A San Jose real estate investment trust has spent more than $70 million for two L.A. County apartment complexes as out-of-town REITs continue to shop for deals in Los Angeles.
Bay Area Apartment Communities paid $50.3 million for the Lakeside Apartments in Burbank and $20.9 million for The Park Apartments in Hacienda Heights, and plans to spend more than $22 million in renovations on the properties, according to the company’s executive vice president and chief operating officer, Max Gardner.
Lakeside is a 750-unit complex on Pass Avenue across from Warner Bros. studio, while The Park is a 351-unit property on South Hacienda Boulevard near Colima Road, about 15 miles east of downtown Los Angeles.
Gardner said Bay Area, which owns 34 apartment properties in the San Francisco Bay area and 10 in Southern California, has been shopping in Southern California lately because it’s still one of the best places to find good apartment deals.
One of the most important factors is the cost of buying existing buildings vs. the cost of building new ones, and L.A. still stacks up favorably in that respect despite rising prices being paid for apartment complexes.
According to Scott Davis, Bay Area’s Newport Beach-based director of development and acquisitions, the cost of purchasing and renovating apartment buildings in L.A. is running approximately 20 percent to 25 percent below the cost of building new ones. In the Bay area, by contrast, buying existing buildings is only about 12 percent to 15 percent less expensive than building new ones, he said.
Gardner said other reasons for buying in L.A. include the resurging economy here, which is boosting the rental market and creating demand for apartments. At the same time, he said, there’s not a lot of new construction going up to compete with existing buildings. Gardner said those factors mean it’s well worth the purchase price plus the money Bay Area will spend on renovations, which will include nearly $15 million at the Burbank property and approximately $7.5 million at the complex in Hacienda Heights.
Another out-of-town investor, a 95-year-old Chicago real estate developer and investment company, has made its first-ever purchase of a Los Angeles property.
CMD Realty Investors Inc. bought the 104,420-square-foot Park Mile Center building on Wilshire Boulevard near Highland Avenue from Travelers Insurance Co., according to Dave Warren, a senior vice president at CMD.
Warren would not say how much privately held CMD paid for the office building, but real estate sources put the figure at approximately $6.7 million.
That’s in the neighborhood of $65 per square foot, a far cry from the $200 per square foot and more that buildings farther west along Wilshire are fetching. Although he wouldn’t talk about specific figures associated with his deal, Warren said CMD believes the higher priced buildings farther west mean higher rents that will eventually drive tenants east toward buildings like Park Mile.
“Basically, things are slowly creeping farther east,” he said. Although Park Mile is 25 percent vacant, Warren said the building is in good shape and doesn’t need much in the way of renovation or remodeling. He said CMD is confident of filling it relatively soon and already has a number of potential tenants showing interest.
Why has CMD, which has been in business since 1902, just now decided to enter the L.A. market?
“We believe, as a lot of people do now, that the economy is turning around and the real estate market is cured,” Warren said. There really was no specific reason for CMD’s not being in Los Angeles before this, except that the company was focusing on other markets, he said.
More REIT action
Beverly Hills-based G & L; Realty Corp., a REIT that specializes in buying medical office buildings, has closed its second purchase in as many months a relatively rapid rate of activity for G & L.;
The company said it bought a 50 percent interest in a $3.3 million, 123-bed skilled nursing home in El Centro.
President Steven Lebowitz of G & L;, which paid $22.5 million for 100 percent ownership of six health care facilities in New Jersey in July, said medical facilities tend not to change hands as often as general office buildings, so G & L; typically does fewer deals than other REITs.
G & L;, which was founded in 1976 and went public in 1993, operates one division that owns and manages medical office buildings and another that buys skilled nursing homes and other facilities related to care of seniors.
Credit union renews lease
Hughes Aircraft Employees Federal Credit Union has signed a five-year, $3.2 million lease renewal for 32,000 square feet of space at its building on Rosecrans Avenue near Sepulveda Boulevard, according to J.D. Cook, a Cushman Realty Corp. senior vice president who represented Hughes. Cook said Hughes chose to renew its lease after considering space in a number of nearby cities.
Westwood building filling up
Two recent leases totaling 13,740 square feet have put the long-languishing Center West building in Westwood past the 80 percent occupancy rate, according to Jeffrey Strnad, vice president and regional leasing director for LaSalle Partners.
The Federal Trade Commission signed a lease for 8,820 square feet and Middle Fork Productions leased 4,920 square feet, Strnad said, nudging the 330,000-square-foot, 23-story building to 82 percent occupancy.
This is the first time the building has been past the 80 percent mark since it was opened in March of 1990, said Strnad, who said that was pretty much the worst time in recent history to put an office building on the market.
The building remains 18 percent vacant despite the strong demand reported in other office markets near Westwood, like Santa Monica and Century City, but Strnad and Center West’s leasing director, Tony Ranger, said they believe the hot markets nearby are finally pushing up demand in Westwood.
Both of the recent leases were signed at rental rates above $3 per square foot per month, they said. That’s still about 15 percent below the rates in Santa Monica and Century City, but the rates are some of the best Center West has achieved, they said.
Contributing reporter Bob Howard covers the real estate industry for the Los Angeles Business Journal.