The Orange County Business Journal reported this week that The Irvine Company has made a strategic decision to place debt on their Orange County Office portfolio. While this may seem like the industry norm (and it is), The Irvine Company has long shied away from leveraging their portfolio. In fact, leasing representatives from The Irvine Company have often touted the fact that the portfolio had no debt as a “differentiator” when marketing to brokers and tenants. To read more about the 875 million dollar move, click here.
So what will this mean to office tenants leasing space within The Irvine Company’s portfolio, and to those considering a move into an Irvine Company owned building? First and foremost, I believe this move is a clear signal to the market that The Irvine Company is quite bullish on the office market going forward. Given this fact, I would expect to see rental rate increases in the near future. They will be likely using this money to buy additional assets, or pursue more new construction projects. And while the loan is quite large at $875 Million, it is still less than 50% of the portfolio’s appraised value. However, by entering into such a commitment, The Irvine Company has undeniably given up some of the autonomy that it has clearly enjoyed as a landlord.
For example, in “pre-debt” days, The Irvine Company could operate with complete autonomy. If they needed to drop the rent to attract a key tenant, they could do so. If a tenant needed to sublease all or a portion of their space, they only needed landlord approval. Now these issues, as well as many others, may be subject to lender approval. And while I don’t suspect that this will cause any major hiccups in The Irvine Company’s ability to continue to prosper in this market, tenants need to be aware of these new “rules of engagement”
If you have any questions about your lease, or would like to learn more about the general status of the office market, please feel free to contact me at 949-721-8880 or bill@whitespaceadvisorscom