Valencia office trades at $204 a foot, vacancy and all

Roughly $204 a square foot bought a 79 percent-leased, 2005-vintage office campus in Valencia, within a couple of dollars of what a Brea building that is 29.5 percent empty fetched in mid-September. CBRE brokered the $32 million sale of Commons at Valencia, two Class A buildings at 25124 and 25152 Springfield Court totaling about 157,189 square feet, from Harbor Associates to Strauss Investments LLC, Connect CRE reported.

The campus, built in 2005, is two three-story office buildings and a two-story parking structure with 625 spaces, and it was 79 percent occupied at the sale by professional services, insurance, financial services and real estate tenants. CBRE's Mark Shaffer, Anthony DeLorenzo, Sean Sullivan and Gerard Poutier represented Harbor Associates, and Shaffer credited the tenant roster, recent capital improvements and the submarket's leasing momentum with drawing the bids, though the coverage does not say how much capital was spent or when.

Set the two September prices side by side and occupancy stops carrying much of the load: the Brea building sold in 30 days at $205 a foot with 29.5 percent of it empty, as this publication covered at the time. Valencia brought 8.5 fewer points of vacancy, a newer vintage and a seller that had reinvested in the asset, and it priced within $2 a foot of the same number. Neither trade reads as a payment for the rent roll in place; both read as payments for space still to be leased.

Run the residual and the shape of the bet appears: give Strauss no credit for the vacant fifth and the basis is nearer $258 a foot on paying space, the arithmetic a lease-up case is built on — buy a modern suburban campus on a basis the market set for vacancy rather than income, then earn the spread by filling it. That is the right bet to make here. As this publication has argued, non-data-center supply is frozen, and the competition in this cycle is for buildings that already exist and have already absorbed capital, not for new ones nobody is starting.

What the coverage does not supply is the financing, Harbor's basis, or how long the campus took to trade, so the $32 million stands as a bid without a cost of capital attached to it. The lease-up is the thing to watch: absorb the vacant fifth at the rents Valencia is quoting and Strauss bought well, let it sit and the firm owns a 2005 building at what the market paid for an empty one.