Redstone Plaza: 22.3% vacant/CoStar Group photo
(UPDATE 11/19 9 a.m.: Ownership clarified to reflect PNC Realty Investors’ majority stake in partnership that controlled these properties.)
Five Orange County office complexes — 11 structures in all — owned by a partnership of PNC Realty Investors and Bixby Land Co. bought with great fanfare in the spring of 2007 have fallen on hard times.
PNC/Bixby paid Maguire Properties $345 million for the portfolio in May 2007, buying at the height of an overheated commercial property boom that’s since fizzled. (Click on the photos to enlarge and see details about each property!)
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 1201 Dove St. |
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 Inwood Park |
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 Bixby Office Park |
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 Newport Summit |
Now all five properties — consisting of eight buildings in the John Wayne Airport area and three others just off the 405 freeway in Seal Beach — are in receivership after PNC/Bixby fell behind on its loan payments.
Bixby CEO William R. Halford, whose Orange County real estate company was a minority investor, said in a statement:
“The effect of this economic downturn has been particularly impactful to Orange County office rents and vacancies. Given the combination of declining cash flow and rapid property value deterioration, it’s not surprising that our majority partner PNC Realty Investors – like other investors throughout the industry – elected to strategically default. Although this outcome is disappointing, strategic defaults have become commonplace, even among some of the most well-heeled and sophisticated investors in our industry. Given Bixby Land Company’s minority equity investment in the joint venture, this will have no material impact on our company’s overall health. Our wholly owned portfolio of over 4 million square feet remains conservatively leveraged with occupancy at 95%, and steadily improving year-over-year revenue since 2007.”
The properties are among 11 U.S. office properties recently assigned to San Diego-based receiver Trigild Corp. to manage.
PNC/Bixby “overpaid and couldn’t service the debt,” Jason Hull, Trigild’s head of commercial real estate, said in an email about the distressed portfolio.
According to CoStar Group, vacancy rates at the five properties range from 7.7% to 41.5%. On average, 21.1% of the space in the portfolio is vacant.
PNC/Bixby’s purchase was at the tail end of a series of property flips:
- In February 2006, Blackstone Group paid $39 billion to buy out nearly 600 buildings across the country owned by Sam Zell’s Equity Office Properties Trust, then the largest commercial landlord in the nation. Blackstone soon began selling off the EOP properties in chunks.
- Maguire Properties — now MPG Trust — paid $2.875 billion in February 2007 to Blackstone Group to acquire a portfolio that included some 30 office buildings on 21 sites in Orange County.
- In May 2007, PNC/Bixby agreed to pay nearly $345 million to Maguire to acquire five of the EOP/Blackstone properties: two of them in Newport Beach, two in Irvine and one in Seal Beach, consisting of 11 buildings and nearly 800,000 square feet of space.
- PNC/Bixby closed escrow on the deal in June 2007.
- According to CoStar Group, PNC/Bixby paid nearly $112 million in cash, with an additional $233 million in loans.
At the time of the purchase, Bixby’s Halford said:
“These properties are in prime locations within very attractive submarkets. The portfolio immediately gives us nearly 1 million square feet of high-demand, value-add office space and land in areas restricted from new construction.”
PNC/Bixby isn’t alone. After the commercial market collapsed, Maguire began selling off the properties it still owned, sometimes for as much as half off. In August 2009, Maguire turned over six prime O.C. properties back to lenders because the rent wasn’t covering loan payments.
Trigild says it’s bracing for a “significant increase in its receivership business within the next few months.”
Hull said that Trigild foresees a “wave of distress coming to shore with no end in sight,” projecting that the next year will be as busy as 2010:
“Receiverships are on the increase due to a dramatic increase in the number of commercial defaults, with no financing to refinance existing … loans. It’s anticipated that several hundred billion dollars worth of commercial real estate throughout the country will be foreclosed on and/or go into receivership within the next few years.”
Things will get worse before they get better, Hull added.
“There is essentially no financing available in the marketplace right now,” he said.
Who’s in trouble: Big O.C. loan defaults: HERE!
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