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South Coast Home Furnishings Center sold out of bankruptcy

Investors pay a fraction of the most recent sale price for the struggling Costa Mesa mall.

February 14, 2009|Roger Vincent

A nearly new but struggling shopping center for home furnishings near South Coast Plaza in Costa Mesa has been purchased out of foreclosure at a fraction of its original value by Orange County investors who hope to nurse it back to health.

South Coast Home Furnishings Center, which sold for $100 million before it was completed in 2007, was bought again for about $39 million Friday by Burnham USA, a commercial real estate developer and investor.

"We believe the Orange County commercial market is near the bottom and we are trying to take advantage of opportunities that might be out there," said Stephen Thorp, executive vice president of Newport Beach-based Burnham.

The 300,000-square-foot mall was planned in boom times as a one-stop center for all manner of home fittings. Irvine developer Birtcher Development & Investments demolished the former State Farm Mutual Insurance building and erected the home furnishings complex on a 20-acre site along the 405 Freeway.

A group of local investors bought the mall from Birtcher in 2007 when it was almost 100% leased to retailers of furniture, flooring, lamps and other home products.

But the local economy soon changed. Wickes Furniture, the mall's anchor tenant, declared bankruptcy early last year and some other tenants also packed up and left. By last summer, the owners had defaulted on their loan from LaSalle Bank and the property went into receivership.

Burnham was able to purchase the property with funding from Bank of America, which bought La Salle Bank in 2007.

South Coast Home Furnishings Center is only about 60% leased now, Thorp said, but he hopes to get occupancy up to a "respectable" 80% within a year or so by offering the empty space as offices to architects, engineers, interior designers and other real estate-related businesses.

"It would be a wonderful space for them to take advantage of," Thorp said.

More distressed commercial property sales are coming, said investment banker Gary M. Tenzer, who was not involved in the deal. Last year there were few big property deals, he said. "It was paralysis. Everyone was stuck like deer in the headlights. 2009 will be different."

There is a little more liquidity among lenders now, he said, "and smart people are finding ways to make transactions work."

That doesn't mean the market is turning, though, said Tenzer, a senior director at George Smith Partners. "We are going to see a lot of distressed sales," he said, "but I don't think we have seen the bottom. Commercial real estate is going to be very weak for the next two or three years."


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