Tishman Speyer Properties, the new owner of MGM Plaza in Santa Monica, is letting a major tenant walk away from a lease estimated to be worth $17 million.
The decision will free up 150,000 square feet of office space at MGM Plaza as of Nov. 30, under a deal in which Tishman Speyer released longtime tenant Aurora Insurance Co. from its obligations on the remaining four years of its lease.
Officials at Tishman Speyer were not available for comment.
Brokers called the situation an indication of how well the market for Class-A office space is doing, and how confident property owners are that it will continue.
At this point there are no new tenants lined up to replace Aurora Insurance, said broker Howard Sadowsky, vice chairman at Julien J. Studley Inc.
"Not only isn't Tishman Speyer concerned, but it's very bullish and feels it can dramatically improve the rental rate they have in the marketplace," Sadowsky said. "They have on the market roughly 150,000 square feet to lease, in a market that's very tight."
Industry observers estimate that Aurora has been paying a monthly rate of $2.40 to $2.60 per square foot for its MGM Plaza space. In today's strong market, where turbulence in the dot-com world doesn't seem to have caused any noticeable bumps in leasing activity, the vacated office space at MGM Plaza could go for more than $4 a square foot.
"We're going into a landlord's market, where the landlords are certainly increasing the rental rates," Sadowsky said. "This (practice of letting tenants out of their leases early) probably will happen more and more, but it hasn't happened yet. And certainly not of (the Aurora deal's) size and consequence."
Working on Watts Deal
The City Council is expected this week to issue a request for qualifications from developers interested in pursuing the long-sought redevelopment of a 10-acre industrial site in Watts.
Earlier this year the city abandoned a multi-year effort to redevelop the property at 930 E. 111th St. The effort had been undertaken with a Lynwood developer whose agreement with the city was terminated several months ago.
This time around, the project site has the added muscle of being listed as part of Mayor Richard Riordan's Genesis L.A. program, which has prioritized a number of inner-city properties for investment and redevelopment.
"This is one (site) at the center of our target right now," said Jasper Williams, director of industrial and commercial development for the L.A. Community Development Department.
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