Santa Monica’s ‘Black Hole’ Ready to Move Into the Light

Spotlight on Ocean Avenue

By DEBORAH BELGUM

Staff Reporter

In a town known for its slow-growth philosophy, there’s a mini-building boom going on along a small stretch of Ocean Avenue in Santa Monica that for years has been betwixt and between.

The area, between Pico Boulevard and Colorado Avenue, has been a cross between the sleepy beach town that Santa Monica once was and the upscale beach city it has grown into.

The upscale beach city seems to be winning out, witnessed by rumbling tractors hauling dirt around the skeletal hulk that was once the Pacific Shores Hotel. After $15 million in renovations, the hotel will debut this summer as the 170-room Viceroy.

Several yards down, finishing touches are being put on a four-story executive office building being built by Maguire Partners, which wants to rent the space out at $4 a square foot.

Despite high office vacancy rates on the Westside and the hotel business being hit by a tourism slump, developers are confident the economy will soon rebound. They also believe that the Westside is nearly built-out in the office and hotel categories.

“This has been kind of a black hole for many years,” said Santa Monica Mayor Michael Feinstein. “This has been an area of rundown buildings and open parking lots that haven’t been very attractive.”

Big projects planned

There’s also the promise of bigger projects on the horizon.

Nearby, Rand Corp. is planning to tear down its 1960s era complex of low-rise buildings and replace them with a 315,000-square foot building that will face Main Street near Pico Boulevard. With the think tank consolidated into one large building, the city of Santa Monica, which bought 11.3 acres of Rand property in 2000, is working on a master plan.

Some of the land will be converted into a city park. Other sections will be destined for at least 300 affordable housing units that will face Ocean Avenue, wedged around the new Viceroy hotel and Maguire’s office building.

The 91,000-square foot Maguire project and the hotel project were started in late 2000 when the economy was still bustling. “We had been waiting for the market to meet our expectations and it finally did,” said Tony Morales, a partner at Maguire Partners. “This is a constrained market area that has few places to build and is adjacent to high-end residential and unparalleled amenities.”

Morales said the company is talking to one tenant in the financial services industry that’s interested in leasing the entire building, whose top two floors have ocean views and a terrace that can be used for business gatherings.

But the number of dot-coms that went bust last year put a lot of prime office space back on the market. The office vacancy rate in Santa Monica was 20.1 percent during the fourth quarter of 2001, up from 16.3 percent during the third quarter.

Brad Korzen, chief executive of the Kor Group, which bought the Pacific Shores for $25 million and leases the land from the city, said his company decided to renovate rather than build from scratch because of Santa Monica’s moratorium on hotel construction. “It was a value-added opportunity,” said Korzen, whose company also owns the Avalon Hotel and Maison 140 in Beverly Hills.

Hotel slump

Santa Monica’s hotel industry has been reeling, both from the loss of tourists after Sept. 11 and the dropoff in dot-com-related business travel. Hotel occupancy last year dipped to 68.4 percent, from 77.5 percent in 2000 and 81.4 percent in 1999, according to PKF Consulting, which projects the rate this year to reach 75.2 percent.

The Viceroy will have plenty of competition. Across the street are two top-end hotels, Loew’s Santa Monica Hotel and Le Merigot. Down the block are two other ritzy resorts, Casa del Mar and Shutters on the Beach.

The transformation of Ocean Avenue hasn’t been lost on Bruce Marder, who four years ago opened Capo Restaurant, a small Italian eatery near the Maguire Partners project. “I knew what the plan was for the neighborhood and worked three and a half years to open this restaurant,” said Marder, who also owns Broadway Deli.

He has so much confidence in the area that six months ago he bought Cora’s Coffee Shoppe located next door and turned it into an upscale eatery.

One spot on the block that won’t be changing is Chez Jay, a Santa Monica dive that has been around since 1959. Outside, the paint job hasn’t been altered in decades. Inside, peanut shells still cover the floor.