In recent years, the trendy section of Robertson Boulevard between Third Street and Beverly Boulevard has become a bellwether for the local retail leasing market, exploding in popularity.
The news from Robertson these days: Rents are dropping quickly.
For several years, rents had been driven sky high by a mix of national tenants who wanted to be a part of the scene, long a haven for up-and-coming designers. In June, the Business Journal reported that rents had hit a range of $25-$28 per square foot per month. Now, with the recession cutting into sales, landlords are finding those rents don’t fly.
“Most of my landlord clients are spending considerable amounts of their days fielding calls from retailers saying, ‘I can’t make it, I can’t make it, I need a haircut,'” said Matthew May of Sherman Oaks-based May Realty Advisors, a retail broker who has long worked the market.
While landlords are loath to announce reductions in asking rents because those decreases could become fodder for existing tenants looking to renegotiate their deals, May said that rents have fallen to a range of $17-$25 per foot per month, triple net.
“Robertson sales are down. There are tenants at $17 trying to get down, tenants at $11 trying to get down,” he said.
May declined to name tenants who are looking for lower lease rates because he is involved in ongoing negotiations with a handful of landlords.
“Some landlords are giving in, some are not,” said May, who expects the trend to continue well into 2009.
Debt Deal
Kennedy Wilson Multifamily Management Group Ltd. has sold a 153-unit apartment complex in Norwalk for $21.9 million in yet another debt-assumption deal in an era where financing remains scarce.
The unit of Beverly Hills-based real estate investment firm Kennedy Wilson Inc. completed the sale Dec. 10 to Advanced Real Estate Services Inc., a tenants-in-common syndicator that purchased the complex on a 1031 tax-deferred exchange basis. The property has 60 years remaining on a ground lease with an undisclosed land owner.
Kennedy Wilson had owned the property at 12401 Studebaker Road for about three years since purchasing it for $18.2 million. The company spent approximately $1.5 million in renovations during its ownership, and was able to raise rents after adding amenities such as fitness and business centers, said Bob Hart, president of Kennedy Wilson Multifamily.
“We were able to increase income on the property by 25 percent over the holding period of three years,” Hart said.
The property sat on the market for six months before Kennedy Wilson was able to strike a deal with Advanced Real Estate, which has bought two other apartment properties from Kennedy Wilson Multifamily. Key to the sale: Advanced was able to assume a Fannie Mae loan at an attractive rate. The deal breaks down to $143,000 per unit.
“(Properties) are sitting longer, no question about that,” Hart said.
Stewart Weston of Marcus & Millichap Real Estate Services Inc. represented both sides in the transaction.
Down Market
The downtown Long Beach office market has been so slow for several months that a recent 15,500-square-foot lease qualifies as one of the bigger transactions.
Charter College, a Reno, Nev.-based vocational school, signed a five-year lease Dec. 8 valued at $1.8 million for Class A space at 100 W. Broadway. It commences March 1 and the school is already occupying temporary space at the building.
“It’s probably one of the largest lease transactions in Long Beach this year in a market that seems to be not having a lot of activity as far as large tenants are concerned,” said Franck Morineau, a principal with commercial brokerage firm WilshireWest, who represented the tenant in the deal with landlord Adler Realty Investments Inc. of Woodland Hills.
There was a 12 percent vacancy rate in the 4 million-square-foot submarket in the third quarter, up from 10.1 percent a year earlier, according to Grubb & Ellis Co.
The college, which is relocating from a 10,000-square-foot facility elsewhere in Long Beach, will use the space for classrooms and offices once it is remodeled. The college has other Southern California branches in Oxnard, Lancaster and Canyon Country, Morineau said.
The lease starts at $1.88 per square foot per month on a full service gross basis and escalates by 3 percent annually. That rate is below recent deals done in the area that have started at $1.90 to $2.10 per square foot, according to Morineau.
Edward Michel of Global Real Estate Inc. represented the landlord.
Staff reporter Daniel Miller can be reached at [email protected] or (323-549-5225, ext. 263.
