Creative Conversions, Workforce Housing and Risk Mitigation Convene at Connect Orange County

By Dennis Kaiser

Connect Orange County is coming up this month. The annual gathering is set for August 22 at The Resort at Pelican Hill in Newport Coast. More information about the event can be found here.

Connect Media asked Stream Realty’s Marty Pupil to share a few insights about the trends driving the market, strategies at play, as well as what deals are getting completed at this point in the cycle. Check out his responses in our latest 3 CRE Q&A.

Q: What are the overall trends you see playing out in Orange County so far this year? Is there runway left or should companies prepare for a downturn?
A: With labor being the driving force for amenity-rich, walkable, life-integrated ecosystems surrounding the workplace, housing the workforce in the O.C. can be one barrier to entry. To solve for this, we are seeing municipal-backed workforce housing development funded through tax credits.

It’s no secret, but a continuing trend is the conversion of industrial product to creative office and multifamily (particularly in Irvine and Anaheim), but there is likely less runway left for multifamily activity than for creative office in our market.

The continuing conversion of industrial product gives rise to larger questions around Orange County’s shrinking industrial base. Given that industrial demand remains strong, tenants are negotiating renewals much earlier as their options increasingly reduce.

With access to strong labor and desired lifestyle, Tech tenants are finding their way down the 405 to South Orange County as alternative to Silicon Beach and other pricier areas of Los Angeles.

We have been in an extended expansion phase of the current business cycle. Although we are not yet at the bottom of the that cycle, we are exhibiting late cycle trends, but at a snail’s pace.

Q: How are CRE players adjusting their decisions based on those factors and how should they be?
A: Across the industry, the decision-making process is becoming increasingly more methodical, with underwriting criteria requiring more due diligence, baking in price risk; although not enough to greatly impact current momentum, decision-making has slowed.

Some subsets of that are:
Stronger hiring practices. Finding the right person for the right role is the mantra for companies. They are looking to hire the right people and create economies of scale by applying the right technologies.
Tenants looking for shorter-term leases and more attractive terms to provide greater liquidity, agility and ability to stay true to business objective and goals.
Landlords looking for longer-term leases to reduce risk and provide greater stability to their assets, extending the negotiation and transaction process.

Q: What are some examples of deals you’ve seen that reflect the market realities?
A: LBA’s 155,000-square-foot creative office conversion of 2722 Michelson Dr. in Irvine will house a defense technology startup’s entire operation, Anduril Industries, Inc.

Sanderson J. Ray Development and Street Lights Residential developed Skyloft, a luxury apartment community converted from a five-acre parcel on Main and Jamboree.

The Press is going creative. Steelwave and Invesco’s conversion of the former Los Angeles Times plant in Costa Mesa to an anticipated 380,856 square feet of creative office, retail and dining called the Press is slated for a Q1 2020 completion.

Orange County is working toward providing 2,700 more units of permanent, supportive housing with the revitalization of Orange County Housing Trust that received its first grant for $5 million from Disneyland Resort.

For comments, questions or concerns, please contact Dennis Kaiser