With its widely reported bankruptcy behind it, with employment once again increasing and with new firms arriving, Orange County, Calif., is at the beginning of what many believe to be a new era of prosperity.

"Orange County's bankruptcy is over, except for some technical details, and the bankruptcy had no impact on the economy -- it was blown out of proportion," says Gary Hunt, executive vice president of The Irvine Co., Newport Beach, Calif., the county's largest real estate developer.

After losing jobs during 1991, 1992 and 1993 as Southern California lagged in recovery from the national recession, Orange County gained 10,000 jobs in 1994 and again in 1995. It is also forecast to add 22,800 jobs during 1996, according to Anil Puri, economist at California State University, Fullerton. Even aerospace employment is firming, with economist Dr. James Doti of Chapman College forecasting a 1% increase in employment in Orange County aerospace.

"Orange County retains its stature as one of the most economically vibrant components of Southern California and is well positioned for active growth during the balance of the 1990s and beyond," says Michael Meyer, managing partner of the Orange County office of Los Angeles-based E&Y Kenneth Leventhal Real Estate Group.

A number of real estate investors appear to agree. Among them is Sam Zell's Equity Office Properties, based in Chicago, which has purchased four Orange County office towers totaling 1.3 million sq. ft., two in the city of Irvine and two in the city of Orange.

"With no new construction and continued positive absorption, the office building vacancy rate has continued to decline," says Michael Dorsey, senior vice president with Grubb & Ellis' Newport Beach office.

However, net absorption of office space reached only 600,000 sq. ft. during 1995, down from 932,963 in 1994. But Dorsey counters that much of the office space absorbed in Orange County during 1995 was sublease space, which doesn't show up in absorption statistics. "We started last year with a million square feet of sublease space and have whittled that down by more than 600,000 sq. ft.," Dorsey says. Grubb & Ellis forecasts that office absorption will increase to 800,000 sq. ft. during 1996.

Orange County's office vacancy rate is pegged by Los Angeles-based CB Commercial at 15%, down from 16% a year earlier. But in the highly desirable John Wayne Airport area, vacancy is down to 12%. Average asking office lease rate is $1.44, with brokers expecting rates to increase from 5% to 10% during 1996. "Rents are stiffening as larger users are finding large amounts of contiguous space disappearing from the market," says John Pierce, managing partner of Voit Commercial Brokerage's Newport Beach office.

Purchase prices for Class-A office buildings have risen dramatically as demand increases. For example, the nine-story 4100 Newport Place in Newport Beach sold in 1992 for only $73 per sq. ft. Recently, the 10-story One Newport Place, one block away, sold for close to $135 per sq. ft., and seller RREEF, San Francisco, reportedly had two dozen offers. Recent major office leases include Unocal's 76 Products, moving from Los Angeles into 200,000 sq. ft. in South Coast Metro Center, Costa Mesa; Santa Fe Pipeline's move from Los Angeles into 64,000 sq. ft. in Equity Office Properties' newly acquired 1 100 Executive Tower in Orange; and AirTouch Cellular, expanding from its 200,000 sq. ft. in Irvine's Jamboree Center into an additional 189,000 sq. ft. in Winthrop Management's Park Place directly across the San Diego Freeway (405). The AirTouch lease is for five years with a total consideration of $15 million.

Avco Financial Services, which considered moving out of California, moved its 130,000 sq. ft. headquarters into C.J. Segerstrom & Sons' plaza Tower in South Coast Metro.

Making a major splash in Orange County industrial circles is Denver-based REIT Security Capital Industrial Trust, which has purchased three Orange County industrial sites totaling 137 acres and plans to develop more than 2.8 million sq. ft. of industrial space.

On its 52-acre site in Anaheim (a former Northrop Corp. facility acquired for a rumored $13 million), Security Capital is under construction on two bulk distribution buildings -- a 677,420 sq. ft. build-to-suit for RSI Home Products, moving from Los Angeles, and a 512,324 sq. ft. inventory building.

At its 55-acre site on the Foothill Ranch in south Orange County, Security Capital is under way on the 450,415 sq. ft. first phase of a multitenant industrial park; and on its 30-acre Pacific Commercenter site, also in south Orange County, the firm has two speculative buildings, totaling 130,000 sq. ft., under construction.

"Our Orange County acquisitions and developments are based on our belief in the Orange County industrial markets: exceedingly low vacancy rates for distribution space, lack of large parcels of infill industrial land, a unique opportunity to purchase land at historically low prices and demand for build-to-suit facilities," says Larry Harmsen, vice president in charge of Security Capital's Newport Beach office.

Industrial vacancy rates in Orange County average 11.6% for manufacturing/distribution space and 15.9% for research/development space. A total of 13.8 million sq. ft. of industrial space was absorbed during 1995, down slightly from 1994's 15 million sq. ft. Absorption included 10.4 million sq. ft. of manufacturing/distribution and 3.4 million sq. ft. of research/development.

Asking rent is $0.45 for manufacturing/distribution space and $0.61 for research/development space.

"Industrial parks are starting to turn around," says Adam Petriella, vice president in charge of Marcus & Millichap's Newport Beach office. "At today's sales prices ($45 per sq. ft. vs. $70 per sq. ft. in 1990), you can get cash flows of 10% to 15% on current actual occupancies." The shortage of industrial space, especially a vacancy of only 5% in The Irvine Co.'s hot Irvine Spectrum at the confluence of the Santa Ana (5) and San Diego (405) freeways in south Orange County, has been noticed by The Irvine Co. as well. The company has just completed two flex/tech buildings, totaling 102,020 sq. ft., in its Corporate Business Center and has three buildings, totaling 114,380 sq. ft., under construction. A total of 12 buildings are planned.

In addition, the firm is developing two industrial buildings, totaling 100,000 sq. ft., on an 80-acre research and development site adjacent to the University of California, Irvine. Also, the company has recently acquired four flex/tech buildings which it did not own in the Irvine Spectrum.

"We are cranking up again, but we are proceeding in shorter phases so we can stop if the market turns," says Richard Sim, president of the investment properties division of The Irvine Co.

While Orange County's industrial development is just starting to come back to life after a five-year hiatus, retail development never ceased and continues to swell. Most notable are power centers and a rash of new entertainment complexes.

The most spectacular entertainment complex is The Irvine Co.'s recently opened Entertainment Center at the Irvine Spectrum. Here, in a setting of North African/Morish architecture, is a pure entertainment center with 250,000 sq. ft. of restaurants and shops across a plaza from a 156,000 sq. ft., 21-screen Edwards Cinema with 6,300 seats, billed as the largest cinema center in the world.

In addition to 2 million sq. ft. of new retail facilities added to Orange County during 1995, currently under way are Metro Pointe, a 400,000 sq. ft. power/entertainment center in South Coast Metro being developed by Amel Affiliates; Park Place, a 155,000 sq. ft. entertainment complex being developed in Irvine by Trammell Crow; a 400,000 sq. ft. addition to The Irvine Co.'s Tustin Marketplace power/entertainment center; the 300,000 sq. ft. Town Center in Rancho Santa Margarita; and the 1 15,000 sq. ft. first-phase of Pacific Park Town Center developed by Mission Viejo Co. -- to name a few.

With 1995 retail construction being market-driven, average retail vacancy fell to 5.6% in 1995 and is forecast to drop to 4.5% in 1996. Projects like the Entertainment Center at Irvine Spectrum opened 100% leased.

The Irvine Co.'s Irvine Apartment Communities (IAC) REIT is the biggest player by far in Orange County apartment development. With an exclusive right to develop apartments on the 60,000-acre Irvine Ranch, and currently restricting its operations to that property, IAC owns 12,339 units in 48 apartment communities, and has another 2,207 units under construction. It has identified six more sites for 1,597 units to begin this year and plans 21 new apartment complexes with 5,600 units by the year 2000.

IAC recently arranged for a $175 million unsecured revolving credit line at Eurodollar rate plus 1.625%. Welts Fargo Bank is managing agent, Bank of America is administrative agent and the lending group includes Bank of Boston, First Bank System and J.P. Morgan.

While Orange County apartment rents are third highest in the nation at an average $819 per month, IAC apartments average more than $1,000 per month.

Although sales prices for apartments have tumbled from an average $77,000 per unit in 1990 to an average $47,000 per unit today, "sales prices have been steady since 1993, and prices and rents are on their way up," says Mark Van Ness, CEO of Newport Beach-based Sperry Van Ness. Average vacancy is at 5%.

Orange County hotels are welcoming an increase in occupancy, with average occupancy rising just above 70% across the county. Walt Disney Vacation Resorts, planning a 650-room timeshare resort on 35 acres on the Newport Coast, has decided to redesign the resort as a combination timeshare resort and hotel.

"Long term, I am extremely bullish on Orange County," says George Argyros, chairman of Costa Mesa, Calif.-based Arnel Affiliates, one of the county's largest owners and managers of apartment complexes. Economic consultant Al Gobar adds, "This is the best time to buy investment properties in Orange County in my lifetime."

Martin Brower is editor and publisher of Orange County Report, a monthly subscription newsletter which has covered real estate trends in Orange County, Calif., for the past 11 years.