A boom in the construction of residential units in Hollywood and the dearth of new office space pushed up rents and land values to new highs in the third quarter.
Vacancies dipped to 9.6 percent, from 10.4 percent in the previous three months and 11.5 percent for the like period a year earlier, according to Grubb & Ellis Co. Average asking rents for Class-A office space reached $2.52 per square foot, up 6 cents from the previous three months and 25 cents from a year earlier.
"Five years back, you didn't have this residential component," said Steve Ullman of Grant Parking Inc., which owns more than 30 parking lots and other properties in Hollywood. "You'd look at a vacant piece of property and see an office building. Now you see office, residential and retail. There's a new player in the mix and that's residential."
Grant Parking sold a 2-acre parking lot at the corner of Vine Street and Selma Avenue to Camden Property Trust for a mixed-used development that will include more than 300 apartments and a Whole Foods supermarket.
Ullman and Camden wouldn't disclose the sale price, but assuming market rates of between $275 and $300 a foot for undeveloped land, the deal would be worth between $24 million and $26 million.
The Camden deal is one of several mixed-use developments in Hollywood.
Historic Hollywood Hillview LLC has started to lease 54 units over 10,000 square feet of retail, restaurant and nightclub space at 6533 Hollywood Blvd. Partner Jeff Rouze said that Hillview bought the 85-year-old earthquake-damaged building in 2002 for $3.75 million and spent $12 million on renovations. Monthly rents will range from $1,200 to $3,500.
All told, at least 2,500 residential units are in the pipeline for central Hollywood, according to the Hollywood Entertainment District Business Improvement District numbers that have had a significant effect on the commercial office market.
Asset Management Consultants Inc. sold a 75,000-square-foot office building at 6725 Sunset Blvd. to Crown Realty & Development Inc. for close to its $21 million asking price. At $269 a foot, the sale is a new high water mark for multi-tenant office properties, said John Tronson, a principal at Ramsey-Shilling Co.
And escrow opened on the purchase of the 22-story House of Blues office tower on Sunset Boulevard by CB Richard Ellis Investors Inc., a subsidiary of brokerage CB Richard Ellis Group Inc. The deal, valued at more than $83 million, or almost $260 a foot, nearly doubles seller Archon Group LP's investment in the property, which the Goldman Sachs Group Inc. division bought for about $45 million about six years ago.
Meanwhile camera sales and rental company Birns & Sawyer Inc. sold its 12,800-square-foot building at 1026 N. Highland Ave. for $3.65 million, or $2.85 a square foot, to Paty Enterprises LLC.
Commercial leasing also felt the pressure. Paramount Contractors and Developers Inc. renewed the Los Angeles Police Department's lease for 15,000 square feet of space at 6464 Sunset Blvd., according to Brian Folb, a principal at Paramount. The rent is $2.25 a foot with annual escalators, up from $2.15 a foot at the end of the current lease's term.
Nettwerk Management US LLC, an affiliate of a Canadian-based talent management firm, signed a 10-year lease for 10,000 square feet at 1544 Wilcox Ave. The total rent consideration for the lease is $1.5 million. The owner, Brentwood Capital Partners Inc., bought the 43,000-square-foot building four months ago for $8.2 million and is currently doing extensive renovations.
Even with the rise in rents there still isn't much incentive for property owners to move forward with pure commercial office construction.
"They'll probably have to get to $3.50 to $4.00 a foot to pencil out ground-up office development," said Chris Bonbright, chief executive at Ramsey-Shilling Commercial Real Estate Services Inc.
Construction is complete on the conversion of a 1920s furniture warehouse at 1617 Cosmo St. into 48 live-work lofts, the first adaptive re-use project to be completed in Hollywood, said LeRon Gubler, president of the Hollywood Chamber of Commerce.
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