An Orange County transit agency has bought a 220,500-square-foot office building in Santa Ana to serve as its headquarters for $54.5 million.
The Orange County Transportation Authority closed on its purchase of the 10-story building at 2677 North Main Street, the Orange County Business Journal reported. The seller was Irvine-based Muller.
The deal works out to $247 per square foot — higher than the roughly $150 per square foot paid for Santa Ana office buildings over the past year, according to the newspaper.
Building tenants include healthcare provider Aetna, insurance company Assurant and the law firm LaFollette Johnson DeHaas Fesler & Ames.
The OCTA, which approved the purchase this summer, then aimed to spend between $61.2 million and $74 million more for tenant improvements, plus $12.8 million on furniture, fixtures, equipment, moving and closing costs at its new hub.
Orange County Transportation Authority board members and staff defended the total expenditure of $128.5 million as cost effective.
The total cost of buying and fixing up the building over the next three decades: $204.6 million, according to a financial analysis by the agency. Leasing comparable offices over the same period would cost $255 million.
OCTA said owning its own headquarters would be preferable to leasing to “avoid future rent increases.” Its current headquarters, which it has leased for more than three decades, is a half mile north at 550 South Main Street, in Orange.
“This acquisition is not just a financial decision, it’s a strategic investment in the future of our transportation agency,” Transportation Authority Chief Executive Darrell Johnson said in a statement.
Some, however, said the county agency overpaid.
Dick Ackerman, a former state senator who represented OC, said in a letter to Transportation Authority Board Chair Tam Nguyen that spending about $130 million on an office building would be “financially irresponsible and a waste of taxpayers’ funds.”
Ackerman said the transit agency would need to lease at least two of the building’s 10 floors to other companies for the deal to pencil out over the long term.
That financial outlook, Ackerman said, was partially based on leasing office space at $4.70 per square foot — far higher than the going monthly rate.
Real estate industry veterans, however, said the deal made financial sense.
Mike Adams, managing director at Stream Realty’s Irvine office, said paying a premium on a building as an owner-user comes with benefits that could save a company money over the long term.
“The benefits of buying an existing building would be quicker time to occupancy and immediate cash flow through the existing tenant base,” Adams told the Business Journal. “Also, buying an existing building eliminates the uncertainties associated with construction projects, such as cost overruns and project delays.”
Eric Purmort, a senior vice president for CBRE’s office properties practice, said owner-occupier buildings often trade for a higher price than what an institutional investor would pay for the same property.
He said the deal for the Santa Ana office building would benefit buyer and seller. “That’s a fair price for both sides,” Purmort told the Business Journal.
— Dana Bartholomew
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