Contributing Reporter

After years of strong growth, the Tri-Cities market of Burbank, Glendale and Pasadena slowed down somewhat during the second quarter though the severity of the downturn remains a matter of some debate.

On the plus side, several Tri-Cities office buildings were acquired in the period, at prices near or equal to the late-1980s highs. But neither of the area's two major office projects under construction, one in Burbank and one in Glendale, signed up a single tenant after about nine months of trying.

Another warning sign: Construction has yet to begin on a third office project that had been set to break ground in January in Burbank's Media District. Several industry experts blame a lack of prelease agreements for the delay, but developer J.H. Snyder Co. stressed that the project is moving ahead.

Even with the market at a crossroads, Tri-Cities continued to post an office vacancy rate of 10.6 percent in the second quarter, compared with 11.3 percent in the first quarter and easily the lowest rate for any major market in L.A. County, according to Cushman & Wakefield of California.

All three Tri-Cities submarkets tightened in the quarter. Burbank led the pack with a vacancy rate of 6.0 percent, down from 6.9 percent in the first quarter. Glendale followed with a rate of 9.3 percent, down from 10.1 percent, and the Pasadena rate was 14.7 percent, down from 15.2 percent.

In the largest Tri-Cities sale of the quarter, the State Teachers Retirement System of Ohio paid $95.8 million to buy Glendale City Center, which includes an existing office tower at 101 N. Brand Blvd. and an undeveloped lot at 111 N. Brand, which is entitled for 360,000 square feet of office space, said Bill Boyd, senior vice president at Grubb & Ellis Co.

Glendale office properties that were put up for sale in the second quarter included buildings at 701 N. Brand Blvd., 505 N. Brand, 500 N. Brand, 801 N. Brand and 700 Central Ave. "There's a lot of buildings being marketed," said R. Todd Doney, a vice president at Cushman Realty Corp. "Each case is sort of different. But I think owners of properties realize there's a lot of demand from the investor community, and there remains a lot of capital available."

While sales activity was brisk, the office leasing market remained sluggish in the second quarter, although activity appeared to pick up from an even slower first quarter.

Walt Disney Co. and Warner Bros. reclaimed much of the 180,000 square feet of space in Glendale that they previously planned to vacate. But leasing agents still have not signed up tenants for two major office buildings under construction, one at 655 N. Central Ave. in Glendale and the other in north Burbank on land bound by Empire Avenue, Ontario Street and Hollywood Way.

Sources said M. David Paul and Associates, developer of the 215,000-square-foot north Burbank project, is on the verge of signing a Texaco subsidiary to a 45,000-square-foot lease. M. David Paul spokesman Jeff Worth said the building will be ready for occupancy in October, but he would neither confirm nor deny that a lease with Texaco is pending.

While no tenants have signed on at PacTen Partners' 655 N. Central building, a 24-story, 500,000-square-foot office tower known as Glendale Plaza, there could be some announcements in the near future, said Doug Marlow, senior vice president at CB Richard Ellis Inc. who is handling leasing for the project.

"From a market perspective, we've seen the activity level in the market picking up in the last 60 days," he said.

In Burbank's Media District, the long-delayed groundbreaking for a 585,000-square-foot office complex being developed by J.H. Snyder Co. failed to happen in the second quarter, said Snyder partner Cliff Goldstein. However, some grading work has begun on the site, which is bounded by Olive Avenue, California Street and the Ventura (134) Freeway.

"I'm still positive and upbeat, and would say that the market has gotten stronger, not weaker, as time goes by," Goldstein said. "I'm already in leases with two tenants. Will they be executed by next quarter? Possibly."

Goldstein said excavation work generally viewed as the first sign that a project will be built will commence on the Snyder project "hopefully within 60 days" and that the construction schedule is not tied to preleasing.

While the two Burbank projects and Glendale Plaza try to get tenants, the Glendale project being developed by the Howard Platz Group at 400 N. Brand Blvd. has been more successful at signing deals. During the quarter, Verdugo Bank signed a lease for about 10,000 square feet at the building, and IBM is said to be close to signing a lease for another 35,000. With Cigna Healthcare of California having already committed to 120,000 square feet, the Platz project is now nearly 100 percent leased, said Boyd of Grubb & Ellis.

Large lease deals at existing buildings were scarce in the second quarter, largely because there are only a handful of large blocks of office space available. In one of the quarter's biggest deals, Gateway Title Co. leased 22,500 square feet at 1405 N. San Fernando Road in Burbank, according to Cushman & Wakefield. Lockheed-Martin Corp. signed a lease renewal for 60,000 square feet at 811 Sonora Ave., but that deal represented a downsizing from the company's former space.

In the retail sector, leasing activity was healthy, Boyd said. In particular, the Glendale Marketplace a 170,000-square-foot retail project on Brand Boulevard south of Broadway is nearly 100 percent leased after opening in the quarter.

At least two building sales went into escrow in Pasadena during the quarter and a third will follow shortly. Brokers declined to give the buildings' locations, but said the two in escrow are being sold for about $12 million and $15 million, respectively, and the building about to enter escrow is being sold for more than $10 million.

Also in the quarter, Schidler Group purchased two Pasadena buildings, one at 1111 S. Arroyo Parkway for $17.3 million and the other at 150 S. Los Robles Ave. for an undisclosed price, according to Doney. Also in Pasadena, Lowe Enterprises purchased the building at 811 Sonora Ave. for $10.5 million.

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