Some of the behemoths of L.A.’s REIT scene turned out at the National Association of Real Estate Investment Trusts luncheon last week. The event took place just as REITs nationwide surpassed pension funds as the largest owners of real estate.
Judy Hedin, senior vice president at securities firm, Jefferies & Co. Inc., noted that although REITs are media darlings as of late, they own only 4 percent of the nation’s $3.4 trillion of total real estate assets.
Nonetheless, REITs’ combined market capitalization has mushroomed to $140 billion and many real estate observers are putting their faith in the discipline of these public companies to moderate the velocity of the current real estate up cycle.
As REITs are celebrating their ever-growing presence, though, the question arises: “How can we screw it up?” asked Arthur Coppola, president and chief executive of Macerich Co., a regional shopping center REIT.
John Kilroy Jr., president and chief executive of Kilroy Realty Corp., answered that there’s always the risk of over-building.
“The key is to be first you don’t want to be last,” he said, adding with a chuckle: “I learned that from personal experience.”
Richard Ziman, chairman and chief executive of Arden Realty Inc., said his company plans to move into development through built-to-suit opportunities but doesn’t expect it to be a “primary source” of Arden’s income.
He added that while many industry observers predict the new public ownership of real estate will introduce more discipline to development, he isn’t certain.
“The only time we’ll know that for certain is when it’s all over,” he said.
The REIT executives also speculated on who some of the upcoming private sellers might be. Ziman said he expects to see life insurance companies and private pension funds continue to sell, as well as Japanese investors, who bought properties for astounding prices in the late ’80s and held onto them throughout the recession.
Industry observers have been predicting a fire sale of those properties for years, but Ziman said he expects a lot of sales to surface by March 31, when Japan’s fiscal year closes.
Westside deals
Two office properties changed hands recently in some of the so-called “secondary” Westside submarkets that real estate observers expect to benefit from the spillover in the tighter Westwood and Santa Monica markets.
Arden Realty added the Beverly Sunset Medical Building in West Hollywood to its burgeoning portfolio. Arden, a Beverly Hills-based real estate investment trust, paid $28.75 million for the building, which it plans to reposition to attract spillover medical tenants from the Beverly Hills “Golden Triangle” area, said Jeff Berger, Arden’s director of acquisitions.
The 10-story medical office building, located at 9201 Sunset Blvd. on the Sunset Strip, is currently 72 percent occupied, according to Michael Dettling of Ramsey-Shilling Co., who is representing the seller.
In other Arden acquisitions of note, the REIT closed last week on its purchase of the 9100 Wilshire Blvd. office complex, where its headquarters are located. Arden paid about $60 million to purchase the twin, 10-story towers.
In Culver City, Lincoln Property Co. is expected to close this week on its acquisition of a collection of 16 small office buildings with about 160,000 square feet of space on an eight-acre site at the corner of Bristol Parkway and Hannum Avenue. Lincoln is paying about $17 million to buy the project, known as Park Place.
Lincoln is purchasing the project from IB Brell, a partnership that bought the property almost one year ago for $13 million.
Elsewhere on the Westside, a new tenant is squeezing into the tight West L.A. market. National Digital Television Center, a division of cable giant Tele-Communications Inc., has signed a 10-year, $20-million lease to occupy the currently empty 80,000-square-foot industrial building near the corner of Olympic Boulevard and Centinela Avenue.
TCI intends to spend $8 million to renovate the building’s interior, including installation of several sound stages, said John Kilroy Jr. , head of Kilroy Realty. That building is part of the seven-acre site Kilroy Realty purchased late last year.
The REIT intends to build a $75 million campus-style development on the property.
Kilroy is also in escrow to purchase about 100 acres of property in Thousand Oaks, near Amgen Inc.’s corporate headquarters. Kilroy is performing due diligence on the Northrop Grumman Corp. land, which has about 500,000 square feet of industrial buildings on it.
Apartment honors
Los Angeles is among the top 10 U.S. apartment markets for investment and development this year, according to a study from E & Y; Kenneth Leventhal Real Estate Group and the CB Commercial National Real Estate Index.
Los Angeles was ranked ninth in the report, which examined 70 U.S. apartment markets and selected those that experienced some of the fastest rent and price appreciation last year and are showing strong economic fundamentals for this year. Not surprisingly, San Francisco placed first, followed by Orange County.
Los Angeles was selected in part because the market’s job growth continues to outpace residential construction. Kenneth Townsend, regional managing partner in Los Angeles for EYKL, noted that 60,000 jobs were added to Los Angeles last year, while construction permits for only 2,500 multi-family housing units were issued last year.
Other news
Los Angeles-based Johnson Fain Partners has just landed the job as master designer of a new state project in Sacramento. The $392 million, 1.5 million-square-foot project will serve as the home for three state agencies when it is completed in 2003. The architectural firm also designed Fox Plaza and the Sun America building in Century City.
An item that ran last week about Santa Clarita Studios being up for sale apparently resulted in a glut of calls to the studio office. Dave Maron of Maron Commercial Inc. and Craig Peters of CB Commercial Real Estate Group Inc. are handling the sale.
Joyzelle Davis covers real estate for the Los Angeles Business Journal.
