More than a year after Beverly Hills passed a law to slow an influx of plastic surgeons and other doctors into the city, the controversial ordinance is facing its first real test.
Amir Development Co. blames the ordinance for its inability to fill vacancies at its three-story 8750 Wilshire Blvd. building, which it expects to become nearly 70 percent empty this year.
“The whole thing is very, very frustrating,” said Keenan Wolens, executive vice president at Amir. “We’ve had a lot of deals that we’ve had to turn away.”
The company has now filed the first legal challenge to the ordinance since its passage in February of last year. Amir is both questioning the legality of the new medical use ordinance, which effectively froze the space that each building can lease to medical tenants, and seeking an exemption.
The ordinance was the culmination of efforts to push back against the wave of medical professionals moving into the city, eager to pay a premium for a Beverly Hills address.
Officials claimed commercial districts were being overrun, and that doctors and other medical tenants had surpassed 20 percent of office use in the city.
Now, any building owner that wants its square footage for medical offices to go above what it was in February 2011 must apply for approval for a medical use overlay zone. Each building gets an exemption for up to 6,000 square feet, as long as it meets parking requirements.
Councilman Barry Brucker said though it may be disadvantageous to some landlords, it was in the greater interest of the city to encourage a mix of uses.
“I would imagine most every landlord on the Wilshire corridor would convert their building to medical space if they had the opportunity, because the rents are at a premium,” said Brucker, who stands by the ordinance. “However, the city has to look at the long-term good for its citizens and the business community at large.”
Frustrations
Almost one-third of Amir’s 119,000-square-foot building near Wilshire and Robertson boulevards sits empty now. With tenants leaving in the next six months, the company expects that as much as 81,000 square feet will be up for lease.
The building owner has found willing medical tenants but can’t lease to any more without applying for an overlay zone. Medical uses only accounted for about 25 percent of the building’s square footage when the medical use ordinance was passed, Wolens said. One prospective tenant offered to take more than 20,000 square feet of space late last year.
“They came to us and said, ‘We will pay this price,’ and it was a price that we could agree to,” he said. “We started to talk with the city and the city said, ‘No, you can’t lease anymore to medical tenants because of this law.’”
The frustration led the Beverly Hills company to file a lawsuit in Los Angeles Superior Court last month. In it, Amir claims the ordinance is “not a proper exercise of the police power of the city” and is “impermissibly retroactive.”
In addition, the company claims its building should be exempt from the ordinance because of a decades-old settlement agreement with the city that allows it to lease to medical tenants. Wolens added the company didn’t apply for an overlay zone because it didn’t feel it was subject to the new law.
The city released a statement saying its ordinance is valid and that its previous settlement with Amir did not apply to the new ordinance.
The company’s legal fight is not the only one about medical office use in Beverly Hills. Across the street at 8767 Wilshire, a four-story office tower project is awaiting the outcome of its own legal case against the city. The project’s developers, the Kobor Family Trust, sued in 2010 after officials denied a request to convert the project to medical office space.
The case is before the California Court of Appeal, said the developer’s attorney, Benjamin M. Reznik.
“There is no foreseeable opening date. The building has been completed, except for interior improvements pending the resolution and pending economically viable tenants,” Reznik said, adding that prospective nonmedical tenants are asking for rents that are too low for the project to pencil out.
Adding to the demand for medical use at the Kobor and Amir properties is that they are within a mile of Cedars-Sinai Medical Center, just outside of city borders. Doctors have set up nearby offices as the hospital has expanded.
Is it working?
There are an estimated 145 buildings that lease space to medical tenants in the city. Some, such as the five buildings owned by Beverly Hills’ G&L Realty Corp., are unaffected by the ordinance because they were already leased mostly to medical tenants.
Since the ordinance’s passage, some building owners have been advised by the city that they’ve reached their limit for medical tenants, but none has filed an application for a medical use overlay zone, said Michelle McGrath, the city’s acting principal planner. About five buildings have used the 6,000-square-foot exemption.
Meanwhile, Beverly Hills’ commercial real estate market has bounced back dramatically. The office vacancy rate dropped to 13.4 percent in the first quarter of this year, down from 19.7 percent a year ago, according to Jones Lang LaSalle Inc.
United Talent Agency inked a deal late last year to move into nearly 120,000 square feet at the former headquarters of Hilton Hotels on Civic Center Drive. Chicago-based Playboy Enterprises Inc. and Menlo Park’s Google Inc. also signed deals to move into the city.
But brokers say the drop in vacancy largely was driven by a few large such deals, and that most buildings are designed with small offices for service firms and medical tenants.
The city has yet to file a legal response, and if it ends up anything like the Kobor case, it could go on for years.
If nothing gets changed, much of the building could remain vacant, Wolens said.
“I don’t know what’s going to happen,” he said. “We’ll lose money and they’ll lose money. I don’t know if it’s going to help them to have vacant space.”
