New Development Plan Fails to Dazzle Entertainment Capital

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Hollywood’s real estate fortunes took a big step forward in June with the approval of a community plan that will allow high-rise development, but the decision failed to move the occupancy needle during the second quarter.

Vacancies in the submarket inched down just three-tenths of a point to 21.5 percent as the market absorbed only 6,389 square feet of office space, according to Jones Lang LaSalle Inc.

Marty Shelton, vice president of investment sales at NAI Capital, said the plan didn’t elicit an immediate reaction from tenants, landlords or developers because everyone anticipates lawsuits from neighborhood activists.

“Litigation may change or delay any new zoning rules,” Shelton said. “It will take time for the dust to settle before developers feel confident to move forward.”

Instead, Rick Buckley, principal at L.A. Realty Partners, said the small absorption gain for the quarter resulted from small deals. For example, Wasteland, a small chain of boutique apparel stores, leased 6,300 square feet at 800 Cole Ave. for its offices. Large tenants are waiting for new buildings to come on the market because much of the existing office space is dated.

“The statistics indicate a market taking one step forward, one step back,” Buckley said. “Bigger tenants are looking for very specific properties that are not currently available. When those properties come on the market, you’ll see absorption accelerate because there is some pent-up demand for new properties.”

Meanwhile, developers are concentrating on the residential market or working on combined residential-office projects such as CIM Group’s 22-story tower at 5939 Sunset Blvd., which will feature some 300 residential units and office space as well as restaurants and shops, when it comes online in two years.

The buildings – which are not categorized as office construction even though they contain some – should enter a market with high demand. Hollywood apartment buildings are currently more than 90 percent occupied with per-square-foot rental rates nearly as high as office lease rates.

The same point can be made about the office market. Buckley believes any office space under construction will get a welcome reception once it becomes available, though few tenants will commit before they can inspect the premises.

“New developments are going to lease very well when they are done,” he said. “But a lot of landlords will have to go spec, get their shovels in the ground and roll the dice that they can rent the space when completed. Historically that’s how this market has operated.”

– Joel Russell

Main Events

Los Angeles City Council unanimously approved the Hollywood Community Plan, which encourages development and increases allowed population density near subway stations and large streets with bus routes, while limiting growth in residential areas. The plan will make it easier to put high-rises on Sunset and Hollywood boulevards.

CIM Group has started construction on a 22-story tower at 5939 Sunset Blvd. at Gordon Street. The finished Sunset Gordon development will contain about 300 residential units and 40,000 square feet of office space, plus 13,000 square feet of shops and restaurants. CIM expects construction at the 1.7-acre site will finish in early 2014.

Developer J.H. Snyder Co. announced plans to build a 250,000-square-foot office complex at 959 Seward St. Construction will start early next year on the $120 million, two-phase project. Snyder doesn’t have any signed tenants but reports strong interest from entertainment companies.

Loews Hotels & Resorts purchased the Hollywood Renaissance Hotel for $169 million, or $267,000 a room. After the sale, the 1701 Highland Ave. hotel was renamed the Loews Hollywood Hotel. Loews plans $26 million in renovations on the 632-room hotel.

DLJ Real Estate Capital Partners broke ground on Blvd6200, a $350 million mixed-use project at 6200 Hollywood Blvd. The development, next to the Pantages Theatre, will have 175,000 square feet of retail and more than 1,000 apartments, including some live-work units designed for small entertainment industry tenants. The New York developer purchased a Vine Street building for $28 million in the first quarter.

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