A 32-story tower in the heart of Burbank’s media district – the tallest office building in its market – is expected to trade hands this week in a deal many consider a steal.
Worthe Real Estate Group was under contract to buy Tower Burbank, a Class A office building at 3900 W. Alameda Ave., for $109 million, according to sources familiar with the deal. That’s a considerable discount to the $167 million New York asset management firm BlackRock Inc. paid for the building in 2005.
The steep markdown comes as the 487,000-square-foot building, once more than 95 percent occupied by Burbank entertainment giant Walt Disney Co., was completely vacant but for a 5,000-square-foot Union Bank Inc. branch on the ground floor.
The purchase, expected to close March 17, will further cement Santa Monica-based Worthe’s hold over the Burbank office market, where it already owns approximately 3.8 million square feet across 14 properties, including Burbank Studios, a 982,000-square-foot media campus leased to NBC Universal for production of “Access Hollywood”; “Days of Our Lives”; and, until Jimmy Fallon brought the show to New York last month, “The Tonight Show.”
Including Tower Burbank, Worthe now controls nearly 60 percent of Burbank’s 7.3 million-square-foot office market, an advantage that could give the group a great deal of leverage in dealing with tenants seeking to be in the market.
Despite that control, Worthe will need to grapple with substantial empty space. Burbank sported a 19.8 percent vacancy rate in the fourth quarter, with an average per-foot asking rent of $3.05 a month, the highest average in the Burbank-Pasadena-Glendale submarket.
Carl Muhlstein, a managing director for Jones Lang LaSalle Inc., said the sale price (not quite $224 a square foot) reflected prospective buyers’ reluctance to take on so much risk in a market that already has a vacancy rate higher than Los Angeles County as a whole. Countywide, Los Angeles had a vacancy rate of 16.9 percent in the fourth quarter, according to data from Jones Lang LaSalle.
“(BlackRock) went through a marketing campaign and the market spoke,” he said. “That’s the price people were willing to take this risk at, and Worthe has a very strong closing track record, so they went with them.”
Worthe, perhaps better known as a developer than buyer, is no stranger to dealing with gaping vacancies. The company’s most recent development project in Burbank, the Pointe, a 485,000-square-foot building on Alameda Avenue completed in 2009, sat largely vacant for several years after it opened. In the last year, however, as the market picked up after the recession, Worthe signed leases for more than 200,000 square feet, which, coupled with earlier activity, brought the project to about 75 percent occupancy.