HomeMy WebLinkAbout11 - Land Use Entitlements for the Residences at 4400 Von Karman Project (PA2020-061) - Correspondence - Picerne GroupReceived After Agenda Printed
January 26, 2021
Item No. 11
TEE PICERNE GROUP
January 21, 2021
VIA E-MAIL
Mr. Zhi Li
Corporate Secretary & HR Director
COMAC America Corporation
4350 Von Karman Avenue
Newport Beach, CA 92660
Dear Mr. Li,
First, allow me to apologize for assuming you did not object to our proposed development. We met
with your representative at which time she expressed no concern. In addition, your building is a
good distance away from our development, and your panting is not affected. Following that meeting,
we heard nothing and interpreted your silence as not having an issue.
We have learned from Fidelia Chun that your real issue is you were surprised to discover that, after
your purchase of 4340 Von Karman, residential development was planned and authorized in the Koll
Center. Ms. Chun stated the fact that residential is an authorized use under the City's existing land
use development standards, and the fact that the sale of surface parking for residential redevelopment
is likewise an authorized use (provided all parking spaces are replaced), was not expressly disclosed
in your purchase contract. She also told us that had COMAC known about this, then COMAC would
have likely purchased an alternate office building then under consideration in Long Beach.
We sympathize with your position and certainly understand how this would cause distress. However,
we were disappointed to see your opposition to our project without affording us the opportunity to
tour you through our project next door at One Uptown Newport. If you did so, we think you would
have learned why mixed use (residential, office, retail) projects in the United States have
outperformed earlier generations of only office building complexes resulting in higher demand, rents,
and occupancies. Our One Uptown Newport project has the highest per square foot rents in
Newport Beach. Our proposed project will be of equal quality and provide a 1 -acre public park and
nearly %2 mile walking/jogging pathway as an amenity to the Koll Center.
Housing advocates in the City and region support infill housing as a mixed use solution that will
benefit business parks, and the City itself recognized and adopted a plan nearly a decade ago that
already authorized residential projects at the Koll Center. Housing advocates support our project as
the implementation step of previously -approved City planning requirements, and both City staff and
the Planning Commission (unanimously) support our project. The City has imposed dozens of
Nlr. Zhi Li
COMAC America Corporation
January 21, 2021
Page 2
mandatory conditions of approval on our project to minimize temporary construction impacts and
assure the ongoing success of both the Koll Center and our project.
As you know, our proposal is the second one that the City of Newport Beach has seen in the past two
(ears. The previous applicant's 15 story condominium tower project, which you opposed, was
generally considered inharmonious by the community. Our proposed project was designed based on
what the community publicly expressed as an acceptable alternative. We respectfully request that you
consider this background information on our project, and on the enhanced value our project will
create for you and other business park owners. Again, we would be pleased to provide you or your
local representatives with a tour of our nearby luxury apartment community, which we believe will
reinforce the value of mixed use development.
Outlined below in italics are answers to the specific questions raised in your December 30, 2020
letter.
1. The increase in building density within the Koll Center will decrease the privacy between
buildings, which was a substantial deciding factor in CAC's decision to purchase the building.
The approximate distance between 4350 Von Karman (COMAC building and 4340 Von Karman
(off ce condo association) which existed when you purchased 4350 Von Karman is approximately
SO feet. The approximate distance between your building and our proposed luxury apartment
community is 145 feet at its closest point.
2. The addition of residential development into what has always been a business park will reduce
the perception of a professional business community for the Koll Center, thereby potentially
negatively impacting the value and marketability of our building to buyers and tenants. The loss
of a professional business park will also negatively affect our customers' impression of our
company.
We disagree. Mixed use parks that feature high end residential typically outperform their market
compeon. Many mixed use parks wn the surrounding area (i. e. Newport Beach, Irvine,
Costa Mesa) have been adding residential units and those properties have seen resulting
increased occupancies and office rental values.
In fact, The Picerne Group completed a luxury apartment community in the City of Orange,
California in 2018 immediately adjacent to an institutional quality off ce building which
experienced increased occupancies and rent during construction and after completion.
Our project also includes a 1 -acre public park and nearly Y2 mile
walking/jogging pathway that
we anticipate will be primarily used by employees of our business park neighbors, and this too
creates a substantial new amenity —along with covered parking for commercial users discussed
below — that our project will create to enhance the value of Koll Center commercial owners.
3. CAC's parking rights will be negatively affected during construction of the Project and appears
likely to be affected after completion of the project as well. Itis unclear where vehicles from
CAC's and other buildings will be parked during each phase of the construction and it is unclear
Mr. Zhi Li
COMAC America Corporation
January 21, 2021
Page 3
how the underground garage and standalone garage will serve CAC's building when both are
situated at an inconvenient distance from our building.
Every off ce parking space eliminated will be replaced with parking that is equivalent in terms of
convenience and superior in terms of quality (i.e. covered). The City of Newport Beach approved
the parking plan in 1973 as part of the overall Koll Center Newport to accommodate all
permitted uses (residential, office, hotel and retail). As discussed with Fidelia Chun, we
designed three phases of construction to mitigate impacts to the parking. We have attached
Exhibit "A" to this document to illustrate each phase of construction and how it affects parking.
The parking study performed by LSA showed pre-covid peak capacity of the entire parking lots
were only 57% utilized. We offered to show Fidelia Chun the specific features of the covered
parking spaces over a zoom conference call and its relationship to serving 4350 Von Karman,
but she did not feel it was necessary at this time.
4. The substantial noise, dust, waste and other pollutants during construction will undoubtedly
negatively affect our employees, tenants and visitors to the building. Not only will such a
massive construction impact daily business operations of the people inside our building, we will
also likely not be able to lease vacant space in our building and will likely face rent reduction
and/or early termination requests from our tenants. This will materially impair the financial
viability of our property.
We surveyed Newport Beach airport leasing/sales brokerage companies who indicated that while
construction does create a temporary inconvenience, it is more than offset by being adjacent to
an institutional quality luxury apartment community with a 1 -acre park and covered parking.
Based on our research and our experience in the city of Orange we believe your property will
enjoy higher rents due to the significant investment of removing an unattractive asphalt parking
lot and creating a mixed use office campus with over one acre of green space for office tenants to
relax, socialize, exercise during breaks from the office, and the option of higher value covered
garage parking.
5. Construction sites and subsequent increase in population density from the apart
ments will likely
bring about increased crime to the area, creating safety concerns for the business. buildings as
well as those who work with in the building.
We are investing $250MM in the development of the proposed Residences at 4400 Von Karman,
Our One Uptown Newport property, which is virtually next door, has residents, whose annual
incomes range from approximately $100, 000 to over $IMM, not including our residents who
qualify for affordable units. The average monthly rents, for our non -affordable units, range from
a low of $2,500 per month to a high of over $10, 000 per month. Residences at 4400 Von Karman
will be the same quality as One Uptown with some additional upgrades, and we believe a tour of
One Uptown would reassure you that our proposed development would not create garbage,
crime, and pet issues within the Koll business park.
6. The addition of residential apart
ments will likely result in increased waste and garbage near the
apartments as well as bring about new pet management issues with the residents of the
apart
ments.
Mr. Zhi Li
COMAC America Corporation
January 21, 2021
Page 4
Same as #5. Pidelia Chun had indicated in this covid period company policy does not allow
them to tour our One Uptown property. I believe it would be helpful for your US staff to take a
safe, socially distanced tour of the property to gain a complete understanding of the high quality
)four developments and resident base. Our property management team is led and staffed by
highly paid top industry professionals who operate the property based on institutional investment
standards, which surpass those commonly practiced by class B office buildings in the Koll center.
7. Construction vehicles during the construction and new residents thereafter will undoubtedly
increase traffic within Koll Center as well as its near vicinity.
It is within the general charge of the City to ensure public safety and welfare of its residents and
to utilize applicable laws, rules and regulations to protect the same while also promoting
economic prosperity and respecting private owners' property rights. Of course, as with any
situation where development and construction is being completed, there will be some resulting
temporary inconveniences. In this case, the promulgated conditions of approval require, prior to
the issuance of a building permit, a City -approved construction management plan addressing
many topics, including project phasing, staging areas, construction parking, haul routes and
emergency access. A draft of the management plan was attached to the November S, 2020,
Planning Commission Staff Report as Attachment No. PC S.
8. The lack of retail space within the Project to serve the residents and the surrounding business.
Due to building constraints the requirement to create affordable apartment units prevailed over
the possibility of designing any retail space. Despite that, retail in this location is a not viable
due to its lack of street visibility, insufficient critical mass of potential customers, and the
continued retail fallout due to the covid pandemic. A case in point is the 5000 Birch St. building,
a class A institutional quality office building consisting of over 324, 000 square feet. As tenants
of the building, we have witnessed several sandwich/coffee/small restaurant format businesses
come and go from the ground floor due to their inability to operate profitably over the past
several years.
The State of California is pressuring cities to create housing, and in particular has taken aim at the
affluent Southern California cities like Newport Beach. Newport Beach's current Regional Housing
Needs Assessment (RIMA) number is to create 4,834 housing units of which our proposed
development will satisfy 312 units. RHNA is mandated by State Housing Law as part of the periodic
process of updating local housing elements of the General Plan and quantifies the need for housing
within each jurisdiction. Our proposed development is the perfect example of how to create luxury
community housing while integrating some affordable units in the most affluent city in Orange
County. As discussed with Fidelia Chun, there are many housing advocate groups who strongly
support the proposed development as a public benefit, and there will be significant publicity for any
opposition groups.
Mr. Zhi Li
COMAC America Corporation
January 21, 2021
Page 5
We would welcome an opportunity to speak with you over a zoom conference call. Please let us
know your thoughts.
Regards,
Greg N c ira
cc: "Kenneth A. Picerne
Mr. Zhi Li
COMAC America Corporation
January 21, 2021
Page 6
EXHIBIT "A"
PARKING PLAN DEPICTIONS
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PEREGRINE
REALTY PARTNERS
RESIDENCES AT 4440 VON KARMAN
JANUARY 4, 2021
Assignment
Retained by The Picerne Group to review the development plan for the Residences at 4400 Von
Karman and determine the impact the project would have on the adjacent office buildings in the
Koll Center Newport. In summary, in addition to the 312 Class A apartment units and covered
replacement parking, the project is to include a 1 -acre public park with active amenities and
nearly %-mile walking/jogging pathway that is anticipated to be primarily used by business park
employees and neighbors.
B IRE H ST. RESIDENCES AT 4400 VON KARMAN
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COMPONENT +41-A PARF
Background — Bradley E. Lofgren
• 30 Years of experience in the commercial real estate industry with specific expertise in the
valuation of commercial real estate assets in California and Hawaii.
• Licensed as a Certified General Appraiser in the States of California and Hawaii.
• Designated member of the Appraisal Institute (commonly known as "MAI").
• Founding principal of Peregrine Realty Partners, Inc.
• In addition to valuation/consulting work, the firm owns and manages 2M square feet of office
and industrial space, the majority is located in Southern California.
1201 Dove Street., Suite 650 j I4ewport Beach I California 1 92660
www.peregrinerp.com
Broker Interviews and Market Data
In confirming our empirical data, we conducted interviews and obtained input and opinions of
value from area office experts including representatives of Lincoln Property, CBRE, JLL and Orion
• Of course, certain temporary construction inconveniences cannot be avoided; hence, most
acknowledged that the interim loss of surface parking would be a negative on any pending
lease renewals and in the leasing of vacant space.
• However, impacts would be during construction period only.
• Post completion, office buildings would benefit from the covered parking and overall
improved campus -like setting with public park, pedestrian trails, greenbelt areas, etc.
• Resulting projected office lease rent increases range from 5-10% at completion.
Recent examples of office performance that were directly adjacent to apartment construction:
1. 1100 W Town and Country office building (396,680 sf) was built in 1987. The Picerne
Group constructed Eleven10 a luxury apartment community, between 2016-2018.
Distance between buildings is 60 feet. Office occupancy dipped during the early stages of
apartment construction dipped, but rebounded prior to completion. Rents dipped slightly
at the start of apartment construction before rebounding and increasing prior to
apartment completion.
2. 6221 Wilshire Blvd office building (53,000 sf) was built in 1957 and renovated in 1999.
The Visions at Wilshire Apartments was constructed between 2016-2018. Distance
between the buildings is 40 feet. Office occupancy increased from below 80% to 95% and
continued after completion. Rents increased during and after construction of the
apartment project.
3. 3055 Wilshire Blvd office building (215,582 sf) was built in 1974 and renovated in 1992.
The 3033 Wilshire Apartments were built between 2014-2016. Distance between the
building is 0 feet. Office occupancy trailed the market prior to construction and dipped
(7%) at the start of construction before rebounding post completion outperforming the
market in 2017. Rents trailed the market prior to construction before increasing during
the construction period and upon completion of the apartment project.
Other office projects that we own or have otherwise been directly involved in, prove out the
above broker guidance (i.e., slight interim impacts during construction followed by significant
increases in demand and resulting premium opportunities).
Conclusion
The Residences at 4400 Von Karman - a luxury apartment community with a new one -acre public
park - will ultimately increase, not diminish, the value of the other Koll Center Newport
properties.
2
It is my understanding that TPG's nearly adjacent One Uptown Newport project, has residents
whose annual incomes range from approximately $100,000 to over $1.OM (not including
residents who qualifying for affordable units) and average monthly market rate rents ranging
from a low of $2,500 per month to a high of over $10,000 per month. The Residences at 4400
Von Karman will be the same quality as One Uptown Newport with some additional upgrades.
In my experience as an office owner, broker and manager, I am confident that prospective
residents will not only work in various Koll Center Newport offices, but now have an increased
capacity and incentive to locate their businesses to the Koll Center as well.
3