Real Estate Column—Softening Industrial Market Forces Change in Strategy

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A softening industrial market has caused Zelman Development Co. to back off its plans for a 630,000-square-foot industrial park in Burbank in favor of a safer, bankable parking garage

Rather than immerse itself in a large-scale industrial project at the 30-acre site on Empire Avenue between Hollywood and Airport ways, Zelman has proposed a single-story, 3,732-space parking garage serving Burbank Airport.

Ben Reiling, president of Los Angeles-based developer, said the company would hold off building the park until the market for industrial space improves.

“The market is certainly beginning to slow down for industrial-related projects, and that’s tied to what’s happening with the economy right now,” Reiling said. “So we started exploring other uses for the property that would not be so speculative.”

“There is a slowing, but it’s really hitting certain segments of the market,” said Greg Barsamian, a broker with CB Richard Ellis. “Lenders are very gun shy right now because of what’s happened over the last year with the economy and particularly the problems California has had. And, the other angle is that they are particularly taking their time on the larger projects, or those buildings that are between 50,000 and 75,000 square feet.”

Zelman’s parking lot, which is expected to cost $7 million to build, should be up by December.


School Days

The Los Angeles Unified School District has closed on its lease of 704,580 square feet at 333 S. Beaudry St. from Bank of America in a deal valued in excess of $33 million.

The deal is a precursor to the district’s $75 million purchase of the 928,000-square-foot building from owner Beaudry I Investors LLC, an East Coast investment group.

Bank of America has a master lease on the building, and the purchase will be completed at the end of the lease term in 2005.

The closing comes four months after LAUSD administrators recommended the site to the school board in a closed session. The district will now move to consolidate five administrative operations throughout downtown in the single location. The bank, which will remain in the balance of the building, will relocate employees to facilities elsewhere in the city over the next 18 months.

A source close to the deal said earlier this year that the $75 million purchase price $81 per square foot was far less expensive than the estimated $181 per square foot it could cost to build a new headquarters building downtown.

The district will consolidate offices from buildings on North Grand Avenue, South Grand Avenue, Third Street, 21st Street and South San Pedro Street.

The lease deal was brokered by CB Richard Ellis’ Alan Aufhammer, Kent Handleman and Dan O’Neil for the Bank, and Peter Best of Trammell Crow Co., who represented the LAUSD.


Chip Shot

While International Rectifier Corp. may have run into the same ills that have beset the rest of the semiconductor industry, it’s still moving ahead with plans to expand its presence in El Segundo.

In a deal brokered by J. Eric Lastition, Stephen Cramer and Michael Condon of Colliers Seeley International, the “power chip” manufacturer has leased an additional 54,700 square feet at 101 N. Sepulveda Blvd., bringing its total occupancy in the building to 77,000 square feet, nearly a third of the building.

The 10-year, $13 million deal with landlord Fujita USA could indicate a long-term positive outlook for El Segundo-based IRC, which, along with nearly every other chipmaker, has been battered recently by declining prices. After trading as high as $69 per share in May, the company’s shares were in the mid $30 range last week.


Bullish Spinoff

Morgan Stanley has spun off its real estate investment subsidiary, Kearny Real Estate Co. to a management team lead by Jeff Dritley, a former managing director who had been running West Coast operations of the Morgan Stanley Real Estate Fund.

Rather than operating the investment business as a subsidiary, Morgan now is a joint venture partner with Dritley and his partners, David Simon and Amy Wissmann, who together control 50 percent of newly independent Kearny.

Morgan has allocated $50 million in initial equity to the business, and is the sole client, though Kearny officials said they anticipated offering investment services to outside clients in early 2002. Kearny’s minimum investment criteria is $15 million, and it is looking for deals on the West Coast in land, office space, industrial and warehouse properties. Its primary focus will be on the L.A. area.

MSREF’s West Coast acquisitions and asset management efforts are being relocated to San Francisco.


Sales and Leasing Activity

Verizon is selling its 426,000-square-foot office building in Thousand Oaks to Baxter Healthcare Corp. Terms of the deal, expected to be completed sometime next year, were not disclosed.

Verizon will move 1,100 employees currently working at One Verizon Way to two of the company’s other properties nearby. In addition, some of the workers will remain at the One Verizon Way building under a lease deal with Baxter. The sale is still subject to the approval of the California Public Utility Commission A private investment group has purchased a 5,500-square-foot building in Sherman Oaks for more than $1.7 million.

Marilyn Burton Family LP in Agoura Hills acquired the building, which contains the Armstrong Garden Center, at 12920 Magnolia Blvd., from E.K. Investment Co.

The buyer was represented by Coldwell Banker Commercial Paller & Co. Coldwell Banker Commercial WESTMAC broker Jim Fuller represented the seller in the deal D & L; Studio Transportation, a movie equipment storage company, leased 10.7 acres of industrial land in Lakeview Terrace in a 10-year deal valued at $3.25 million.

D & L;, which does business as Desmond’s Studio Production Services, will occupy the property at 12000 Paxton St.

Darrin Nickerson, real estate manager for Investment Development Services Inc., represented D & L.; Michael Hooker at Delphi Business Properties represented the landlord, Woods-Hayden Partnership.

Contributing to this column was staff reporter Jonathan Diamond and San Fernando Valley Business Journal reporters Shelly Garcia and Jacqueline Fox. Christopher Keough is off this week.

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