Karma Lease Shows How Late We Are in the Cycle

Halford: “When you get to a point in the cycle where users are jumping in and buying deals you had otherwise redeveloped, it’s a sign you’re getting later in the cycle.”

IRVINE, CA— Habitat , the former 262,000-square-foot Kawasaki USA headquarters here that Bixby Land Co. had planned to redevelop into a “pinnacle” creative-office campus, will now be built to the specs of the new automotive tenant, Bixby’s president and CEO Bill Halford tells GlobeSt.com. The property, located at 9950 Jeronimo , has been leased long term entirely to Karma Automotive , an American car company that manufactures luxury hybrid plug-in vehicles. As we had previously reported , Bixby had acquired the project from Kawasaki in 2015 for $44.25 million, rebranding the project to Habitat to deliver a compelling vision for a dynamic, amenity-rich campus that would be ideal for a single user, yet flexible for multiple tenants. According to Aaron Hill , EVP and COO at Bixby, the firm’s “primary investment objective was to lease the project to a progressive-minded tenant that would value the unique configuration of this two-building project.” The buildings are connected by an extensive two-story atrium that was redesigned by IA Interior Architects as a promising indoor-amenities area.

Bixby had begun to reimagine Habitat for single or multiple users.  

Halford tells us exclusively, “We had planned, once Kawasaki moved out, to redevelop the building to this mega creative-office project. We were going to spend upwards of $30 million. We’ve done 28 of these buildings now, and this one was going to be like the ‘pinnacle’—a spa with pool, it was going to be amazing. While we were in design, though, along came Karma. They said, ‘We really want to be in Irvine, and this property works well for what we want to do.’” As part of its planned distribution strategy for its new Revero automobile, Karma—which will begin relocating to the new facility from its current neighboring Costa Mesa location later this year—is going to create an Orange County Brand Experience Center at this new location, where customers go in and feel the brand. “That resulted in a discussion over a couple of months, and they ultimately signed this lease, a circuitous route,” says Halford. “This is a long-term lease, and clearly what they’re going to do is unique to their use. As long as the economics panned out for us, we were indifferent. As these negotiations go, you’re always debating price, and ultimately we were able to make it work.” Regarding redeveloping older stock to true creative office—which is what Bixby prides itself on—Halford says, “We still want to participate in it, but when you get to a point in the cycle where users are jumping in and buying deals you had otherwise redeveloped, it’s a sign you’re getting later in the cycle. It’s consistent with our view that it’s harder to make sense of the math. You have to sell in excess of replacement cost or at some abnormally low cap rate. So, I would say our interest remains high, but our ability to execute these deals as we get further into the cycle is tougher. This execution, from the standpoint of what we set out to do with the investment , is great—it’s just a different path.” The demand for larger blocks of space for a creative work environment in Orange County was a determining factor when Bixby acquired the project from Kawasaki last year. “We’re not at all surprised that a visionary company such as Karma Automotive chose to take the entire project,” says Hill. “Frankly, they’re a perfect fit.” Gregg Haly and Jeff Carr of CBRE represented Bixby in the transaction, while Karma Automotive was represented by Kevin Leonard and George Okita of California Commercial Real Estate Services . Terms of the lease were not disclosed. Karma is owned by Wanxiang Group , which purchased the assets of Fisker Automotive in 2014. The lease to Karma Automotive coincides with Bixby’s $10.5 million sale of an adjacent 4.7-acre vacant land parcel to Chapman University , an active investor in the area that also recently purchased two nearby buildings for the ongoing expansion of its Irvine campus. Bixby, which received multiple offers on the parcel in a competitive bidding process, was represented in the sale transaction by Haly and Carr. Alex Hayden, Travis Boyd and Rick Sherburne at CBRE represented Chapman University.