L.A.-Area Kmart Landlords Facing Big-Box Problem

Real Estate
by Danny King

Landlords of the five Los Angeles County sites Kmart Corp. plans to close may need to get creative in order to avoid holding onto an empty, and costly, store.

The five stores, in South Central, Compton, La Verne, West Hills and Palmdale range from 80,000 to 120,000 square feet and are ideal candidates to be split into smaller retail units, according to Chris Maling, senior director at Marcus & Millichap.

"If it's good real estate and it's a box, it's divisible, and the possibilities are unlimited," said Maling, who mentioned major chain drugstores Rite Aid, Sav-On or Walgreens as potential tenants.

Curtis Fralin, a first vice president at CB Richard Ellis and leasing agent for Compton Kmart landlord Compton Commercial Development Corp., added that a T.J. Maxx or a Marshalls, which typically take up about 50,000 square feet, could be suitable for a portion of the existing stores.

A drugstore or discount retailer would bring a tenant that's not going head-to-head with big box retailers like Target Corp., Wal-Mart Stores Inc. and Costco Wholesale Corp., whose growth contributed to Kmart's bankruptcy filing.

For two of the sites South Central and Compton an alternative tenant could be a retailer catering to the Hispanic community including Santa Ana-based supermarket Gigante or electronics department store La Curacao, which will be opening its fourth location in Huntington Park next month.

Meanwhile, officials from Minneapolis-based Target and Bentonville, Ark.-based Wal-Mart, which plan to build a combined 225 stores over the next year, were decidedly noncommittal.

"Just because there's space available doesn't mean we're going to go in," said Target spokesperson Brie Heath.

"If we're going to open this year, we're building them as we speak," added Wal-Mart spokesperson Tom Williams. "There's nothing to say at this point."

Enough's Enough

Amid a soft leasing market, Legacy Partners has decided that one rehab on a pair of South Bay properties is enough.

The Foster City-based developer, in partnership with Goldman Sachs, has sold two office buildings at 888 and 898 N. Sepulveda Blvd. in El Segundo to real estate investment firm RREEF for an undisclosed price. The Legacy/Goldman partnership bought the two properties in 2000 for about $10 million, and sources estimated the purchase price to be in the $15 million to $17 million range.

After purchasing the properties, which are about a mile south of LAX, Legacy renovated the 86,000-square-foot 898 building, and brought in companies like business software producer Siebel Systems and advertising firm Siltanen/Keehn as tenants. The company had plans to tear down the 140,000-square-foot 888 property, which was built in 1978, and replace it with a six-story 120,000-square-foot structure, according to sources close to the deal.

But like its surrounding area, the 898 property, whose leases range from $2.35 to $2.50 a foot, has had challenges attracting additional tenants over the past year and sits 40 percent empty. El Segundo/Beach Cities vacancy rates were 18 percent in the fourth quarter of 2001, up from 5 percent in the year-earlier quarter, according to Grubb & Ellis Co.

"They've had a problem leasing that property up," said Jim Jandro, the Insignia/ESG Inc. senior managing director.

Park Landed

Park Tower Long Beach LLP has sold its 116,000-square-foot Park Tower office building in East Long Beach to Ocean Beach Investors for $14.5 million.

The sale of the 20-year-old property, at 5150 E. Pacific Coast Highway, reflects the strength of a Long Beach office market that has remained steady despite vacancy jumps throughout the South Bay. The suburban Long Beach submarket had a 10.3 percent vacancy rate in the fourth quarter 2001, up from 10.1 percent for the year-earlier quarter but far below the South Bay's 17 percent vacancy rate in the fourth quarter.

"Long Beach didn't experience the huge run-up in the late '90s, so it hasn't been affected by the downturn," said Cushman & Wakefield Inc.'s Bob Alperin, who, with Cushman's Robert Garey and Kimball Wasick and Grubb & Ellis' Kevin Shannon, represented the seller on the deal.

Jack Ravan of South Park Group represented the buyer.

The market's steadiness is also reflected in the 20 percent return that Park Tower Long Beach LLP will make after less than two years of ownership. Since it was last purchased in 2000, the building, which includes tenants Cisco Systems and Washington Mutual Bank, has reduced its vacancy rate to 10 percent from 35 percent. Lease rates are in the $1.75 to $1.90 range.

Lifetime Contract

Lifetime Entertainment renewed its lease for 25,000-square-feet at 2049 Century Park East (better known as the south Twin Tower). Financial terms weren't disclosed, but local sources peg the value at $3 million.

The three-year lease came about because Lifetime didn't want to lock into a longer-term deal it would outgrow before expiration. CRESA Partners Principal Dave Toomey and Brian Davies represented Lifetime. Peter Best at Trammell Crow Co. represented the landlord, JP Morgan.

Lifetime had started with about 12,000 square feet when it first took space at 2049 in 1992, but has gradually grown into the entire floor.

Downtown Dealing

Law firm Howrey Simon Arnold & White signed a 14-year extension on its lease at 550 S. Hope St. in a deal worth $41 million. The firm expanded from 63,000 square feet, which it first leased in 1992, to more than 100,500 square feet.

The expansion puts the 565,000-square-foot Equity Office Properties-owned building at 96 percent leased.

Insignia/ESG Inc.'s Clay Hammerstein and Steve Bay represented the tenant while Equity Office was represented in-house by Brendan McCracken.



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

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