PacSun Sells Warehouse for $35M

Orange County Business Journal, Aug 25-Aug 31, 2008 by Mueller, Mark

REAL ESTATE: Panattoni adding to recent 61-acre Boeing buy

Sixty-one acres in east Anaheim wasn't enough for Sacramento-based Panattoni Development Co. The company, which late last year acquired land and offices from Boeing Co., is buying another building to add to its redevelopment plans for the area.

Panattoni, one of California's largest office and industrial developers, is buying the East Miraloma Avenue distribution center of Anaheim-based mall retailer Pacific Sunwear of California Inc.

Pacific Sunwear announced plans in January to move all of its distribution to Olathe, " Kan., where it has 400,000 square feet of space. It said at the time it was looking to sell or lease its Anaheim distribution center next to its headquarters.

The 300,000-square-foot warehouse, which includes about 30,000 square feet of office space, is being sold for $35 million, according to Pacific Sunwear filings with the Securities and Exchange Commission.

The sale is expected to be finalized by the end of January, the company said.

The building had been listed for sale at $39 million, according to brokers. Pacific; Sunwear said it is recording a $26 million pre-tax gain on the sale.

The company, which has been undergoing restructuring as it looks to focus on its dominant chain of PacSun stores selling clothes inspired by surfing and skateboarding, is taking an $8 million charge related to warehouse equipment that wasn't included in the sale.

The sale is dependent on Panattoni getting new zoning for the 19-acre parcel that separates the warehouse from Pacific Sunwear's 150,000-square-foot headquarters building next door. The two now are zoned as one combined use.

Pacific Sunwear hasn't announced any plans to relocate from its headquarters building.

The company said it owns additional land in Anaheim, which could be used to build new headquarters.

The warehouse site is set to be incorporated into the, 1 million-square-foot tract of Anaheim land that Panattoni bought in December from Boeing-one of the larger sales seen in North County in recent years.

Panattoni has renamed the campus the Anaheim Concourse.

Pacific Sunwear has left the Miraloma distribution building, which is being marketed for lease. The monthly asking rent for the warehouse is 72 cents per square foot, according to CoStar Group Inc.

The building would be well suited for a local manufacturer-such as a clothing company-to use as its headquarters, said Stephen Batcheller, senior vice president for Panattoni's Irvine office.

The space doesn't need many renovations before bringing in a tenant, Batcheller said. That's different from two other East Miraloma buildings previously owned by Boeing. Panattoni is expected to begin redeveloping those during this quarter.

Renovation Plans

At 3370 E. Miraloma Ave., a 191,991-square-foot, six-story building that previously held many of Boeing's executive offices is slated to get stripped down to its steel frame and rebuilt into a class A office space. Boeing left the building last month as part of a move of its local operations to Huntington Beach.

Down the street at 3330 E. Miraloma Ave., another recently vacated, 197,685-squarefoot building is set for an extensive renovation. Once complete, the two-story building will resemble similar-sized office buildings in the Irvine Spectrum, Batcheller said.

Both buildings are being redeveloped to U.S. Green Building Council environmental specifications known as Leadership in Energy and Environmental Design, or LEED. The buildings should be ready for tenants by late next year.

Panattoni is moving ahead with plans for redevelopment despite the lukewarm leasing market for office and industrial space in Orange County.

"Clearly, the market is not at its zenith right now," Batcheller said.

Batcheller said he thinks Panattoni can lease the buildings because of their Anaheim location, and because of pricing. He likens the company's leasing strategy to the "Costco philosophy," where tenants can get a good deal if they lease a large enough space.

Tenants targeted by Panattoni include healthcare, technology and financial services companies that need space for big back-office operations. Many employees are likely to live in the Inland Empire and can take advantage of public transportation to reach the campus, Batcheller said.

These types of businesses "don't want to pay $3.75 full service gross" to rent similar types of high-quality office space elsewhere in OC, Batcheller said.

Rents at the building will be "significantly less" than in South County, and comparable to office rents in the Inland Empire, he said.

Office space in Anaheim, which totals about 6 million square feet, is 8.6% vacant, according to the latest figures from Voit Commercial Brokerage LP. Rents there average about $2.41 per square foot, some 10% lower than the county's average.

The two Miraloma buildings are in the first phase of redevelopment planned at the former Boeing campus.

Last December, Panattoni and financial partner FNG Clarion Partners LLC bought nearly 61 acres of Boeing's sprawling 101acre campus, which is part of the 2,645-acre business park in east Anaheim known as The Canyon.