Harbor Associates Plans to Buy $250M in SoCal Suburban Office

Harbor Associates plans to buy $250 million in Southern California suburban office product this year. In the first quarter, the firm has already closed $90 million in deals—putting them on track to reach their end-of-year goal—most recently purchasing the four-building 213,459-square-foot Encino Office Park for $47.85 million. The firm is focused on first-ring markets outside of major metropolitans, where there are healthy market fundamentals and reduced investor competition.

“We’re bullish because we see a disconnect between the healthy market fundamentals and the investment goals of institutional capital, which we believe creates a buying opportunity,” Paul Miszkowicz, a principal at Harbor, tells GlobeSt.com. “Lots of articles are written about the fundraising efforts of major institutional real estate players and the amount of dry powder that these groups are sitting on, but in our experience the investment ‘box’ for a large swath of the investment landscape is pretty well defined with ‘value-add’ deals in ‘primary’ locales seeing an over supply of investor interest.  When you look to invest one ring outside of the ‘bulls eye,’ investor interest drops off materially.”

While these properties are located outside of the CBD, they have strong tenancy with a tenant roster that often includes Fortune 500 tenants. This tenancy is another incentive for Harbor’s acquisition strategy. “Harbor’s portfolio has a tenant base which ranges from Fortune 500 companies to sole proprietors,” says Miszkowicz. “We’re seeing business leaders making purchase decisions, growing their real estate footprints and square footage, investing in their space as a tool to attract and retain talent, and signing long term leases—all indicative bullish signals.

There is a value-add component on these deals, too. Harbor typically purchases assets in-need of upgrades where they can drive and control occupancy. Last year, the firm had half its portfolio vacant—1 million square feet of a 2 million square foot portfolio. In the last 9 months, it has leased 650,000 square feet of space. “The strategy is largely asset and market dependent,” adds Miszkowicz. “We frequently embark on renovations to refresh the projects we’re purchasing and taking on some form of lease-up or tenant rollover risk. We’re frequently capitalizing the projects with bridge debt financing that come from banks, life insurance companies and debt funds.”

The Encino Office Park is an ideal fit for that strategy. The property could benefit from capital improvements and a leasing strategy. It is also in a diverse and healthy market. “Our focus is on meeting our tenant’s real estate objectives and delivering efficient solutions,” says Miszkowicz. “Encino is largely comprised of small and medium sized tenants with concentrations in professional business services including the legal, financial services, insurance, accounting, fields. Encino tends to out-perform the greater San Fernando Valley because of its proximity to West LA, executive housing and major regional transportation systems. We like that Encino isn’t over-concentrated to a specific industry or a specific tenant and we view the tenant industries in Encino as lower beta relative to the explosive growth of say the technology industry in West LA.”

Last year, Harbor acquired $300 million in Southern California suburban office in a total of 10 acquisitions. This year, it has made two purchases totaling $90 million. “We’re on track, but hitting our investment goals will be dependent on finding interesting new acquisition targets through the rest of 2019,” says Miszkowicz.