Tenants Take Advantage of Incentives to Renew or Relocate

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Downtown’s game of musical chairs continued during the second quarter, as landlords offered early-renewal packages, investors kept buying trophy properties, and tenants took advantage of bargain prices to expand.


Vacancy rates fell to 15.9 percent in the second quarter, according to Grubb & Ellis Co., from 17.8 percent in the previous three months and 20 percent in the year-ago period.


Still, expanding tenants can soak up only so much in a market that still has more than 5 million square feet of empty space.


“Aggressive landlords continue to provide attractive relocation options, forcing tenants’ current landlords to be aggressive as well or lose their business,” said Ted Simpson, senior director at Cushman & Wakefield Inc. “Unless large tenants consider downtown L.A. over the suburb markets, the third and fourth quarters will look the same.”


The busiest buildings were in the two Flower Street towers that make up City National Bank Plaza. Owner Thomas Properties Group Inc. has been enticing large tenants nearing the end of leases in other buildings to explore relocating, said Todd Doney, vice chairman, office properties with CB Richard Ellis Group Inc.


Taking advantage of aggressive concessions was law firm Wilson Elser Moskowitz Edelman & Dicker LLP, which took nearly 41,441 square feet at 555 S. Flower St. in a 10-year, $15 million deal. It will be leaving its digs at 1055 W. Seventh St. At the other tower, 515 S. Flower St., Telepacific Communications Group renewed for 99,916 square feet in a seven-year deal at undisclosed terms.


Elsewhere, Hana Financial Inc. will relocate to 1000 Wilshire Blvd. from 1055 Wilshire Blvd. in a 10-year, 19,204-square-foot deal worth about $6 million. And law firm Allen Matkins Leck Gamble & Mallory LLP renewed for 47,000 square feet at 515 S. Figueroa St.


The deal-making held down average asking rates. Rents stood at $2.61 per square foot for Class-A properties in the second quarter, essentially unchanged from $2.62 in the first quarter and $2.58 in the year-ago period.


Meanwhile, two large tenants occupied space that had been offline for several months, driving net absorption of more than 500,000 square feet during the quarter.


City National Bank, operating unit of City National Corp., moved into its 303,000 square feet at the former Bank of America Tower, and SBC Communications Inc. occupied the 225,000 square feet it leased last year at 1150 S. Olive St.



Investment market


The building, renamed SBC Tower, was sold in the second quarter to Layton-Belling & Associates Inc. by New Pacific Realty Corp. and Canyon-Johnson Urban Fund for $129 million.


Another recent purchase: 801 S. Grand Ave., which was recently bought by CIM Group and the Lee Group.


The developers will refurbish 10 floors of office space and convert the remaining 11 floors of the 474,346-square-foot building to condominiums. The $40-million project will be the first downtown building to combine office and luxury residential.


Among the other sales were recorded in the second quarter, Meruelo Maddux Properties LLC’s purchased the Union Bank & Trust Co. building, a 137,000-square-foot property at the corner of Eighth and Hill Streets, from 760 Hill Partners LLC for $12 million.


The site will be converted into 90 condo or apartment units. The 74,000-square-foot 700 Wilshire building was sold to Merathone Properties GP for $11.2 million by Fair Breeze Company Ltd. Merathone purchased the 611 Wilshire building last year.


In addition, One Wilshire is on the block, and Aon Center at 707 Wilshire Blvd. is under contract to Broadway Real Estate Partners LLP for $192 million.


A number of major institutional and private investors including The California Public Employees’ Retirement System have begun selling off sizable portions of their premium commercial real estate holdings to take advantage of the frenzied market before it calms completely.


“Investment activity has rapidly gone from red hot to warm,” said Scot McBeath, founder of Scot McBeath Realty.


“This makes sense, given that the investment boom was driven by falling interest rates and a declining interest in stocks. Both of these are becoming a thing of the past.”



Major Events:



& #8226;

Wilson Elser Moskowitz Edelman & Dicker LLP relocated to City

National Bank Plaza in a 10-year, $15 million deal. In the same complex, Telepacific Communications Group renewed nearly 100,000 square feet in a seven-year deal.


& #8226;

Hana Financial Inc. will relocate to 1000 Wilshire Blvd. from 1055 Wilshire Blvd. in a 10-year, 19,204-square-foot deal worth about $6 million.


& #8226;

Allen Matkins Leck Gamble & Mallory LLP renewed for 47,000 square feet at SBC Tower.


& #8226;

The 801 Tower at 801 S. Grand Ave. was purchased by CIM Group and the Lee Group, and is undergoing a renovation that will leave 10 of its floors as office space and convert the remaining 11 floors to condominiums in a $40 million project.

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