Just over a year after opening, the 400,000-square-foot Red Building at the Pacific Design Center in West Hollywood carries among the highest asking rates in Los Angeles. It also has the highest vacancy rate: 100 percent.
Now, having been unable to land the large high-profile media and entertainment companies he sought to fill the space, developer Charles Cohen is parting ways with his third listing brokerage – L.A. Realty Partners – and has hired former CBRE Group Inc. Senior Vice President of Leasing Jeff Lasky to take the leasing effort in-house.
And there are signs Cohen might be willing to consider compromising on one of his main demands: a $5-a-square-foot asking rate that has remained above even the highest average rate in Los Angeles County for the last two years.
“There is a real estate market and you need to meet the market,” Lasky said. “So for the right tenant, I think we will be very aggressive.”
When it was completed early last year, the $165 million Red Building, a structure shaped like a ship’s bow and covered in red frit glass at Melrose Avenue and San Vicente Boulevard, was the largest speculative Class A office building to open in the county since 2009.
It is the third and final piece of the 14-acre Pacific Design Center, whose signature Blue Building opened in 1975 as a central hub for interior designers. The second building – the Green Building – opened in 1988. Cohen, whose firm is headquartered in New York, purchased the Pacific Design Center in 1999 for $157 million, modifying the entitlements to allow the planned Red Building to house office space instead of designer showroom space.
The Blue and Green buildings are substantially leased, home to an outpost of L.A.’s Museum of Contemporary Art, a 380-seat theater, two restaurants, a conference center and furnishing showrooms.
Average asking rents for office space in West Hollywood are $3.32 a foot per month, according to Jones Lang LaSalle Inc., and until the Red Building opened last year, the city boasted a 6.4 percent vacancy rate, the tightest office market in the county. Now, the Red Building accounts for 68 percent of the vacant office space in the city, where the overall vacancy rate has jumped to 18.5 percent, above the 17.6 percent countywide average.
In addition to opening during one of the worst real estate downturns in recent memory, the Red Building’s leasing efforts have been hampered by Cohen’s demands for a large high-profile tech or media company to lease a substantial amount of space and an asking rate of about $5 a square foot.
Cohen was not available for comment. L.A. Realty Partners declined comment.
Cohen hired Beverly Hills’ real estate brokerage First Property Realty Corp. to represent the property while it was still under construction. As the building was about to open, however, he switched to Cushman & Wakefield Inc. Then, in late 2011, he hired L.A. Realty Partners.
Having had no success with the three prior agents, Cohen hired Lasky into his Cohen Bros. Realty Corp. to focus on the Pacific Design Center.
At CBRE, Lasky exclusively handled listings for JP Morgan Chase & Co.’s Westside portfolio, including the 775,000-square-foot 2000 Avenue of the Stars office building in Century City and the 1.3 million-square-foot Water Garden office complex in Santa Monica.
He said the experience of working for one client and the network he built up as a landlord representative will help him succeed with the Red Building.
“We are talking about a similar concept, with Charles bringing someone into the organization – as opposed to having a third party – who can focus their time and effort on doing this,” Lasky said.
It’s not that the Red Building has failed to attract the attention of a number of potential tenants. Among interested companies were United Talent Agency Inc. and television production company Endemol USA Inc. Both have since signed leases for buildings with lower rates elsewhere.
Still, there are very few companies now in the market for large office requirements running around 100,000 square feet. Those that are, Amazon.com Inc. and Sony Corp., both have been looking at space in Santa Monica and Playa Vista, the hotbeds of the tech industry.
Jonathan Larsen, regional managing principal in the downtown L.A. office of real estate brokerage Cassidy Turley Inc., said the improving market is making more companies, especially those that might be seeking modest amounts of space, feel financially able to invest in new or expanded office space. That could benefit Cohen, if he is willing to be a little flexible.
“As the market tightens on the Westside, there will be the right tenant,” Larsen said. “But they just may need to try and put the puzzle together without waiting for one big tenant.”
