The bidding-war climate for office properties among real estate investment trusts has Kilroy Realty Corp. eager to return to its development roots.
"All of us can buy buildings but buying buildings at auction prices creates a lower return," said John Kilroy Jr., president and chief executive of the El Segundo-based REIT. But few companies, he said, have development capabilities. "If you didn't stake out your position years ago, chances are that you're closed out."
Kilroy said his company began preparing for this phase of the market cycle five years ago, when it started purchasing infill locations, laying infrastructure and entitling projects.
Today, Kilroy has more than $500 million of new projects in the pipeline that are expected to break ground next year, and it controls some of the largest undeveloped sites in two of the tightest office markets in L.A. County West Los Angeles and Calabasas.
In West L.A., Kilroy is about to close escrow on an eight-acre parcel that runs from Bundy Drive to Centinela Avenue along Olympic Boulevard. Kilroy intends to develop a $75 million office park there, consisting of two separate 150,000-square-foot office buildings and renovation of an 80,000-square-foot building that currently sits on the site.
Kilroy plans to have that to-be-renovated building occupied by mid-1998. Once escrow closes on the site later this month, the REIT plans to begin seeking city permits to build the lowrise, campus-style buildings that will be marketed to the entertainment industry, whose rapid growth has made space on the Westside increasingly scarce.
Farther west, Kilroy has designs on the Ventura (101) Freeway office market a magnet for high-tech companies. Kilroy plans to develop a 500,000-square-foot office building on 20 acres of a 50-acre site called Calabasas Park Center. Kilroy expects to receive entitlements from the city of Calabasas for the office project by early next year, and the REIT is currently in escrow to sell 20 acres of its site to developer Rick Caruso, who plans to build a "village-style" entertainment-retail center there. Kilroy plans to sell the other 10 acres to various parties for build-to-suit projects.
To the south, Kilroy plans to begin development on the first building of the third phase of its Long Beach Airport office complex. Kilroy already has building approvals and will start site work on the 140,000-square-foot building within the next few weeks.
Kilroy noted that only 5 percent of the airport complex's existing 630,000 square feet of space is vacant. The REIT has entitlements to develop an additional 760,000 square feet of office space on the site.
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