Dream Tenants

Orange County Business Journal, Jan 22-Jan 28, 2007 by Mueller, Mark

REAL ESTATE: Landlords look to draw law firms with new towers

Law firms are dream tenants.

Landlords love them-with their prestige and high-level business connections.

Another reason: They're often willing to pay top-dollar rents for premium office space.

As six new office towers go up in irvine around John Wayne Airport and in the Irvine Spectrum-the first high-rise offices built in Orange County in more than a decade-demand for such high-end tenants is likely to increase.

"Law firms are always going to be a target market (for landlords)," said Kevin Bender, senior vice president of CB Richard Ellis Group Inc. in Newport Beach. "That's especially true now, given so much construction that's under way."

. Whether the new towers increase the number of firms that relocate remains to be seen.

Gibson, Dunn & Crutcher LLP-OC's sixth largest law firm-so far is the only law firm signed on for space at one of the six new towers.

And that deal-for 80,000 square feel at Maguire Properties Inc.'s Park Place tower-was struck well over a year ago.

Other smaller deals involving law firms have been rumored for some of the new buildings, but none have been formalized, local brokers said.

Gibson, Dunn is leaving about six floors at Jamboree Center, the five-tower office and hotel complex owned by The Irvine Company, alongside Jamboree Road and the San Diego (1-405) Freeway.

Subprime lender New Century Financial Corp. is taking another 190,000 square feet at the 19-story tower at Maguire's new 3161 Michelson Drive.

Law firm Howrey LLP in turn has signed on to lease some of the Irvine office space being left by Gibson, Dunn.

Howrey is leasing 34,000 square feet-nearly half of Gibson, Dunn's old space-at 4 Park Plaza.

Washington, D.C.-based Howrey, which mostly does securities litigation, antitrust and intellectual property law, signed a 10-year lease.

The firm is expanding by 13,000 square feet with the new deal.

Howrey's local office now is about a mile away at 2040 Main St., part of Opus Center Irvine.

San Francisco-based Orrick Herrington & Sutcliffe LLP also is taking some of Gibson, Dunn's space at 4 Park Plaza, Bender said.

Feeling Pressure

With construction wrapping up. landlords could start to feel the pressure to fill space at their new towers.

"We're seeing the end of the light at the end of the tunnel, with the new buildings being finished." Bender said. "But the reality is that most of these buildings will be opening with a significant amount of empty space.

"Even if a (legal) tenant signed a lease today, the time it takes for tenants to build out the space means that they're not going to get into the space by September," he said.

That pressure could help law firms land better deals for offices at the new buildings, or help them renegotiate leases at their existing offices.

It is one of the few advantages tenants hold in the local market these days, where vacant office tower space is under 7%. and rents for high-rise space continue to push upward of 10% annually.

The trick is planning out a strategy early enough in the game, said Randall Parker, managing director for the Newport Beach office of Travers Realty, a brokerage that represents law firms in leases.

"If you are a law firm seeking more than a full floor, and if you are growing, you should start looking at options 18-24 months before your current lease expires," Parker said.

Otherwise, with vacancy rates at existing buildings low, "there's a high probability that your landlord won't be able to accommodate your needs," he said.

The good news is that 18-24 month timeframe aligns closely with some of the new office towers' completion, according to Parker.

"Most tenants think that time-frame is an eternity, but it really is not," Parker said.

Travers began working with Costa Mesabased Rutan & Tucker LLP on its space needs nearly three years before its last lease expired.

Planning ahead helped the law firm explore its options.

Rutan, OC's biggest law firm, said in November that it was staying put at its Costa Mesa headquarters, shunning offers from others, including the Irvine Co.

The Irvine Co. made a strong bid to bring the law firm to 20-40 Pacifica, its twin towers being built in the Irvine Spectrum.

The developer went as far as to set up a meeting between the law firm and Irvine Co. Chairman Donald Bren, Mike Homak, managing partner at Rutan & Tucker, said in an earlier interview.

"They made us a very competitive proposal," he said.

Rutan, which has about 150 lawyers and 300 employees overall in Orange County, signed a 12-year deal to stay at Maguire's Pacific Arts Plaza.

The firm's new lease at Maguire Properties' 611 Anton Blvd. is for 112,000 square feet of space.

That's an increase from the previous lease by about 12,000 square feet, or half a floor.