By Jon Peterson
An out-of-state investor is looking to test the market with a fully-leased property in suburban Monterey Park, Calif. The owner, Ridgeland, Miss.-based EastGroup Properties, has placed on the market for sale the 78,866 square foot office building located at 2525 Corporate Place. The asking price on the sale is $20 million, or $254 per square foot, according to the property’s offering document.
The seller is working on marketing the property with Colliers. The team working on the sale includes Michael Kendall, a vice chairman working out of the firm’s office in Irvine, and Louay Alsadek, an executive vice president in the firm’s San Diego office.
If the sales price is reached on the transaction, it would come in well below the replacement cost for the property. Industry experts have indicated this would be around $500 per square foot, which would place the value on the property closer to $40 million. This two-story building was first developed in 1986, and it was renovated in 1992, according to public documents.
The cap rate on the transaction for the $20 million asking price would be 7.8 percent for the first year under the new ownership, according to the property’s marketing document. This return would be based on the property’s year one net operating income of $1.55 million. The cap rate is projected to increase to 8.6 percent by year four. The 10-year projected hold returns on the property are an all-cash IRR of 8.75 percent and an all-cash equity multiple of 2.02X.
2525 Corporate Place has a very strong history of occupancy. There are no vacancies in the property now, and the building has been fully leased since 2014 and averaged over 97 percent occupancy since 1996. The average tenant in the building has been in the property for over 25 years, and more than 75 percent of the rent roll has been in place since the 1990’s.
There are four tenants in the property currently. The largest of the tenants is the Los Angeles County Department of Children and Family Services. It has a lease for 29,542 square feet. Next is the Deluxe Corporation for 29,048 square feet. The other two smaller tenants are the Los Angeles County Sheriff’s Department, which occupies 10,941 square feet and the Los Angeles Regional Interoperable Communications System, which takes up 8,335 square feet.
The office building is located in a very tight market in the San Gabriel Valley. This area boosts the lowest office vacancy rate of all Los Angeles submarkets at 7.9 percent. This compares to the county average of 20.3 percent. There are currently no new office buildings under construction in the San Gabriel Valley. The prevalent trend of demolishing existing office buildings for future industrial use is poised to make the area even tighter as displaced office tenants will relocate to the remaining office buildings.