Tower

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By SHELLY GARCIA

Staff Reporter

A prestigious office building in the San Fernando Valley that has Walt Disney Co. as its principal tenant is quietly being shopped to a select group of potential buyers.

Tochikogyo USA Inc., which has owned The Tower in the heart of Burbank’s media district since 1991, has engaged Jones Lang LaSalle to market the property, an attorney for the company said.

Brokers expect the 462,000-square-foot building to fetch around $115 million.

At 32 stories, The Tower is the third-largest building in the Valley, behind 10 Universal Plaza and Plaza 3 in Warner Center. It’s also one of the last major buildings in the Valley still owned by a Japanese company, and brokers believe it will attract a number of buyers for its size, distinctive construction and high-profile tenant.

“It’s probably been one of the better performing assets that any Japanese firm has owned in recent years,” said Jack Rodman, director of Asian real estate services for E & Y; Kenneth Leventhal Real Estate Group. “I think they’ll get a higher recovery on that asset that any of the downtown assets.”

Financial pressure back home is leading a number of Japanese companies to sell off properties in order to repay loans. In the past two-and-a-half years, Japanese investors have sold such prestigious properties as the Century Plaza Hotel in Century City, Ritz Carlton Marina del Rey, and University Center in downtown L.A.

Like many high-profile L.A. properties, the value of The Tower has dipped in the past decade.

“Trophy buildings are bringing very high dollars (today), but nowhere near what they did in 1989 and 1990,” said David DeFore, first vice president with CB Richard Ellis Inc., who was formerly a leasing agent for The Tower. “After what happened in the early 1990s, people are much more careful with their investments.”

One potential hitch is the future of its current tenant, Disney. The lease for much of the space that Disney occupies comes up for renewal in 2003. Although the company has options to continue the agreement beyond that time, Disney could opt out, particularly since it intends to develop the Grand Central Creative Campus in Glendale. Disney has another year before it must decide.

“Thirty to 40 million dollars of the value (of the building) would be lost if Disney announced it was leaving,” said one real estate executive.

Compounding the problem is the fact that other entertainment companies the bread and butter of Burbank’s market have ratcheted down their expansion in recent months.

“The Tower really benefited from the aggressive appetite of the entertainment industry for office space,” said William R. Boyd Jr., senior vice president at Grubb & Ellis, who was also involved in the initial leasing of the building. “If entertainment companies continue to be absent from the market, it would affect the re-leasing of the office space in The Tower as those leases roll over.”

Construction of The Tower was almost derailed in the late 1980s when the developer, Stephen J. Geiger, failed to come up with a financial partner. Lenders were not interested in speculative office developments at the time, and The Tower was considered especially risky because of its size.

Geiger was able to secure financing from KG Land of California Inc., a subsidiary of Japanese conglomerate Kumagai Gumi that also owned construction divisions, according to brokers familiar with the transaction.

Under the deal struck, KG Land financed and KG Construction built The Tower out of concrete, which was widely used in Japan to meet that country’s earthquake building codes. The Tower remains the only concrete structure of its size west of the Mississippi River, brokers said.

In 1991, the building was sold to Tochikogyo for $130 million in what brokers familiar with the deal describe as a paper transfer to a sister company.

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