Evoq Properties Inc. has completed a milestone in its push to renovate its centerpiece office and industrial property in downtown Los Angeles, reinventing itself while taking advantage of a submarket that might finally be showing signs of recovery.
Last week, the company secured a $78 million loan to refinance mortgages on its 1.6 million-square-foot Alameda Square Campus. The loan will help pay for leasing costs and improvements for tenants as the company tries to attract business to its creative office, retail and manufacturing space that currently houses American Apparel Inc.
The March 26 announcement of the deal helped boost the company’s thinly traded stock 37 percent to $3.85 for the week ended March 27, making it the biggest gainer on the LABJ Stock Index. (See page 30.)
“It shows the market in general believes in the company and it says a lot about where we’ve come in a relatively short amount of time,” said Evoq Chief Executive Martin Caverly.
The company is the successor to Meruelo Maddux Properties Inc., a downtown real estate developer that expanded rapidly in the last decade only to get caught with a heavy debt load when the bottom fell out of the market.
After filing for bankruptcy protection in 2009, Meruelo Maddux ousted its founder, brought in Caverly and, in 2011, emerged from Chapter 11 under the Evoq name.
Since then it has been trimming its portfolio, which once had as many as 55 properties, to concentrate on its core downtown assets. Evoq last year sold nine properties for an aggregate price of $55.4 million. A portion of the proceeds was used to retire $35.8 million of secured debt.
“We’re continuing to progress to right-size the company by repaying the debtors and reinvesting in the property,” Caverly said.
Rebranded Evoq has been trying to turn the industrial buildings of Alameda Square into the kind of space that could lure tech, media and design companies. Last year, the space landed startup Groceries Apparel for 33,000 square feet at 767 Alameda St. It also said Splendid and Ella Moss, both subsidiaries of VF Corp. in New York, moved their headquarters to 777 Alameda.
Mortgage banking firm HFF arranged the three-year adjustable-rate deal with Olen Properties. Paul Brindley, senior managing director at HFF’s Century City office, said a nontraditional lender was needed because of the multiple kinds of properties at the campus.
“It’s not a traditional asset,” he said.
Olen, headquartered in Irvine, is a real estate development firm headed by Igor Olenicoff. Olenicoff, ranked No. 213 on Forbes magazine’s list of richest Americans, with a net worth estimated at $2.4 billion, pleaded guilty in 2007 to federal tax evasion charges, paying $52 million in back taxes. His company controls more than 6 million square feet of office space and thousands of units of residential property in Florida, Nevada and Arizona.
Brindley said the deal is a sign that the office market downtown is improving, albeit more slowly than other submarkets.
“If you look at downtown L.A., we’re kind of the last to move, but things are improving,” he said. “You have some unique things happening in downtown and investors are starting to take interest.”
However, tech and media companies have been slow to infiltrate the area. Los Angeles County markets that have improved, such as Santa Monica, have been the ones that have attracted tenants from those industries, said Edward Dittmer, a vice president at research firm Morningstar Inc. in Horsham, Pa., who covers issuance of commercial mortgage-backed securities.
He said the downtown market remains flat, noting, “I haven’t seen very many deals going through that particular corridor.”
Caverly acknowledged that tech companies have yet to flood downtown. Still, he argues that startups will be attracted to Alameda Square because of an open layout that could accommodate more collaborative work spaces.
“It’s hard to create the space those guys really want in that market,” he said. “We think we’ll get those guys eventually.”
John Zanetos, first vice president at CBRE Group Inc., who holds the listing for Alameda Square, said other buildings in downtown have attracted creative companies. An architectural design firm recently took over a full floor at 6171 W. Seventh St. and the PacMutual complex at 523 W. Sixth St. has attracted tech tenants.
“Hopefully we’ll be able to announce more positive absorption in the near future,” he said.
Caverly added that the rent in the downtown area would be cheaper than Westside rates. Modified rents in the space run from 60 cents a month for manufacturers to $1.50 a month for creative office users. Retailers will pay about $2.50.
He said the campus is 65 percent to 70 percent occupied. He expects more tenants as creative companies start showing an interest in downtown.
“We made this investment because we believe in downtown on the residential and commercial side,” he said.
