COVER STORY, AUGUST 2005

A DEVELOPING SITUATION
Office and industrial developers work diligently to deliver quality workspace.
Haley Shuler and Brian A. Lee

With the office and industrial markets in the West replete with opportunities, developers from California to Arizona to Utah have turned to multi-phased, multi-building, multi-tenant business parks as a means of keeping up with current demand. Western Real Estate Business profiled several western developments to see how these new projects are shaping up.

Millrock Park

A 490,000-square-foot office project in Holladay, Utah, Millrock Park came about after a decade wait for the right timing and a primed office market. Developer Steve Peterson of Millrock Development strategically acquired the original parcels of land for the project over a 10-year period.

The second phase of the 490,000-square-foot Millrock Park office development in Holladay, Utah, will be completed in October 2006.

Millrock Park represents a notable departure for Peterson and Ricks, since in the past they have focused on acquiring and entitling raw ground as well as investing in existing properties. It is the first project the developers will have taken from start to finish.

Located at 6500 South Wasatch Boulevard, the project will be rolled out in four phases and eventually be completed in 2009 or 2010. Building One, which broke ground in September 2004 and was completed last month, measures 75,000 square feet. The 144,000-square-foot Building Two broke ground at the beginning of this month and will be delivered in October 2006. Still in the design stage, the 150,000-square-foot Building Three will be completed in October 2006 and the construction of the 120,000-square-foot Building Four will follow. At build-out, the estimated value of Millrock Park will total $100 million. Greenspace in Millrock Park will total 6.5 football fields. Demand for this Class A office product in Holladay is brisk, as evidenced by the 100 percent pre-leasing of the first building 90 days prior to competition.

Ontario Airport Towers

PGP Partners and RREEF recognize the greater Ontario, California, office market as one of the fastest-growing markets with a low vacancy of 10 percent and the second strongest absorption in Southern California.

As a result, the pair established a joint venture to develop 500,000 square feet of Class A office space in Ontario to be named Ontario Airport Towers. The project will be the largest new office development in the Inland Empire. The partnership purchased 28 acres of land located between Turner and Archibald avenues south of the 10 freeway in April, and expects to break ground on the first phase, which will include two buildings totaling 250,000 square feet, in first quarter 2006. CB Richard Ellis will lease the Class A development.

“The Inland Empire office market, and specifically the Ontario area, is ripe for a development of this size and scope given the growing population and changing demographics of the region,” says JR Wetzel of Lake Forest, California-based PGP Partners.

Both phases of Ontario Airport Towers will feature multiple mid-rise, steel frame Class A office buildings, as well as a retail/restaurant component designed to conveniently service tenants of the buildings, with high-end décor and amenities throughout the project. In addition, the project will include greenspace celebrating some of Ontario’s history. The first phase is expected to be complete in fourth quarter 2006.

“As the market dynamics change, the region is seeing growing interest from white-collar tenants and demand for Class A office space that didn’t exist even a couple of years ago,” says Ashley Powell, director of development for RREEF. “The Inland Empire is considered the fastest-growing office market in Southern California and this project will further solidify that position within the fastest-growing region in the nation.”

The Ontario Airport Towers development will stand apart as one of the premiere Class A office developments the market has seen. Given the tremendous growth the market is seeing and will continue to experience, it is not the only office development on the near horizon and is prepared to position itself to attract the strongest of tenants.

“As a result of the population growth, we are seeing average leases of 11,000 square feet, where only a couple years ago the average office lease was about 3,000 square feet, from local, regional and national firms,” says CB Richard Ellis’ Natalie Bazarevitsch.

Tramonto Crossing

Later this year, Voit Development Co. will break ground on Tramonto Crossing, a 14-building office project in Tramonto, Arizona, totaling approximately 90,000 square feet. Voit identified the high demand for office condominiums within the Tramonto community and, with the help of Cushman & Wakefield’s Rob Stephens, purchased acreage at the northeast corner of North Black Parkway and Canotia Place.

One challenge Voit will have to overcome is the configuration of the site, which is slightly irregular. The project is being developed at $185 per square foot with completion anticipated for mid-2006. DFD Cornoyer Hedrick is project architect, and Valley Commercial Contractors is the general contractor. The Tramonto Crossing project will be Voit’s largest development project to date in Arizona.

The Grove

Having developed in Riverside, California, and throughout the Inland Empire for 20 years. Riverside Commercial Investors (RCI) partners Rufus Barkley and Darrell Butler had a vision to create the area’s pre-eminent office project.

A 350,000-square-foot, master-planned, multi-building office campus, The Grove is RCI’s seventh project in the Hunter Park area, and the company’s 22nd project in the Inland Empire, including 17 completed projects and six others currently in development. Phase I of the project, a 50,000-square-foot, two-story building, broke ground in June. CB Richard Ellis is representing developer RCI in the leasing of the property.

The Grove is one of the Inland Empire region’s largest office developments and will serve as the linchpin of that area’s office sector, connecting existing office buildings in the Hunter Park area with the UCR Research Park.

When completed, The Grove will include seven two-story buildings, each totaling approximately 50,000 square feet. Subsequent phases of the project, which is located at the northeast corner of Iowa and Marlborough avenues, are expected to break ground later this year, with completion of the project planned for 2007. Partnering on the project is developer Jim Rountree, with whom RCI has developed other projects. HPA Architects is designing The Grove, which is being built by Fullmer Construction.

Palomar Forum

The idea of Palomar Forum in Carlsbad, California, was introduced in the late 1990s. “It was a complicated development project that required entitlement expertise to conclude the mapping process,” says Larry Nelson, principal of Davis Partners LLC. “Considerable persistence and focus were necessary to get this through the approval process.”

Davis Partners focuses on commercial office, business parks and industrial properties. Complicated land development projects, although risky, offer a more competitive land cost. There were many challenges along the road to developing Palomar Forum.

Says Nelson: “First, it was linked to two other major development projects that the city required us, as the initial developer, to coordinate; second, a neighboring project was linked to our development property and the property changed ownership three times with a bankruptcy in the middle, requiring us to satisfy mapping conditions for both Palomar Forum and our neighboring project; third, any project that takes 7 years to bring to market has extreme exposure to unforeseen market conditions and financial consequences; and lastly, handling all the unforeseen issues that arose during this lengthy processing period was extremely formidable.”

Palomar Forum is a 50-net-acre site with 1 mile of frontage along Palomar Airport Road. Davis Partners currently has three phases of vertical development in various stages of the planning, approval and permitting process: the 206,858-square-foot industrial condominium Greyhawk Business Center, which will feature 28 units that will start construction this month; the 81,130-square-foot Greyhawk Business Center Phase II, which will comprise nine two-story condo units between 5,000 and 14,000 square feet when completed in summer 2006; and the 269,885-square-foot Palomar Forum Business Park, a multi-tenant office and industrial development to start construction in October and be completed in June 2006.

Opus Point

Carlsbad caught another developer’s eye, especially with its location in the rapidly growing area of north San Diego County and an office vacancy rate shy of 10 percent. These factors have led Opus West Corporation to develop the $105 million Opus Point, 575,000 square feet of office, R&D and manufacturing space, the first phase of which is scheduled to be break ground in October.

Grubb & Ellis went to Opus West with this opportunity due to the full-service real estate company's speed, experience and ability to self-finance the large project, as well as create a development plan complementary to H.G. Fenton Company’s existing plans for adjacent parcels. There were many hurdles to jump over to make Opus Point a reality.

“The main challenge was self-imposed, which is our intent to design, process, construct and deliver approximately 325,000 square feet of buildings spread among a variety of differing products to market, for sale or lease, by summer 2006,” says Chris Wood, senior director of real estate development in Opus West’s San Diego office. “Another key challenge is to provide product that meets market needs while being differentiated from other product in the pipeline.”

This will be achieved with unique product diversity. Opus Point’s first phase will consist of 103,000 square feet of full two-story corporate headquarters office product; 100,000 square feet of free-standing, for-sale R&D buildings, ranging from 16,000 to 26,000 square feet; 62,000 square feet of small for-sale office buildings, ranging from 5,000 to 12,500 square feet; and a 60,000-square-foot R&D single- or dual-tenant facility.

The 250,000-square-foot second phase of Opus Point will be completed in fourth quarter 2006 or first quarter 2007. Smith Consulting Architects and Opus Architects & Engineers form the project’s architectural team. Opus West Construction Corporation is handling construction.

Irvine Center Tower 5

Transwestern Commercial Services is developing Irvine Center Tower 5 in Irvine, California.

The new building will be a 10-story, 231,178-square-foot Class A office building with floor plates ranging from 18,670 to 23,841 square feet. The new tower will offer contiguous and unobstructed floor plate leasing opportunities to meet the demand in the marketplace. In designing the new tower, careful consideration was given to the architectural compatibility between the four existing office towers and the adjacent Marriott Hotel.

Bridge Pointe Corporate Centre III

The Bridge Pointe Corporate Centre III office project in San Diego reflects the strategic development and investment strategy of Equity Office Properties Trust (EOP). The REIT gained control of the University Town Center (UTC) site in 2001, and although market conditions did not warrant an immediate start of the third phase of the office campus, EOP was able to hold the development site until the market demand could support a new project. Since the beginning of third quarter 2004, the UTC market has tightened dramatically to approximately 10 percent vacancy, and EOP is now ready to move forward.

Equity Office Properties Trust is developing the $36 million Bridge Pointe Corporate Centre III in San Diego.

One of the primary challenges facing the Bridge Pointe Corporate Centre III development team was having the market patience, which is not an option many development companies can afford. Another obstacle was the rising cost of construction materials such as steel and concrete in the past 18 months, which can inflate development costs beyond justification. The development team also had to adjust to new building codes that had changed from when the project was initially designed and entitled several years earlier.

Bridge Pointe Corporate Centre III will offer a premier local business environment for a regional or corporate headquarters. “This is a unique site that is well positioned for a solo corporate user in a tightening market,” says Walter Roach, director of development for EOP. Upon completion of the third phase, Bridge Pointe Corporate Centre will be a nine-building campus totaling approximately 591,000 square feet of office space.

Hall Avenue Building

Development of the 107,937-square-foot Hall Avenue Building in Agua Mansa Industrial Center in Riverside, California, constitutes many firsts. It’s the first speculative development in the industrial complex, and it’s the first project for Seventh Street Development.

Seventh Street Development principals Craig Furniss and Doug Hinchliffe were originally involved in purchasing the 300-acre Agua Mansa Industrial Center in 2002 when they were with Lowe Enterprises. In 2004, after leaving Lowe to start their own company, the two purchased the 6 acres from their former employer. The Hall Avenue Building broke ground in February 2005 and will be completed next month.

The main challenges of this development project included endangered species claims against development in the Agua Mansa Industrial Center, a high interest rate bond assessment, a county lot line that split the property and a perception in the marketplace that deals were difficult to complete there. Add to that the significant hurdle of coping with the unprecedented rise in construction costs.

Nevertheless, Long Beach, California-based Seventh Street Development was up and running. The development has excellent access to the 60, 10 and 215 freeways and enjoys enterprise zone benefits. Genesis LA Real Estate Fund, managed by Shamrock Capital Advisors, provided $2 million in equity on the project. The approximately $7.5 million development was designed by HPA Architects. Oltmans Construction Company is the contractor.

©2005 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.