime tenant will renew. It pays $15.75/sf, which is well below the asking rents of $21$23.50/sf. Mission Valley has a 91.2% occupancy level, according to Burnham Real Estate.

Commercial Ventures bought the brick-and-reflective glass property, at 7947 Mission Center Court and 5333-5353 Mission Center Road, from Portland-based ScanlanKemperBard for $21.2 million, or $108/sf, in 2002. ScanlanKemperBard purchased the campus two years earlier from KBS Realty Advisors for $19.3 million, or $106/sf. The property was built in 1973 and substantially renovated by KBS from 1997 to 2000.

Meanwhile, Commercial Ventures is shopping the 113,000-sf Encino Executive Center at 16027 Ventura Boulevard in Encino. The building is valued at $23 million, or $200/sf. At that price, the buyer's initial annual yield would be 6.3%. But that figure would rise to 8.4% if the buyer were able to fill much of the 30,000 sf of vacant space.

About 70% of the building's leases expire by 2007. Asking rents range up to $25.25/sf. The Central San Fernando Valley submarket has an 89.5% occupancy level.

Commercial Ventures bought the six-story reflective-glass building in 2003 from CommonWealth Partners, which was working on behalf of Calpers, for $18.3 million, or $162/sf. The property includes indoor and underground parking for 360 cars. It was built in 1980 and renovated in 1993.