Disney's Departure is Bad Timing for Westwood Market

Real Estate
by Danny King

Walt Disney Co. has been moving operations of its ABC Family Channel (nee Fox Family) out of the Saban Building at 10960 Wilshire Blvd.

The cable channel, which Disney purchased in October from a partnership of News Corp. and Saban Entertainment for $5.3 billion in cash and debt, had taken 300,000 square feet of the 543,000-square-foot building.

Disney officials did not return calls seeking comment, but real estate sources said the operations are being consolidated closer to Disney's Burbank headquarters and that the Westwood space was up for sublease.

The space is being marketed at a range from $2.65 to $3.15 a foot, according to local brokers. No subleases have been signed yet.

The space dump doesn't come at a great time for Westwood, which had a 14 percent vacancy rate in fourth quarter 2001, up from 12 percent in the year-earlier quarter, according to Grubb & Ellis Co.

Asking rents in the 2.9 million square foot Westwood office market averaged $3.45 a foot last quarter.

Because there are four years left on the cable channel's 10-year lease, the immediate impact of the vacancy is more likely to be felt at other buildings than at 10960 Wilshire, which is owned by Chicago-based Equity Office Properties.

"My guess is Disney's check would clear" if it could not sublet the space, said Mark Robinson, corporate managing director at Julien J. Studley Inc. He added, "obviously, when you throw this much space onto the market, it's going to have an impact."

That impact is likely to be felt by leasing efforts at Arden Realty's 1100 Glendon Ave. building, where 89,000 square feet of direct lease space is available and at 10880 Wilshire Blvd., also owned by EOP, where 83,000 square feet of direct lease space is on the market.

"Where Equity takes a hit," said Neil Resnick, senior vice president at Grubb & Ellis, is in four years when "there's no Saban to talk to for renewal."

An interesting twist to Disney's sublease efforts is that the entertainment conglomerate picked up building-top signage rights when it assumed the Fox Family lease. A sublet tenant, if it took enough space, could negotiate for those rights as part of its deal.

Downtown Housing

The growth of the downtown residential market and the success of area developers like Gilmore Associates and GH Palmer and Associates may lure Judah Hertz into the fray.

Hertz, whose Hertz Investment Group has specialized in buying and refurbishing commercial spaces like CaliforniaMart and the Wiltern Theater, has commissioned a local architect to design a 400-unit apartment complex at the southwest corner of 4th and Figueroa streets. The two-acre property sits next to Union Bank Plaza, which Hertz bought last year.

"We're looking into our entitlements right now we're still thinking of several approaches," said Hertz, who estimated the cost of the project at $50 million and would consider taking on a joint-venture partner. "We'll hopefully be able to go through the (permitting) process this year."

Though the site is zoned for both commercial and residential use, it is within the boundaries of the Bunker Hill Redevelopment Project, according to Don Spivack, deputy administrator for the Community Redevelopment Agency. Spivack speculated that if the project were approved, 20 percent of the units would have to be dedicated to low-income housing, a point that does not deter Hertz.

"It's advantageous today," said Hertz of having a low-income housing component. "I think you get different type of financing more beneficial to you."

Dean Zander, associate partner at apartment brokerage firm Hendricks and Partners, points to the success of projects like the Palmer-developed Medici as a draw for Hertz, who at one time owned 5,000 apartment units nationwide.

Completed in June 2000, the 335-unit first phase of Medici, at 7th and Bixel streets, is 98 percent leased.

"Given the market, there's enough demand for downtown housing that he's probably making the right move," said Zander, who noted the central location of Hertz's project. "It should have every opportunity to be as successful (as Medici), if not more so."

Moving On

Seven months was time enough for one local investment group to realize that the Crest Theater wasn't worth the hassle.

Icarus LLC, which purchased the 60-year-old theater at 1262 Westwood Blvd. in July, is in escrow to sell the property to an undisclosed movie theater operator in a deal expected to be completed next month. The group was hoping to turn the movie theater into a nightclub and live theater venue, but was unable to get a liquor license and faced mounting neighborhood opposition to the project. As a result, the group purchased the Arsenal bar at 12008 Pico Blvd. last month.

"We got so much flack from people calling me," said Brad Stone, president of Brentwood-based Stone Co. and Icarus' broker on both deals. "(The Arsenal) had all the things we needed to pull off the concept we wanted to pull off."

Though the sale price was not revealed, the 7,500 square-foot building was marketed at $3.2 million, and received six offers at or above asking price, according to Stone.

Staying Put

For Verizon Communications of California, there was no place like home.

After shopping around for locations throughout the San Fernando Valley, the communications giant remained in its longtime local headquarters at 11333 Sepulveda Blvd. in Mission Hills, signing a lease renewal for the 65,000 square-foot building for over $10 million. Though the length of the lease was not disclosed, local sources estimated the term at 10 years.

"We looked at several alternatives, but it made the most sense to stay where we were," said Cushman & Wakefield Inc. Executive Director Lee Black, who, with Cushman's Richard Bright and Ray Howden, represented Verizon on the deal.

The landlord, Farmers Insurance Group, originally occupied the building, though it's been leased for 20 years. About 250 people work at the site.

Farmers was represented by Steve Zaccagnini and Jeff Ingham of JLL.

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

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