While many observers have their attention riveted on how the shuttering of dot-coms is affecting Westside lease rates and property values, another tech-driven boom is proceeding ahead of pace in downtown L.A.
Another 4.2 million square feet of telecom space is now either in the process of being converted, currently available and being marketed for sale or lease, or is being proposed in that area, according to a survey by Charles Dunn Co.
That would more than double the 3.4 million square feet of telecom-related space already in use there.
Those figures have many people wondering just how many of the projects in the works will actually become reality.
“It’s a lot, and there’s going to be some competition,” said Jason Warner, associate director at Cushman & Wakefield. Warner pointed out that companies that lease the space have been hit by the same weakness in the capital markets that has impacted the dot-com world. Still, the expectation is that infrastructure improvements are likely to continue.
Major players such as Global Crossing Ltd. have been scouring the market with massive requirements for space, and Warner expects that demand to pick up even more in the first quarter of 2001.
“The guys that lay the fiber in the ground are not going to go away,” Warner said. “We’ve just taken a little hiccup. Most of the big boys are going to be back out for big requirements.”
According to John Anthony of Charles Dunn Co., developments now under construction or on the market total 2.9 million square feet and include:
– F & F; Technology Partners’ Wilshire Tech Center, 3810 Wilshire Blvd., which is 19 percent leased.
-Menlo Equi-ties’ Technology Center at 600 and 626 Wilshire Blvd., now 46 percent leased.
– The Broadway Trade Center, which TrizecHahn has in escrow.
-The Carol Little Building near USC, bought by Argent Ventures.
-Nexcomm Properties’ Infomart Los Angeles, at the former Postal Annex building.
– L.A. Media Tech Center, the latest phase of industrial space built by Legacy Partners next to the Taylor Yards on San Fernando Road.
In addition, three other sites southeast of downtown, near the L.A. River, are getting lots of attention. They include a 1.3 million-square-foot conversion at the Dependable Shipping Building at 2555 E. Olympic Blvd.; the Sears building on Soto Street, which is a Genesis L.A. site; and the L.A. Tech Campus, a proposed 1.5 million-square-foot construction project.
That project which, if built, would be the only new construction among the telecom efforts, is considered by many brokers to be the most tenuous because, at least for now, the first rule for those projects is speed.
“Implementation and real estate guys are being instructed to do 20 stories in 20 weeks,” Warner said.
Dot-Com Impact
Rents are actually flattening or falling in the tech-heavy San Francisco office market. So what’s that mean for L.A., where dot-coms have helped drive office leasing and property values to new highs?
All eyes are on what rents will be paid as part of a handful of key deals in the coming weeks.
Tishman Speyer Properties has yet to announce a tenant for 100,000 square feet at MGM Plaza being vacated by Aurora Insurance Co. And, Focus Media has 35,000 square feet to sublease. Tenants such as Xdrive and Sapient Corp. in Water Garden II have substantial sublease space available, and negotiations with business news Web site Business.com to move into the Sapient space are said to have fallen through.
“Right here, in just those two buildings, about 2.2 million square feet, you’ve got a number of choices,” said Matthew Miller of Cresa Partners. “It’ll be interesting to see if they’re forced to cut their prices to fill up that space. Everybody’s watching that market very closely.”
Dot-coms have shaped the market for office space in part by pushing rents to record levels throughout the Westside, whether or not they actually ended up being the tenant that signed. They’ve also created an unusual level of sublease activity in the jostle for space.
When Digital Entertainment Network imploded earlier this year and gave up space in five different buildings, the market just swallowed it. But although the sense of urgency has faded, landlords so far are not really feeling the pinch.
“There are very few cases where people broke leases and had to have their security deposit liquidated,” Miller said. “Mainly what we see is people subleasing or buying out of their obligations.”
There are few large requirements out there now, said Howard Sadowsky of Julien J. Studley Inc.
“There’s a flatness in the market,” Sadowsky said. “Space is sitting on the market that wasn’t sitting there three, four months ago.”
The shuttering of iXL’s L.A. office space at Arden Realty Inc.’s Howard Hughes Center made the biggest splash yet with 100,000 square feet of space being vacated, another space that’s being watched.
Though some companies are pulling back, not everyone is pulling out.
For example, Creative Planet recently put half of its new, 80,000-square-foot space at Wilshire Courtyard on the market for sublease and laid off employees last week. But it also received $30 million in funding this month.
One Rodeo Sold
One Rodeo, a 10,873-square-foot, two-story building, has been sold for $16.8 million. Arai & Co. of Japan sold the so-called Bulgari Building to Despa Deutsche Sparkassen-Immobilien-Anlage-Gesellschaft for $16.8 million. One Rodeo is located at 201 N. Rodeo Drive in Beverly Hills. Martin Morgenstern, Bill Puget and Satoru Jo of Cushman Realty Corp. represented the seller. Richard Pink of CB Richard Ellis represented the buyer.
High-Rises Purchased
KWI Property Fund I LP purchased three high-rise office properties in Los Angeles for an undisclosed amount. The buildings, totaling 576,092 square feet of space, are located at 7080 Hollywood Blvd., and 1055 and 6380 Wilshire Blvd. The $250 million fund was formed earlier this year by Beverly Hills-based Kennedy-Wilson International.
Staff reporter Milo Peinemann can be reached at [email protected].
