Wall Street is taking notice of L.A.’s improving office leasing market. Banc of America Securities research analysts announced the results of a survey of local commercial brokers that bolstered the view that Los Angeles landlords stand to gain as the local office market continues to strengthen.
Analysts said local brokers believe that leasing activity is heating up, that rents will rise about 7 percent and that landlord concessions to attract tenants will fall during the next three to four months.
“While we knew L.A. is currently an office market with favorable supply/demand characteristics, the results show compelling evidence that pricing power may be quickly transferring to office owners in the region, a unique dynamic,” wrote research analysts Ross Nussbaum and John P. Kim.
The results were so strong that Banc of America upgraded the rating on Kilroy Realty Corp., a local publicly traded landlord, to neutral from sell because the company “is positioned to benefit from improving L.A. fundamentals.”
BofA also reiterated its buy rating on Maguire Properties Group Inc., which has 58 percent of its assets in the Los Angeles market.
“We reiterate our belief that office REITs focused in one of the three strong office regions (New York, L.A. and D.C.) will outperform, as other markets will continue to favor tenants until fundamentals improve.”
Though Arden Realty Inc. isn’t covered by Banc of America, the report noted that the local real estate investment trust and L.A.’s largest L.A. landlord also stood to gain from the improving market.
Those brokers surveyed said they believed the largest absorption of vacant office space would take place in West L.A. and downtown Los Angeles. On average, the brokers estimated rents would rise the most in the South Bay (8.7 percent) and in West L.A. (7.2 percent), and the least in downtown (4.4 percent) and Tri-Cities (6 percent).
Asked if downtown would be the region’s strongest market in five years, more brokers disagreed (33 percent) than agreed (30 percent). Boosters cited new residential developments and mass-transit, while doubters said downtown is too far away from affluent neighborhoods and too clogged with traffic.
REITs were considered the best L.A. landlords in terms of quality assets, management and tenant relations, led by Arden (38 percent), Equity Office Properties Trust Inc. (26 percent) and Maguire (9 percent).
Thirty-four L.A. commercial brokers out of 200 responded to the survey. The brokers were from CB Richard Ellis Inc., Cushman & Wakefield Inc., Newmark and Staubach Co.
Tuning In
Premiere Radio Networks Inc. renewed and expanded to 90,000 square feet leases with landlord Douglas Emmett Realty Advisors for the company’s Sherman Oaks corporate headquarters and broadcast facilities.
Sources close to the deal pegged the value of the 10-year lease at about $30 million. Rick Buckly, a principal with Madison Partners who represented Premiere Radio Networks, confirmed the transaction was completed but he declined further comment.
Premiere, a Clear Channel Communications Inc. subsidiary, was able to buck recent industry trends and get concessions from Douglas Emmett in exchange for renewing its leases at 15260 and 15303 Ventura Blvd. three years early.
The landlord is reducing Premiere Radio’s rent by about 20 percent for the duration of its current lease. After the current lease expires, rents will adjust to market rates, according to the sources.
Premiere occupied several floors scattered throughout the 15260 building, and under the new lease the company will be able to consolidate and centralize its offices.
“By addressing the lease extension early, we were able to reconfigure Premiere’s occupancy, give back some of the less efficient space, and lease a new contiguous floor, all at reduced rates,” said Buckley in a prepared statement.
Premiere Radio Networks expanded their offices at 15260 Ventura Blvd. to 84,000 square feet from 77,000 square feet. Additionally, the company leased 6,000 square feet at 15303 Ventura Blvd., across the street.
Van Nuys Deal
Embarcadero Capital Partners has purchased Sherman Plaza from the Van Nuys business park’s original owner, Decron Properties Corp., for more than $40 million, according to sources close to the deal.
The twin mid-rise buildings in the office park are located at 15350-15400 Sherman Way and encompass 290,000 square feet. The Class-A business park was developed by Decron Properties in the early-1980s and is 90 percent occupied.
Major tenants in the office buildings include Penny Saver, TTI America, California Survey Research Services Inc., Vertis Inc. and WebMD Corp.
Valley Dealing
A stretch of land that surrounds the Northridge Fashion Center has suddenly become the center of attention.
Two national retailers are planning moves into the area, a developer is set to construct an 800-unit condominium community, and smaller strip centers are getting new owners and facelifts.
Porter Ranch continues its expansion with more affluent, single-family homes and even Northridge Fashion Center itself has begun revising its tenant mix as leases, many signed in the wake of the 1994 earthquake, run out.
“A lot of the shopping centers on Tampa (Avenue) went through a renovation, the growth in all the upper end housing in Porter Ranch really added a nice, new demographic boost so there’s a lot of things happening all at once that are having a global influence on that section of Northridge,” said Eric Smyth, a principal with CIP Real Estate in Irvine. He also mentioned the rapid expansion of the Washington Mutual campus and the construction of a courthouse.
CIP is finishing up the renovation of Northridge Promenade at Nordhoff Street and Shirley Avenue, which will soon get a new Guitar Center store. Across the way, at Nordhoff Street and Corbin Avenue, Lowe’s Companies Inc. is building a new home improvement store.
*Staff reporter Andy Fixmer can be reached by phone at (323) 549-5225, ext. 263, or by e-mail at
[email protected]
. San Fernando Valley Business Journal staff reporter Shelly Garcia contributed to this column.
