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Lenders' woes may hit office market

March 14, 2007|Roger Vincent | Times Staff Writer

The woes of sub-prime lenders, several with offices in Orange County, may make a dent in the county's hot office market, some analysts say.

Direct vacancy in Orange County -- not including sublease space -- is a low 7%, but new buildings expected to be completed this year could push vacancy up an additional 4 percentage points, said analyst Michael Knott of Green Street Advisors.

"If you get a bunch of [mortgage industry offices] coming back on the market all at once, combined with the new buildings, there is a possibility the vacancy rate could go up fairly significantly," Knott said.

"For the long term, Orange County is a great market," he said. "On the short term, there could be pain."

But one of the county's largest office landlords, real estate investment trust Maguire Properties Inc., said Tuesday that the market would be only minimally affected if Irvine-based sub-prime lender New Century Financial Corp. filed for bankruptcy protection.

Los Angeles-based Maguire leases about 267,000 square feet of space to New Century in two buildings at Park Place, a landmark office campus along the San Diego Freeway in Irvine. Maguire also has agreed to lease about 190,000 square feet to the lender at its newest development, an office building at 3161 Michelson Drive that is scheduled for completion this year.

Those leases are below the latest rates Maguire and other landlords are commanding in Orange County, the company said. If New Century gives up its space, Maguire said, it could benefit by renting it to another tenant at a rate as much as 52% higher.

The rates that New Century is paying in the existing buildings "are rock bottom," Chairman Robert Maguire said. "We wish them well, but we have really minimal exposure."

If it took a year to re-lease the existing space, lost rent would total about $6.5 million, he said. The company earned $70.3 million, or $1.11 a share, last year.

But leasing activity in Orange County has slowed lately as tenants wait to see whether rents will come down from the addition of new space, said real estate broker Greg May of Grubb & Ellis. Most of the 600,000 square feet that the owners of Ameriquest Mortgage Co. put on the market last summer has been subleased. New Century, however, might have trouble finding subtenants if it pursues a similar tack.

"Tenants may say that they don't want to sublease from a mortgage company that might not stay in business," he said.

The mortgage industry occupies more than 5 million square feet of Orange County's office inventory of more than 74 million square feet, according to real estate brokerages. Demand for office space is also coming from biotechnology, healthcare, technology, professional service and other firms.

Maguire is one of the largest landlords in Orange County after Irvine Co. and expects to own more than 6 million square feet after completing announced acquisitions and sales. Millions of additional square feet are being built or are planned by Maguire.

roger.vincent@latimes.com

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