Howard Hughes Corp. is preparing to relinquish a 16-story office tower in Westchester’s Howard Hughes Center to its mortgage lender, company officials said last week.
The move is the latest illustration of a problem many local commercial property owners still face: Despite the improving market environment, 1980s-level mortgage debts are exceeding today’s prevailing property values.
In the case of the Hughes development, the decision is particularly ironic given the Westside’s improving commercial real estate market and the apparent progress in development of the nearby Playa Vista community.
Howard Hughes Corp. Senior Vice President Mark Brown declined comment on the decision to relinquish the 6701 Tower project.
Instead, he issued a statement saying that the company “made a strategic decision to direct its resources toward new development, rather than continuing to invest in 6701 Tower.”
He said the company anticipates deeding the building at 6701 W. Center Drive back to Prudential Insurance Co. of America around the end of the month.
Prudential’s Premisys Real Estate Services will take over management of the 6701 Tower. A Prudential spokesman said the company hasn’t yet devised long-term plans for the property.
Title records indicate that Prudential holds a $64 million mortgage funded in pre-recession 1988, when property values were substantially higher secured by 6701 Tower, which was completed in 1986.
That factors to nearly $205 per square foot, a level considered substantially higher than the property’s current market value.
An exhibit attached to the mortgage loan’s deed of trust hints at the problems that have plagued property owners as the local economy slumped and their tenant base shrank accordingly.
Two of the five key tenants listed Wang Laboratories Inc. and Financial News Network are no longer operating.
The 6701 Tower is currently 84.3 percent leased. The biggest tenants are Blue Shield of California (at 66,000 square feet), Univision/KMEX and NFL Properties Inc.
The 313,000-square-foot tower is the biggest building completed so far within the 70-acre Howard Hughes Center complex along the San Diego Freeway (405) below the Westchester Bluffs.
The center also features the 104,000-square-foot adjacent Northpoint building and the Spectrum Club athletic facility.
Howard Hughes Center is just east of the 1,087-acre Playa Vista site, the owners of which recently forged a key agreement in principal with an investment group expecting to provide some $200 million in much-needed development financing.
Steve Solomon, a Seeley Co. commercial real estate broker who specializes in the market area surrounding Howard Hughes Center, said vacancies at top office buildings in the Marina del Rey and Culver City/Fox Hills district have quickly dropped from upwards of 25 percent to the single-digit range over the last two years or so.
Given that market momentum along with progress at Playa Vista the 6701 Tower should attract strong investor interest when and if Prudential opts to sell, Solomon said.
Howard Hughes Corp., an affiliate of Columbia, Md.-based real estate firm The Rouse Co., is a longtime owner/co-owner of the Playa Vista property dating back to the namesake aviator’s World War II-era land purchase.
There is substantial new development activity at Howard Hughes Center but the latest projects are controlled by other developers.
A new 90,000-square-foot clinic facility slated to house the Kerlan-Jobe Orthopedics Clinic and HealthSouth Corp. just got under way. And ground is scheduled to be broken later this year on a 250,000-square-foot entertainment/retail complex by Miracle Mile-based J.H. Snyder Co.
Howard Hughes Corp. announced last week that veteran local real estate figure Mike Russell has been hired to oversee all aspects of development and operation at Howard Hughes Center. The center’s master plan envisions as much as 2.7 million square feet of develoment at build-out.
Russell has been operating his own Marina del Rey real estate consulting firm since 1990. He previously held senior positions with The Linpro Co., Booz Allen Hamiton and the L.A. Community Redevelopment Agency.