With a groundbreaking date drawing near and no tenants in sight, developer Jerry Katell is hedging his bets on his big Warner Ridge project.

Last May, Katell announced that his company, Katell Properties, would break ground in the first quarter of 1999 on the original Warner Ridge plan a 690,000-square-foot office complex adjacent to Pierce College in Woodland Hills. But while office vacancies have been declining steadily in the Warner Center area, obtaining financing for speculative office projects has become virtually impossible.

So Katell plans to submit an application to the Los Angeles Planning Council in the coming weeks requesting that the 21.5-acre site be rezoned to allow for either the originally planned office complex or 470 upscale for-rent townhomes. Katell said he wants to leave his options open, depending on which seems more viable in the marketplace.

"It's an alternative," he said of the townhome plan.

Ultimately, the decision to grant new entitlements for townhomes rests with the Los Angeles City Council.

By zoning the property for residential as well as office use, Katell has the option of building the townhomes immediately if he is unable to secure an office tenant in the next few months.

"I think it's a good idea," said Tom Festa, a broker with Grubb & Ellis Co. who represented Morprop Inc. in its sale of Warner Ridge to Katell. "It allows him an option where he doesn't have to hold onto the land until he gets a tenant. He has the option to build faster."

A Warner Ridge office project would also have to contend with two other office developments underway in the area. Lennar Partners, which recently acquired the Prudential office complex in Woodland Hills, has hired architects to begin work on a two-building addition to that existing campus, the first phase of a plan to add 1.5 million square feet of offices. And Kilroy Industries is moving forward with a 500,000-square-foot office development in Calabasas.

Katell said he is not worried about the competition, because these projects will not add a very significant amount of office space to the tight Warner Center market. On the other hand, there is a ready market for the high-end townhomes. "We have a lot of apartment companies talking to us, and there's clearly a need for a new, high-end residence," he said.

The townhomes would rent for an average of $1,350 a month.

Ironically, the Warner Ridge property was the subject of a decade-long battle over zoning when the former owner sought the original entitlements to build an office complex there. It was only approved for office development after Morprop sued the city for changing the area zoning to residential in an attempt to prevent anyone from building offices there.

Katell acquired the land in 1996 and sold off a small parcel to Lincoln Property Co., which is developing 125 apartment units on 5.3 acres. The balance of the land was slated for office use, and Katell hired architectural firm McLarand, Vasquez & Partners to design a campus-style, mid-rise complex.

Although community groups have voiced a preference for residential development, the Neighborhood Planning Advisory Council that oversees the community voiced concerns about the density of the project when Katell first floated the idea last April.

"The members of the council were concerned about what impact it would have on the current schools and asked him to study that and make a traffic study," said Cindy Orland, chairwoman of the planning council, which was set up by Los Angeles City Councilwoman Laura Chick.

Chick said Katell has continued to keep her office updated since the April meeting. "I knew that he is trying to move ahead on the all-residential project, and he knows that I would prefer an all-residential project," she said. But she is still concerned about the residential proposal as it stands.

"It's dense. I'd like to see it come down a bit," Chick said.

Several weeks ago, Katell launched a mail campaign to area residents, showing artist renderings of the townhomes and delineating the advantages of the development over an office complex. In the brochures, he asserts that the residential complex would generate 50 percent less traffic and have 25 percent lower building heights than the entitled office complex.

Should Katell succeed in getting the new entitlements, he would also have the option of selling the land outright to a residential developer. But he said he plans to use his own company, perhaps in partnership with another, to develop the townhomes.

Katell, who is known primarily as an office developer, pointed out that he has had some experience developing condominiums, "so residential is not alien to me." The architects currently on board for the office project also have expertise designing residential complexes. "So there is a way I could do it," Katell said.

For reprint and licensing requests for this article, CLICK HERE.