Tenants Are Flocking to New Hughes Center Component

Real Estate
by Danny King

Two lease deals in the works at Howard Hughes Center's 6080 Center Drive West will make its first year on line a very good one.

Arden Realty Inc., which owns the 287,000 square-foot-building, signed engineering consulting firm KPFF to a five-year lease for 33,000 square feet of space. Arden is also in negotiations with Qantas Airways for an additional 12,000 to 15,000 square feet.

With these two tenants, 6080 Center Drive, which was completed in June 2001, will be about 90 percent leased, according to Michael Pollack, senior portfolio leasing manager with Arden. In KPFF's case, the combination of amenities and economics lured the company from its current space at Santa Monica's MGM Plaza.

"The overall economics of the deal were substantially better than they were getting," said Pollack.

While financial terms were not disclosed, real estate sources said KPFF will be paying about $2.65 a foot for its new space, versus the $3 a foot the firm would be paying to renew at MGM Plaza. The deal illustrates Arden's strategy of luring tenants by playing up its retail/office mix (Howard Hughes Center has 800,000 square feet of retail space in addition to 1.7 million square feet of offices) and lower lease rates.

"Arden is a very creative deal-making landlord," said CRESA Partners Principal David Toomey, who represented law firm Waters McClusky & Boehle and Web operations firm Frontera Corp. (whose previous offices were in Santa Monica and Pasadena, respectively) in their leases at Howard Hughes Center.

The lease-up allows Arden to focus on finding tenants for a yet-to-be-built 285,000 square-foot building next door to 6080, said Pollack. None of the space at 6100 Center Drive, which will be the last multi-tenant building built at Howard Hughes Center, is preleased. The building is under construction and due to be completed in April.

Wolf Commercial's Lauren Gold represented KPFF on the deal while CB Richard Ellis' John Ayoob and Stan Gerlach, along with Pollack, represented Arden.

Drag on the Market

In addition to costing investors billions of dollars in market cap value over the last couple of years, the decline of Homestore.com could also have a sinking effect on the San Fernando Valley real estate market as well.

Between its headquarters in Westlake Village and its offices in Thousand Oaks, the online real estate marketplace producer has about 200,000 square feet of office space in a Conejo Valley market already awash with available space.

In the fourth quarter of 2001, the submarket saw negative net absorption of nearly 10,000 square feet as its vacancy rate climbed to 16.6 percent. The vacancy rate for the like year-earlier period was 9.7 percent, according to Grubb & Ellis Co.

"The (upsurge in) vacancy has been coupled by delivery of new product that was planned two years ago when the market was hot," said Nico Vilgiate, director at Insignia/ESG Inc.

Homestore.com's first priority will be to unload its space in San Francisco before addressing local subleasing issues, according to Rick Pearson, vice president at CRESA Partners. The company has 70,000 square feet at double the $2.25 monthly per foot rate it pays for its local offices.

"With all the other space available, even if they put it on the market, it could take a year for find someone to take it," said Pearson, who represented Homestore.com in finding a number of spaces nationally, though none locally.

The company, which did not return calls seeking comment, announced that it was cutting 300 employees on Feb. 5, upping layoffs over the past four months to 1,000. Shopping for Land

Much to the dismay of conservationists and infill proponents, sprawl appears to be alive and well in the northern Los Angeles County.

According to the Greater Antelope Valley Association of Realtor's multiple listing service, 45 deals for land in the Antelope Valley went into escrow last month. The figure is the highest since last July and the third highest monthly total in the past two years. More tellingly, the total exceeds the escrow openings of the two previous Januarys combined.

The surge reflects the continued strength of the Antelope Valley housing market, as well as a reentry of investors. Median home prices in Lancaster and Palmdale in December were up 12 and 17 percent respectively over the year-earlier period, according to the California Association of Realtors.

"We have a new demand for homes and we have a shortage of subdivided lots," said Jack Milburn, realtor at Lancaster-based HomeBased Realty. "It behooves the developer to start buying up large parcels."

Jim Patton, sole proprietor of Lancaster-based Jim Patton Real Estate, noted that investors and developers buying in the Valley are looking long-term, unlike much of the speculation that occurred in the area in the late 80s. "We're not in a market where you can buy something in August and flip it in November," said Patton.

Also reflected is that despite the political and economic push toward infill developments and against urban sprawl, L.A. County's housing shortage continues to create residential expansion on its fringes.

Healthy Hollywood Retail

While Hollywood & Highland's challenges have been well documented, smaller retail investments appear to be doing quite well.

MB & S; Silverman, owners of an AutoZone-anchored center at the corner of Sunset Boulevard and Normandie Avenue, entertained seven offers before selling its 12,500 square-foot property to Owen Family Trust for just over $3 million, above the $2.9 million asking price.

At $241 a square foot, the sale of 5110 Sunset Blvd. illustrates the relative strength of retail investments in the East Hollywood area, according to Ramsey-Shilling Co. Chief Executive Christopher Bonbright.

"Because of the Hollywood renaissance (to the west) and the strength of Vermont Avenue on east end, it's natural for that area in the middle to appreciate."

Fred Sheriff of Charles Dunn Co. represented the seller on the deal, while Realty Investments' Fred Fardoust and Century 21 Exclusive Realtors' Marina Nollan and Joseph Yaghoubzadeh represented the buyer.

"It typifies the shortage of quality investment properties in this price range," said Sheriff. "When one comes on the market, there's a lot of attraction to it."

Staff reporter Danny King can be reached at (323) 549-5225 ext. 230 or at dking@labusinessjournal.com.

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