After years of being tightly shut, the spigot for speculative office construction appears to be opening gradually in the Los Angeles area.
The latest in a spate of speculative office projects to be announced in recent weeks is a 35,000-square-foot project near Malibu Civic Center, to be called Malibu Professional Park.
Demand for office space in Malibu is so strong that the vacancy rate is only 2 percent, according to Barry Beitler of Brentwood-based Beitler Commercial Realty Services, which will handle leasing for the project.
Although the planned office building is small, Beitler said its development is significant as the latest in a series of office projects announced for the Los Angeles area. The activity suggests that the office markets in the Los Angeles area have finally recovered enough that lenders will finance and developers will take a gamble on speculative construction.
Transpacific Development Co., for example, broke ground July 1 on a 50,000-square-foot speculative office project at Cerritos Towne Center. Other projects announced recently include a 500,000-square-foot project in Glendale that PacTen Partners of Los Angeles plans to break ground on Aug. 7, and a 130,000-square-foot project in Santa Monica called the Arboretum Courtyard that owner and developer Spieker Properties of Menlo Park expects to break ground on in September.
Spieker has been one of the most active real estate investment trusts in the Los Angeles area. Last week, the company closed the latest of several acquisitions in the L.A. area this year the $19.4 million purchase of the 150,000-square-foot McKesson Building on Foothill Boulevard near Sierra Madre Villa in Pasadena.
Seller HML-Britel Inc. and its advisor San Francisco-based RREEF Funds were represented by Cushman & Wakefield in the deal.
Craig Vought, chief financial officer at Spieker, said the REIT obviously believes now is the time to buy in L.A. because it has bought a number of office properties here recently. The purchase price of the McKesson Building works out to $128 per square foot, less than has been paid for some other suburban L.A.-area office buildings this year, Vought said, but more than the building might have commanded not too long ago.
Broker Beitler, whose firm represented El Segundo-based REIT Kilroy Realty Corp. in its recent $31.2 million purchase of the Sony Music headquarters campus in Santa Monica, said REITs are a big reason office building sales prices have been rising. REITs have plenty of money and are raising more, and they are often bidding against each other for buildings, driving up prices.
While buildings in Santa Monica and other Westside neighborhoods are commanding the highest prices, Beitler said San Fernando Valley action is heating up too. Two office deals recently brokered by his firm involved a partnership called 6330 San Vicente LLC buying a 53,000-square-foot medical building in Tarzana for $6.2 million and Burbank Boulevard LLC buying a 73,000-square-foot office building in Tarzana for $6.3 million.
Raffi Krikorian of the Encino office of Sperry Van Ness is also reporting a growing list of commercial sales. The latest was the $12 million all-cash sale of the 48,000-square-foot Creekside Place shopping center in Valencia by RKR Inc. to a local family trust. Krikorian said the deal illustrates strong investor interest in well-leased local shopping centers such as this one, where tenants include Barnes & Noble, Louise's Trattoria and Ben & Jerry's.
According to George Garvin of Grubb & Ellis Co., 96 percent occupancy was one of the selling points in another shopping center deal that closed recently, the $17.4 million sale of 172,000-square-foot College Square Shopping Center in Cerritos. Garvin said Westcer Partners LLC, an investment partnership established by Calabasas-based Westrust Financial, bought the center from Los Angeles-based Price REIT.
Dames & Moore, an environmental engineering firm, has signed a 10-year, $10 million lease for 66,923 square feet of office space at 911 Wilshire Blvd. in Los Angeles.
Stephen Walbridge, a senior managing director for Julien J. Studley Inc. and part of a team that represented Dames & Moore, said the building is owned by Teachers Insurance & Annuity Association.
Reynolds Metal Co. signed a $4.9 million, five-year lease for 199,000 square feet of warehouse space at Trammell Crow Co.'s Commerce Business Park in the City of Commerce, according to Timur Tecimer, senior vice president and principal at Trammell Crow.
Tecimer said Reynolds will use the space as a distribution center for cans manufactured at its factory in Torrance. He said the deal reduces the vacancy rate to 3 percent at Commerce Business Park, a 7.2 million-square-foot development.
That strength is reflective of the entire 140 million-square-foot Commerce-Vernon industrial market, where only about 7 percent of the space is vacant and "any Class A space that's available gets snapped up pretty quickly," Tecimer said.
Inland Empire land sale
Brentwood-based Lowe Enterprises said it sold 21.5 acres of its 255-acre Agua Mansa Industrial Park in the Inland Empire to Canada's CanFibre U.S. Ltd., where CanFibre plans to build a $105 million manufacturing plant.
Lowe is developer and manager of the industrial park, which straddles Riverside and San Bernardino counties near the city of San Bernardino. Doug Hinchliffe, an executive vice president with Lowe, said the new plant is the second major development in the center, where Lowe is developing lots that range in size from two to 50 acres. The other development is a solid waste transfer station under construction on a 12-acre site that will be operated by the Riverside Waste Resources Management District.
Garment maker moving to Carson
Santa Monica-based Soong Yee Enterprises Inc. is moving the U.S. headquarters of its garment manufacturing operations into a new 42,000-square-foot industrial and office building in Carson, said David Grote of the Klabin Co.'s Torrance office.
Grote said the company signed a six-year, $1.1 million lease for the facility, where it will employ approximately 40 workers. The company formerly rented 5,000 square feet of office space in Santa Monica and contracted with a public warehouse for the industrial portion of its space, he said.
Bob Howard is a contributing reporter who writes on real estate for the Los Angeles Business Journal.
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