Does Douglas Emmett Inc. know something the rest of the San Fernando Valley office market does not?

As Grubb & Ellis Co. reported yet another drubbing in first quarter leasing with West Valley vacancies mired in double digits and some 212,000 square feet put back on the market Emmett struck while the iron was cooling.

The Santa Monica REIT paid $610 million, or $428 per square foot, for a six-building portfolio from Arden Realty Inc. that includes three prime Valley assets. The Valley properties are positioned where the firm already has a major presence, in Sherman Oaks and Encino, and the Warner Corporate Center in Woodland Hills. But with Warner Center vacancies hovering around 16 percent and more than 500,000 square feet of new space on line at Phase IV LNR Warner Center, experts struggled to make sense of the deal.

"My best guess is their (REIT) structure and the relatively low vacancy rates in the Warner Center buildings they already own make them able to absorb a price tag other buyers cannot," said John Sabourin, senior vice president with CB Richard Ellis Inc.

The West Valley wasn't the only submarket gasping for air. Central Valley and East Valley submarkets put back 24,771 and 11,965 square feet of space, respectively, on the market. The East Valley, comprised mainly of Studio City, North Hollywood and Universal City, has enjoyed some of the lowest vacancies in Los Angeles County, but the vacancy rate in the first quarter crept back up to 6.8 percent, three times where it was at in the same period of 2007.

There were some bright spots. Casualty insurance firm ACE American Insurance Co. signed up for 27,184 square feet in Northridge for a term of five years. ACE will bring nearly 200 employees into 9200 Oakdale Ave., a 258,000-square-foot Class A site formerly owned by Washington Mutual.


Office Market At a Glance

Inventory: 27.3 million square feet

Under Construction: 858,248 square feet

Class A Asking Rents: $2.84


MAIN EVENTS

- Santa Monica-based Douglas Emmett Inc. spent more than $600 million to purchase 1.4 million square feet of Class A commercial space from Arden Realty Inc. The six-building portfolio is located in existing Emmett strongholds, with the Valley parcels at 15250 Ventura Blvd. and 16000 Ventura Blvd., both in Sherman Oaks-Encino, and 21300 Victory Blvd., Warner Center. The deal brings the REIT's market share in Warner Center and Sherman Oaks-Encino to 41.2 percent and 55.4 percent, respectively. Emmett now controls about 6 million square feet in the two submarkets, making them the dominant Class A player by a wide margin.

- With credit markets in disarray, "flexibility" has been the buzzword for Valley developers. L.A.-based J.H. Snyder broke ground on Phase III of the firm's $375 million NoHo Commons, near the North Hollywood MTA station at Lankershim Boulevard. The final phase will include a 182,000-square-foot Class A office building and a 30,000-square-foot movie theater. Local developer DT Group began converting a residential loft parcel at 5355 Cartwright Ave. in the same NoHo district into nearly 70 office condos.

- The two 255,000-square-foot buildings at LNR Warner Center Phase IV (Building D, 21255 Burbank Blvd., and Building E, 21215 Burbank) received their temporary certificates of occupancy in the first quarter. Building D is 13% preleased to Countrywide, Real Software Systems and Guardian Dental. Building E is 65 percent preleased to software giant Intuit, which will occupy roughly 167,000 square feet on floors one through four later this year.

- ACE Insurance leased 27,184 square feet in the West Valley Corporate Center, 9200 Oakdale Ave., Northridge. The 258,000-square-foot Class A site was formerly owned by Washington Mutual, and is now run by IDS Real Estate Group on behalf of a joint venture of Chatsworth Office LLC and the California State Teachers Retirement System. ACE signed on for five years and plans to move several hundred of its employees into the building this summer.

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