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By JOHN BRINSLEY
Staff Reporter
It looked like a perfect fit.
UCLA needed space for its medical facilities and the newly constituted Westwood Center building at 1100 Glendon Ave. was looking for tenants. But at the 11th hour, with UCLA on the verge of signing a letter of intent with building owner Arden Realty Inc., the deal fell through, leaving both parties out in the cold.
“UCLA has passed on a great opportunity for them,” said Arden Chairman and CEO Richard S. Ziman. “When next are they going to have 300,000 square feet of contiguous space available?”
But UCLA campus services director Brad Erickson minimized the lost opportunity for badly needed space. “We don’t feel too bad,” said Erickson, who oversees the university’s real estate development. “We’re the ultimate long-term player around here.”
The collapse of negotiations has forced Arden to get the word out that its high-profile, redesigned building scheduled for completion in January is 100 percent available.
Arden, Southern California’s largest landlord with 18.5 million square feet under management, is investing about $65 million into purchasing and renovating 1100 Glendon. The building already bears little or no resemblance to the formerly nondescript high-rise best known for its top-floor Monty’s Steakhouse.
Thanks to zoning restrictions, it is the last high-rise office building that Westwood is likely to see for some time. So while Arden has yet to close any tenant deals, its executives maintain there is no cause for concern.
“It was disappointing that we didn’t do the UCLA deal, but we’re very comfortable to not have done it,” said Robert Peddicord, Arden’s senior vice president for leasing. “Not doing the deal enables us down the road to be more flexible.”
Both sides agree that the sticking point was Arden’s demand that UCLA lease virtually all of the building, which the university decided against. Arden was unwilling to split the building between medical operations and prospective office tenants, who might be unenthusiastic about doing business amid the commotion of clinics.
“We believe we wouldn’t have been able to lease all of the (non-medical) space,” Peddicord said. “When selling to attorneys and entertainment firms, image is important. If you have office tenants with clients coming in, the last thing you want to see are people wearing white jackets.”
But in its previous incarnation, the building housed lots of medical offices, so Arden conceivably could have leased the unoccupied space to non-UCLA medical personnel.
As for UCLA, it faces space constrictions due to dislocations from the massive overhaul of its medical complex, which includes construction of a new $1.3 billion hospital designed by I.M. Pei. At one point during the negotiations, UCLA had indicated that it might be able to occupy the whole Westwood Center building, but decided at the last minute it wasn’t feasible.
“We came very close, but at the point of signing the letter of intent, we couldn’t commit to taking over all of the building in the time frame Arden envisioned,” said Erickson.
UCLA asked if it could take over about 150,000 square feet initially, then have the right to take over more space over time. Erickson said the university might have been able to occupy the whole building within five years, but not in the six months that Arden wanted.
The deal also would have included an option to buy the building at the end of the initial 15-year lease, or at the end of each of the three five-year extensions after that. Arden was willing, if unenthusiastic about the possibility of selling its newest showpiece.
Now, Arden hopes to attract entertainment and law firms to the building, leasing out anywhere from 5,000 to 100,000 square feet or more, and Peddicord says several deals are imminent. With the market extremely tight the Westwood office vacancy rate is around 7 percent brokers say Arden shouldn’t have trouble filling the space at rental rates just above $3 a square foot.
“The market is really good,” said a Westside real estate broker who does a lot of business with Arden. “Arden didn’t hurt themselves. I think they made an intelligent decision.”
Arden, in fact, may end up making more money than if it had signed a deal with UCLA, which as a huge tenant would have paid below-market rates. But Arden executives acknowledge that the security of having such a deal done in advance of opening would have been reassuring.
As for the risk of investing so much in Westwood Center without signing a major tenant beforehand, Peddicord points out that Arden’s other high-profile development in West Los Angeles, the Howard Hughes Center, is also being built without any pre-leasing.
“(Both projects) are a strong indication of the strength of the market,” he said. “If you’re going to build on spec, the place to do it is Westwood.”
Not everyone is so sure. Erickson noted that a number of leases signed in Westwood when rates were low several years ago are soon to come up for renewal. “The market’s pretty tight, but quite a bit of attractive space is coming on the market,” he said.
Meanwhile, UCLA now needs to find 150,000 square feet of space for medical clinics and offices. The university is exploring renovating or expanding existing on-campus facilities, but until then remains cramped by the ongoing construction.
