By: Carrie Rossenfeld
MISSION VIEJO, CA—At 45% vacancy in an 8%-vacant market upon purchase, CERRO presents a unique opportunity for Bixby Land Co. to provide what could be one of the top office buildings in the Mission Viejo market, SVP operations Aaron Hill tells GlobeSt.com. The development firm has begun work on the redesigned mid-rise office building here, and while completion of the upgrades is expected later this summer, the project is already signing new leases with tenants in search of contemporary professional office space in the South County submarket.
Bixby has signed new five-year leases with Realty One Group and Everest Escrow for a combined 8,857 square feet in the 71,421-square-foot building. Further details on the terms of the leases were not disclosed. Paul Root of Madison Street Partners represented the tenants, while the building is represented by Simon Dillon, Justin Hill and Jason Katz of CBRE. Bixby has also renewed and relocated one tenant in the building, and met the expansion requirements of another. A 3,322-square-foot ready spec suite is under construction now and will be ready for occupancy this summer, part of an ongoing program to provide move-in-ready office suites as leasing activity continues.
The new activity brings the building to 72% leased just as Bixby is beginning to upgrade the project. Formerly known as Mission Heritage, Bixby purchased the building in December 2015 for $15.6 million. Occupancy was 59% at the time of sale. IA Interior Architects has redesigned the four-story building with a high-volume entryway and new lobby, plus new common area upgrades throughout the building. An outdoor patio will welcome guests upon entry, and the building will undergo extensive landscaping upgrades.
We spoke exclusively with Hill about the project and the Mission Viejo office market.
GlobeSt.com: How would you characterize the Mission Viejo office market? Which types of tenants might be interested in this market?
Hill: Overall, what we liked about it, and the reason we made a purchase there, was when you look at South Orange County, it’s just over 7% vacant, which is lower than the Airport Area and the rest of the region. So, it was the mixture of tenants, plus the tremendous amount of residential and housing that has been delivered in South County, as well as the traffic—a lot of tenants want to avoid trying to get farther north. This was also a great building, one of the top four buildings in Mission Viejo before we bought it, and it 45% vacant when we bought it. Here was a great opportunity to buy something with institutional quality in such a tight market.
GlobeSt.com: How does CERRO fit into that market?
Hill: There are four class-A projects in Mission Viejo. We have a significant renovation budget, and we purchased it at well below replacement cost. We have a significant amount of capital to put in for a full site work redo, so we’re going to upgrade all common areas and put capital into the tenant space. There were existing improvements from 10 or so years ago, but with Title 24 changes and tenants coming in with all sorts of requirements, you need to come in with enough capital to fit out a space for today’s tenants.
GlobeSt.com: What do you look for in the specific markets you target for office-redevelopment opportunities?
Hill: This building is a great example. We look in office markets that have strong tenant demand, and we’re looking for a project that fits in with that from a location standpoint. When you have a class-A building with 45% vacancy in an 8%-vacant market, something is wrong with the ownership from various perspectives that we can address. Even if you get it, you don’t have to outpace the market—just put in the capital—and operation-wise, it could be one of the top two buildings in that market when it’s done.
GlobeSt.com: What else should our readers know about CERRO?
Hill: It’s location is less than a mile from the Shops at Mission Viejo, a 1-million-square-foot regional mall, so we also like where it fits within the submarket. This asset was a great opportunity to be able to deliver product to meet tenant demand and in a great location.