While the commercial real estate market remains soft and most landlords can’t figure out what to do with all their vacant space, Larry Field is spending $15 million renovating two El Segundo industrial buildings without a single tenant signed on.
So what does the developer know that his rivals don’t?
Field has found a niche: building out creative offices for fast-growing companies that are priced out of media and tech hubs such as Santa Monica.
“I always go against the grain,” said Field, founder and chief executive of NSB Associates Inc. in Beverly Hills. “When everybody stops doing something, it’s time for you to do it.”
For the last year, tenants have leased up creative office space in Santa Monica and Venice, sharply boosting rental rates. Now, such companies are looking farther south along the San Diego (405) Freeway corridor.
Special effects company Rhythm & Hues Studios Inc. moved from near Culver City to El Segundo this year. And Time Warner Inc. recently took another creative office space developed by NSB. The stage was set over the last several years as video game developer Konami Digital Entertainment Inc. and a few other creative companies moved to El Segundo.
Field has experience in the field. Westside creative office space makes up about one-third of NSB’s 2.3 million-square-foot portfolio, including offices for architect Frank Gehry near Playa Vista and annex offices for Google Inc., next to its Binoculars office building in Venice.
“Creative tenants are coming south,” said Mike McRoskey, a managing director at Chicago-based Jones Lang LaSalle Inc., which is listing Field’s two El Segundo buildings at 2355 and 2383 Utah Ave. “Larry’s the first to see it happening and is taking a proactive move to capture it. There will be a lot of other landlords that do the same thing when they see the activity.”
Dreams of Field
Field already has had success with speculative creative office conversions. In 2007, he spent $8 million to buy two industrial buildings totaling 60,000 square feet on Alaska Avenue next to his latest project.
He learned a lesson there. Prospective tenants were shown the property before any work had been done and there were no takers because it was difficult to imagine the end result. So Field took the plunge and spent $4 million tearing out the drop ceiling, installing skylights and knocking out interior walls. Time Warner leased the entire building for offices and production facilities at $2.52 a square foot, according to industry sources.
“We made the decision to put in the work to show what the building will look like,” Field said.
His latest project consists of a 150,000-square-foot building and a 40,000-square-foot sister building he bought for $45 million in 2008 when it was occupied by defense contractor Northrop Grumman Corp., which moved out this year.
This time he is spending $15 million of his money to convert the buildings. Constructed in the 1960s, they have open layouts that lend themselves to creative space. Aside from the structural columns, the interior is entirely open.
“The advertising or the Internet businesses, because they employ a vast amount of people, don’t want to just box it in and put people in little offices,” Field said. “People are as visible as possible.”
NSB is exposing the 17-foot-tall ceilings, cutting through concrete to punch out 14-foot windows and adding skylights. Even the loading dock will be converted into windows that can be rolled up to open the office to the elements. Field plans to create an outdoor athletic area with a basketball court, sand volleyball court or perhaps a boccie ball court. He could construct an additional 110,000 square feet for a tenant that needs more space.
Field won’t disclose exact financials on the project, but said it will be profitable if he can command somewhat above El Segundo’s average asking rate of $2.43 a square foot a month in the third quarter. That’s almost $2 less than Santa Monica asking rates of $4.20, which shot up from $3.79 in the first quarter.
Southward demand
Broker Robert Cavaiola Jr., managing director for New York’s Studley Inc., said the area is hungry for space like Field’s. About 15 percent of El Segundo’s 7 million-square-foot office market can be classified as creative.
Cavaiola recently listed for sublease about 5,000 square feet of creative space and received more than 15 calls from companies interested in moving in nearly immediately.
“It moved quicker than anything because it was creative space and there’s a dearth of that,” he said.
Konami, known for its “Metal Gear” and “Dance Dance Revolution” game series, was an early tenant of creative office space in the city. It left San Francisco in 2007 and took two floors at 2831 Rosecrans Ave. The company itself converted the offices into an open layout and even added a playroom with arcade games.
Jay Boor, a company spokesman, said the attractive offices, combined with an affordable rental rate and a beach location near the San Diego Freeway and Los Angeles International Airport made it a winner.
“You have businesses that have been here for a long time and a lot of mobile companies and startups,” he said. “I don’t see people going away; I see it growing. It’s almost becoming an epicenter for game development and tech development.”
