The real estate arm of New York-based investment bank Lazard Freres & Co. is spending close to $200 million to buy the MTV Building and Arboretum Gateway, two office buildings in Santa Monica, according to Westside real estate sources close to the deals.
The sources said Lazard Freres aced out Douglas, Emmet & Co. in bidding for the buildings, in part, because of the amount of cash that Lazard Freres is willing to put up. Some of that up-front cash is non-refundable, sources said, evidently a condition emanating from Lazard Freres’ last-minute scuttling of its offer to buy J.H. Snyder Co.’s Water Garden II late last year.
A Lazard Freres official declined to comment on the impending transactions and officials at M. David Paul & Associates LLP, which owns the MTV Building, did not return calls for comment. Bill Hammerstein, a partner in the Arboretum Gateway, confirmed he is negotiating with Lazard Freres, but he said the deal is not complete.
However, industry sources said that Lazard Freres is close to buying the 200,000-square-foot Arboretum Gateway for $82.4 million, or $412 per square foot. Sources close to the MTV Building negotiations said that Lazard Freres is in escrow to buy that 306,000-square-foot building, and that the sales price is about $113 million, or $370 per square foot.
Bob Safai, a principal at Madison Partners, a Westside real estate services firm that is not involved in the deals, said he was unaware of Lazard being required to put up a non-refundable deposit, but said it wouldn’t be surprising after the investment company pulled out of the Water Garden deal. That deal fell apart after Water Garden II lost 20 percent of its tenants in the dot-com crash between October and December of last year. Lazard officials never publicly explained the action.
The per-square-foot sales prices that sources say Lazard has agreed to pay for the MTV and Arboretum buildings would be lower than the $433 per foot ($260 million) that Lazard reportedly was under contract to pay for the 600,000-square-foot Water Garden II.
Safai said the Arboretum Gateway is a very low-risk investment for Lazard Freres because of its single-tenant, triple-net status. (Triple net means the tenant is responsible for covering all insurance, taxes and maintenance costs.)
“You’re effectively buying a bond,” Safai said.
Veteran Westside broker Howard Sadowsky with Julien J. Studley Inc. said the MTV Building, with its creditworthy tenants locked into 10-year leases, is likewise a very low-risk proposition.
“It becomes almost a coupon deal. You have strong tenants with long-term leases,” Sadowsky said. “You can put this in the drawer and not worry about it because it’s income for six, seven years.”
The two-wing, five-story building at 2600-2700 Colorado Ave. is called the MTV Building because the music video channel is the main tenant. Other tenants include the J. Paul Getty Trust, Microsoft Corp., EMI Music and Artisan Entertainment.
Meanwhile, the Arboretum Gateway, at 2220 Colorado Ave., is 100 percent leased to Universal Music Group.
M. David Paul & Associates would come out well ahead on the estimated $30.6 million it paid Tenet Healthcare Corp. for the building in 1996.
Even as the dot-com bust has sent brokers in the Westside office market scrambling to fill sublease space, the two buildings that Lazard is acquiring come relatively worry-free.
“They both have steady income streams and are extremely well-located in the best submarket on the Westside,” Safai said.
