Orange County Business Journal
14 March 2016
A Newport Beach-based investment firm with ties to the area’s hospitality industry has signed a deal to lease the top floor of Irvine Company’s 520 Newport Center Drive office tower in what looks to be Orange County’s priciest-ever office lease.
Tarsadia Investments LLC, a private investment firm, recently completed an 18,000-square-foot lease to take over the 21st floor of the office tower, which opened in late 2014 and has attracted a bevy of financial services firms as tenants.
The lease brings the occupancy rate of the building—the first big speculative office to open in OC since the recent recession—to nearly 85%.
Tarsadia Investments will move offices from the nearby 620 Newport Center office tower, which also is owned by Newport Beach-based Irvine Co.
Tarsadia Investments was formed in 2011 following the restructuring of locally based Tarsadia Hotels, one of the largest privately owned hotel operators and developers in the U.S., with holdings that include the 1,033-room Anaheim Marriott.
The new company, headed by Chairman Tushar Patel, invests in hospitality assets, along with pharmaceutical companies, financial services and other areas.
Along with Tarsadia Investments, the 2011 restructuring also created Evolution Hospitality LLC, born from the former management division of Tarsadia Hotels, as well as T2 Development LLC, which included the former company’s development and construction team.
Evolution Hospitality is now based in San Clemente, while T2 Development has been located on the same floor as Tarsadia Investments at the 620 Newport Center building; it’s unknown whether T2 is also moving to the new location.
Tushar Patel is the son of Tarsadia Hotels founder B.U. Patel, whose other son, Mike Patel, runs T2 Development.
Greg Casserly, the former president of Tarsadia Hotels, now serves as president of Tarsadia Investments.
Tarsadia Investments’ lease takes one of the most coveted office spots in OC off the market.
The tower, across the street from Fashion Island shopping center, offers sweeping coastal views from its top floors. It’s also the first new multitenant office tower to open in OC’s most prestigious office market in nearly 30 years.
Other finance-related tenants in the tower include Bank of America Merrill Lynch; Wells Fargo Advisors; Wing Lung Bank; the Janus Capital Group Inc. office established as a base for Bill Gross when he left neighboring PIMCO; and Stifel, Nicolaus & Co.
Hong Kong-based Wing Lung Bank, a subsidiary of China Merchants Bank, has made the office its U.S. headquarters.
About 40% of Newport Center’s 2.5 million square feet of office space is leased to companies providing financial services, according to Irvine Co.
The building also houses one other local company with ties to the hospitality industry: Newport Beach hotel developer R.D. Olson Development.
Tarsadia Investments’ space didn’t come cheap, according to sources familiar with the transaction.
The new tenant is believed to be paying monthly rents close to $8.50 per square foot, if not higher, real estate sources tell the Business Journal. That’s more than $150,000 per month.
There hasn’t been a full-floor office lease reported in OC that tops the $7per-square-foot monthly rate, let alone $8 per square foot.
High-end buildings in Newport Beach and around John Wayne Airport typically have monthly rents closer to $3 per square foot.
Some other Irvine Co. buildings in Newport Center Drive—cited by brokerage JLL as being the 10th most expensive street in the U.S. for office space—have rents closer to $5 per square foot. Irvine Co. officials declined to comment on the financial terms of its lease with Tarsadia Investments.
“We are thrilled that Tarsadia Investments shares our view that doing business here offers the same value as the top floor of [renowned] buildings in New York, Chicago and other prominent financial centers,” said Steve Case, executive vice president for Irvine Co.’s office division, in a statement.
At $8.50 per square foot, the deal would appear to mark a record rent for Irvine Co. across its 500-building office portfolio.
New York Rates
The only other space owned by the area’s dominant landlord that’s believed to approach that mark is in Manhattan, where the Irvine Co. recently built a 15,000-square-foot penthouse office on the top floor of its 58-story MetLife Building at 200 Park Ave.
That building runs nearly 3 million square feet and carries an appraised value of about $3.1 billion. It’s one of New York’s most prominent and valuable buildings.
The new penthouse was preleased prior to its completion last year to J. Fitzgibbons LLC, a New York-based investment office. The 15-year lease kicked off late last year and the new tenant is paying monthly rents of $8.26 per square foot, the highest in the building, according to a report last year by New York-based Kroll Bond Rating Agency.
That’s not a record for Manhattan—some buildings along Fifth Avenue command monthly rents approaching $9 per square foot, according to data from JLL.
Menlo Park’s Sand Hill Road, home to a plethora of venture capital firms, is the most expensive street in the country for office space, according to JLL’s most recent survey.
Tenants there can pay monthly rents in excess of $11 per square foot, the report said.