Is Miracle Mile’s identity as a media hub in jeopardy?
A number of significant media tenants housed along that stretch of Wilshire Boulevard – dotted with museums, restaurants and office buildings – have either announced they will leave the area or are entertaining offers to pull up stakes.
Earlier this year, entertainment publication Variety, acquired by Penske Media Corp. last year, announced that it would move from Miracle Mile to Westwood in order to consolidate offices with its new parent. The company’s iconic red logo atop 5900 Wilshire Blvd. came down last week in anticipation of its move, which will come before its lease expires in February.
Consolidation might also pull E! Entertainment Television, a unit of NBCUniversal, away from Miracle Mile. Real estate industry sources said it was likely to leave its offices at 5750 Wilshire Blvd. to join its parent company at 10 Universal City Plaza, which NBCUniversal owner Comcast Corp. acquired for an estimated $420 million this fall.
And the Oprah Winfrey Network, whose lease at 5700 Wilshire is set to expire next year, has been actively shopping for other space and is said to have narrowed its search to CIM Group’s project known as the Lot in West Hollywood.
Arty Maharajh, vice president of research in the downtown L.A. office of Cassidy Turley Inc., said the sheer number of tenants considering moving outside Miracle Mile might indicate the area is losing its cachet with media companies.
“It’d be one thing if all these tenants were leaving one building,” he said, “but because this seems to be happening across an assortment of assets, I think there’s more to this than coincidental move-outs and consolidations.”
The impact of the departures, both active and potential, has been exacerbated by the downsizing of some media companies in the market. At the Wilshire Courtyard complex at 5700 and 5750 Wilshire, IPG Mediabrands reduced its space last year to 88,000 square feet from about 150,000. Getty Images, whose lease at 6300 Wilshire is set to expire in 2015, has said it will consider downsizing from about 21,000 square feet.
Taken together, these actual, planned and potential moves could put upward of 625,000 square feet back on a 5.1 million-square-foot Miracle Mile office market that had a 13.5 percent vacancy rate in the third quarter.
Not everyone, though, thinks the Miracle Mile is seeing an exodus by the media industry. Craig Kish, a senior vice president at Jones Lang LaSalle Inc., pointed to companies that recently committed to the area. Defy Media, for example, an entity created when local digital technology firm Break Media merged last month with New York’s Alloy Media, plans to expand its 34,000-square-foot space at 5757 Wilshire by 15,000 square feet in order to consolidate L.A. offices. Public relations firm Cohn Wolfe moved into 21,000 square feet at 6300 Wilshire earlier this year.
“All of this is just a natural evolution and churn you see in the market,” Kish said. “It if gets worse, it will just create more opportunities for other media and entertainment and advertising companies to consider moving there.”
Economics likely have a lot to do with the potential departures from Miracle Mile.
Historically, the area has drawn media companies not only because of its central location, but because the 1.5-mile stretch of Wilshire between Highland and Fairfax avenues has been a low-cost alternative to more expensive Westside office markets. In Beverly Hills, Brentwood, Century City, Westwood and West Hollywood, for example, monthly Class A office rents in the third quarter this year averaged $3.85 a square foot, according to Jones Lang LaSalle data; average Miracle Mile rents were $3.01.
In recent years, though, landlords along Wilshire have been raising rents.
Chris Runyen, a senior managing director for Charles Dunn Co., said rents began to really rise in the area after Wayne Ratkovich’s downtown L.A. real estate firm Ratkovich Co. bought what will be the former Variety building at 5900 Wilshire in 2005. At the time, the building was less than 80 percent occupied and rents were between $2 and $2.50 a square foot a month.
“He purchased it when there was a lot of vacancy, but he’s invested something like $28 million since then and also raised rental rates by almost 50 percent,” Runyen said.
Not long after Ratkovich managed to fill much of the vacant space, basing higher asking rental rates on Variety’s flagship presence in the building, the entertainment publication announced it would terminate its lease for about 60,000 square feet.
Just a couple of blocks east at Wilshire Courtyard, landlord Tishman Speyer Properties LP is also attempting to raise rents. The New York real estate firm bought the two-building, 1 million-square-foot property a year ago for $423 million, at the time the highest price paid for a Los Angeles County office property in eight years.
Now, however, with E! likely to take its 343,000-square-foot requirement elsewhere and OWN considering moving its 52,000 square feet, raising rents to justify the purchase price might be difficult to pull off. (The Business Journal is a tenant at 5700 Wilshire and its 9,300-square-foot lease is set to expire in the summer.)
Runyen, who was involved in leasing at Wilshire Courtyard before Tishman Speyer bought the property, said that for financial reasons, the new landlord should make holding on to large existing tenants with wandering eyes such as OWN and E! a priority.
“From a landlord’s perspective, tenant retention is more important than bringing in new tenants,” he said. “A tenant that size could quickly cost them millions of dollars, so there’s something to be said for making concessions.”
One way Tishman Speyer might attempt to retain existing tenants, short of accepting lower lease rates, is through renovations to the property. The landlord is drawing up designs to overhaul landscaping at the property and rethink common areas on the media office campus. Though Tishman Speyer declined to disclose specifics of the plans before designs were finalized, real estate sources said landscaping efforts are expected to include the demolition of several large geometric fountains in the courtyard to make way for more community space. Tishman Speyer is also said to be considering converting some interior spaces into creative office environments with polished concrete floors and raised, exposed ceilings.
Runyen said the buildings could certainly use an aesthetic upgrade. Built in 1987, the pair of six-story terraced buildings that make up Wilshire Courtyard boast a loud, dated color scheme and geometric design theme.
“When you’re charging rents in the top 10 percent in your market, you have to stay at the top of your game,” he said. “If you’ve got a lot of gold and teal accents – not to mention mauve walls – there’s a time when you need to step up and do some of that stuff to keep it competitive.”
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