Real Estate Column—Fund Closes All-Cash Deal For Santa Monica Properties

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By putting up $16.5 million in cash, completing its due diligence in two days and keeping escrow to less than three weeks, a Minneapolis opportunity fund came out on top of a crowded field of competitors to buy two Santa Monica office buildings from New York-based Wellsford Capital Partners.

David Thurman, senior vice president of Grubb & Ellis Co.’s West Los Angeles office, said more than 50 parties expressed interest in the buildings at 902-926 Colorado Ave. and 1630-1651 16th St., and a half-dozen bid on them. By offering to pay cash and complete the transaction quickly, DA Associates closed the deal at the end of 2000.

“It’s unusual for someone to write a check on Day One and say, ‘Here you go,'” Thurman said.

Thurman said the buildings attracted so much attention because 70 percent of the leases in the fully occupied buildings are below market, many by as much as 40 percent.

“That’s the play,” he said. “The majority of those leases are going to roll in the next two to three years.”

In fact, more than 60 percent of the leases will expire in that time frame, according to Thurman. The average monthly lease rate is $1.60 per square foot. Thurman said he expects DA Associates to demand as much as $3.25 per foot in the next round of leases.

The buildings were Wellsford’s only Southern California holdings.

DA Associates is a three-man organization that solicits investments “from a bunch of household names,” Thurman said, adding that he is contractually bound to keep the names confidential.

The Colorado Avenue building has 40,000 square feet of space, the 16th Street building has 75,000 square feet. Among the tenants at the buildings are Omnicom, Groundswell Inc. and GMH Architects.

Good View

The decision by officials at Wedbush Morgan Securities to stay downtown and double the amount of space their firm occupies at 1000 Wilshire Blvd. came down to two factors: rent and exposure.

Company officials signed a 10-year, $26 million lease for 113,000 square feet at the 490,000-square-foot building, which stands along the Harbor (110) Freeway in the financial district. The deal with landlord Sumitomo Life Realty more than doubles the company’s existing 55,000-square-foot presence and includes an agreement allowing Wedbush to add its signage to the L.A. skyline some day.

Wedbush was ready to leave, said David Kluth, managing director at Julien J. Studley Inc.’s Los Angeles office, until the deal to mount the sign, which would be visible from the 110 Freeway and Staples Center, came through.

“It really came down to a great alternative that was presented to them for a great location with rooftop signage,” Kluth said.

Still, no one knows when the Wedbush sign will replace the Coast Federal Bank moniker that remains on the building. Even though Coast has absorbed into Washington Mutual Inc. for almost three years, its lease in the building doesn’t expire until April 2002.

Wedbush’s previous lease cost the company less than $2 per square foot. Kluth said the new deal’s $1.92 rate is at market and appears to include no premium for the sign.

But the dealing is not over. Wedbush could have to pay Washington Mutual to take over the remaining 14 months on the top-of-the-building sign lease.

John Ghiselli, corporate managing director at Studley, said the sign was only part of the reason Wedbush decided to add to its 40-year tenure downtown.

“Their rental rate is less than half of the rates their competitors have after going to Century City and Santa Monica,” Ghiselli said.

REIT in Inglewood

A San Francisco-based real estate investment trust spent $11.5 million to buy a new cargo center on South Prairie Avenue in Inglewood and quickly moved to recoup its investment by filling it with tenants.

AMB Property Corp. bought the 127,845-square-foot building at 12530 South Prairie from finance company J.P. Morgan. Quickly, AMB worked out leases totaling $6 million.

Ohio-based Forward Air Inc., which provides surface transport of deferred airfreight, will be the prime leaseholder, paying $4 million over five years to occupy 86,879 square feet in the building. MSAS Sky King, a Texas-based freight company, will sublease the remaining space from Forward Air for three years at a cost of $2 million.

The purchase and the leases were brokered by Colliers Seeley International.

Century City Turnaround

Divco West, a San Jose-based developer/investor, announced three leases that brought its two Avenue of the Stars buildings in Century City to 96 percent occupancy.

The leases show significant turnaround at 1900 and 1901 Avenue of the Stars, which were 50 percent full and in poor condition when Divco bought them in 1999 for $200 million.

John Moe, Divco regional vice president, said the space at the buildings was renting for monthly rates ranging from $1.50 to $2.50 per square foot in spring 1999. The new lease rates are $3.30, $4.10, and $4.45. Fate and a $13 million investment conspired to make a good situation for Divco.

“There’s been a rising rental market in general helping, but it’s also due to our repositioning of the building,” Moe said. “We saw an opportunity to throw some TLC at it with some capital and we marketed it aggressively.”

Even though it appears full, the building holds more short-term promise, Moe said. That’s because many leases are coming due and will not be renewed. Moe said Divco will free up as many as three more floors, invest in asbestos removal and other improvements to have the space available by spring.

Optical Expansion

Lightcross Inc., an optical networking company in Pasadena, is moving to Monterey Park where it will double its space and more than double its employee roster.

Staff reporter Christopher Keough can

be reached via e-mail at [email protected].

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