The Westside office market remains in a state of flux, as tenants and landlords actively try to come to terms with the vast amount of sublease space defining the market. The stalemate has arisen as landlords remain reluctant to drop asking rates and tenants refuse to commit at what they perceive to be high prices.
But several deals closing in on completion may herald an end of the logjam.
The roughly 2 million feet of sublease space that came onto the Westside market in the latter part of 2000 and early this year remain available, but deals are in negotiation and sources expect holes to start filling soon, including deals to fill roughly 71,000 square feet in Santa Monica.
Space at Arboretum Courtyard (35,000 square feet) and MGM Plaza (36,000 square feet), if filled, could be a welcome finger in the dike for the battered seaside community.
The negotiating environment is beginning to change, in part, because landlords have started slicing asking prices as much as 25 percent to entice tenants to sign up, according to several Westside leasing specialists. Several sources declined to be quoted on the record for fear of influencing the market and betraying their clients.
Among the sites now under negotiation are those abandoned at Arboretum Courtyard by Broadband Sports when the company disbanded in February and Focus Media’s former space at MGM Plaza.
The prized deal, though, and the space that epitomized the dot-com crash and signaled the end of the Westside real estate utopia, is at Kilroy Realty Corp.’s Westside Media Center.
When eToys Inc. went belly-up earlier this year, it left Kilroy with a 150,000-square-foot chasm at the same time the developer is finishing phase three of the office project. Fortunately, Kilroy has the luxury of $15 million in letters of credit it received from eToys to maintain revenue from the space.
The space could soon be filled, however, if negotiations work out with Warner Bros. Westside real estate sources said that Warner Bros. is interested in the eToys space and maybe more of Kilroy’s development.
Other deals reportedly in the works include two signed letters of intent that would gobble up 35,000 square feet of the 52,000 square feet that Sapient Corp. left at the Water Garden office complex.
Chris Houge, a managing director at Insignia/ESG Inc., said Westside players on both sides of the transaction are still trying to sort through their next steps. With no deals getting done, there are no guidelines for how to proceed.
“We are in a turbulent environment and nobody knows where the market is right now because of the lack of evidence,” Houge said.
Central City Still Smoking
Downtown L.A. is one market that seems to have a clear direction up. A couple of more deals for law firms in downtown buildings add to that market’s momentum.
The San Francisco law firm McCutcheon, Doyle, Brown & Enersen LLP renewed its existing lease at the 45-story KPMG Tower and expanded its space by another 50 percent. The firm’s 60 Los Angeles-based attorneys will occupy 76,470 square feet on three floors at 355 S. Grand Ave., including the top floor. The 10-year lease is worth $25 million ($32.69 per foot per year).
The other deal involves L.A.-headquartered law firm Weston, Benshoof, Rochefort, Rubalcava & MacCuish LLP subleasing 60,000 square feet of space at Arco Center. It will spend $16 million ($24.24 per foot) for the space through June 2012. Clay Hammerstein, senior managing director at Insignia/ESG, and Stephen Bay, executive managing director at that same firm, brokered both sides of the deal.
Hertz Gets Another One
Also downtown, a partnership of the Hertz Investment Group of Los Angeles and Skyrise Properties LLC of Dallas closed their deal for Union Bank Plaza.
The deal, reported to be worth $89 million, increases to $700 million the portfolio of the Hertz Investment Group in downtown. President Judah Hertz began investing in downtown in 1996.
Hertz and Skyrise made up the winning effort among four bidders for the Bunker Hill high-rise owned by Equitable-Nissei Figueroa Co., a partnership between Equitable Life Assurance Society of the United States and Nippon Life Insurance Co. of America.
Union Bank Plaza, the first office building constructed as part of the Bunker Hill redevelopment project, was completed in 1968. The 40-story structure contains 640,000 square feet of office space. At the reported sale price, the building would go for $144 per square foot. Aside from Union Bank of California, which occupies 50 percent of the building’s total space, there are some two dozen other tenants in the 96 percent-occupied building. Also on site is Ciudad, a Nuevo-Latino restaurant.
Grubb & Ellis Co. will handle leasing of the building for the partnership.
Theater Deal Done
Cleaning up some other unfinished business, OliverMcMillan, Culver City Redevelopment Agency and Pacific Theatres Corp. have finalized arrangements to secure a movie theatre as an anchor for the Screenland/Town Plaza project.
OliverMcMillan President Jim McMillan said Pacific Theatres signed a management agreement that will pay the cinema operator a management fee based on revenues brought in at the site. He declined to say what percentage of revenues Pacific would get, and Pacific officials referred questions to the developer.
Previously, Paul Buss, executive vice president of OliverMcMillan, said the developer’s agreement with Pacific provides the theater chain with a management fee equal to 6 percent of gross sales. Theater operators generally get a larger cut as much as 50 percent of gross sales when they own and operate theaters.
Overall, the project is designed to feature a 10-screen cinema, 77,000 square feet of office space, 30,000 square feet of restaurant space and 10,000 square feet for a Trader Joe’s market.
Staff reporter Christopher Keough can be reached at (323) 549-5225 ext. 235 or at [email protected].
