By D.B. YOUNG

Contributing Reporter

Pasadena was a hotbed of activity during the fourth quarter, as the effects of tight office markets in Burbank and Glendale led to a long-predicted spillover into the neighboring city.

Nearly all major Tri-Cities leases for the last three months of 1998 were in Pasadena, while two new office projects began to take shape the first such developments in the city since the early 1990s. In keeping with the flurry of activity, the Pasadena vacancy rate fell to 11.3 percent, from 13.7 percent in the third quarter, as the market absorbed 172,231 square feet of space, according to Cushman & Wakefield Inc.

Pasadena’s strong showing contrasted with a flat performance for the overall Tri-Cities, where the fourth-quarter vacancy rate was 9.7 percent unchanged from the third quarter.

In Glendale, the vacancy rate rose to 10.8 percent from 8.3 percent, while in Burbank it dropped to 6.1 percent from 8.3 percent, according to Cushman & Wakefield.

Pasadena saw at least five leases signed for more than 20,000 square feet each during the quarter, while the broker for a newly renovated building on Lake Avenue is close to signing a tenant for 60,000 square feet of office space.

The largest deal came from Qwest Communications, which agreed to lease more than 80,000 square feet at 3015 Winona Ave. Raytheon signed a lease for nearly 30,000 square feet at 299 N. Euclid Ave., while the University of Phoenix signed a lease for nearly 22,000 square feet in the same building.

Also during the quarter, Aetna Insurance Co. completed a $12 million renovation on the mostly empty 195,000-square-foot building at 251 S. Lake Ave., which was formerly occupied by Jacobs Engineering. There are no new leases for the building yet, but one source said a tenant has signed a letter of intent to take 60,000 square feet.

The Pasadena market also received a strong, long-term boost from two major new office developments. Koll Development Co. purchased two acres at 1055 E. Colorado Blvd. and expects to break ground in the first quarter on a five-story, 170,000-square-foot office building there, said Gary Toeller, a senior vice president at Koll.

“It’s the first speculative building (in Pasadena) since 1991,” Toeller said. “We don’t have any tenants yet, but a lot of interest. We expect a completion date of around March 2000.”

Toeller said Koll has no reservations about building the first new speculative building in Pasadena after a dry spell of eight years. “The demand has been increasing in the Tri-Cities marketplace to the point where pressure on rents is going up,” he said. “The first (new project) out of the ground in these conditions is a desirable point to be in from a development standpoint.”

In another significant development, Irvine-based Legacy Partners announced earlier this month that it will buy the 50-acre Ambassador College campus from the Worldwide Church of God. Though development plans haven’t been finalized for the sprawling site on the western edge of Old Pasadena, Legacy will consider apartments, offices, a hotel and senior housing. Legacy officials expect to have a formal plan in about four months.

Meanwhile, Morgan Stanley Real Estate Funds recently bought an 8.2-acre parcel at 250 N. Halstead St. and 300 Foothill Blvd. The new owner plans a multimillion-dollar overhaul for the site, which will include a major renovation and expansion of two existing buildings that will effectively add about 254,000 square feet of office space to the Pasadena market, according to Todd Doney, a senior vice president at Cushman Realty Corp. The whole project should take about two years to complete, he added.

While Pasadena bustled with activity, several new buildings moved forward in Burbank and Glendale.

In north Burbank near the airport, a 215,000-square-foot building being developed by M. David Paul and Associates neared completion with nearly half the space already pre-leased. In the fourth quarter, the developer was reportedly negotiating on several more leases, and also applied with the city of Burbank to add a food court to the development, said Paul Krueger, economic development manager for Burbank.

Another north Burbank project hit a stumbling block in the fourth quarter, when Vestar Development Co. failed to close its purchase of 103 acres of land from Lockheed Martin Corp. before a year-end deadline.

Vestar had planned to build about 585,000 square feet of retail space on some of the site, and provide about 30 acres to Kilroy Realty Corp., which had planned to develop office space there. But that deal has now unraveled, and Lockheed has reopened the bidding to other developers interested in purchasing and redeveloping the site. Lockheed has also indicated it will ask a higher price than the one Vestar had agreed to pay. In the interim, Lockheed is continuing to pursue entitlements for its site.

“I don’t envision (the failure to close the land deal) as being a major setback,” Krueger said. “I think it’s just a timing matter. I think (Lockheed) intended to book the sale for 1998, and wasn’t able to. It’s our understanding (Lockheed) has had discussions with Vestar (this year). We have not stopped processing their application.”

In another fourth-quarter development, H.W. Burbank LLC cleared all remaining tenants from a former trailer park at 2240 N. Hollywood Way, and plans to build 100,000 square feet of office space there, Krueger said.

“Now, they’re looking for tenant commitments,” he said.

The big news in Glendale was the near completion of Glendale Plaza, which is expected to add 500,000 square feet of high-rise office space at 655 N. Central Ave.

“The fourth quarter, for at least the Glendale market, was the last quarter the market would expect single-digit vacancy,” said Bill Boyd, a Grubb & Ellis senior vice president. “We anticipate (the Glendale vacancy rate to rise to) 15 to 17 percent, depending on how much leasing Glendale Plaza has experienced.”

The high-end project being developed by of PacTen Partners has yet to see any pre-lease activity, despite more than a year of marketing. However, several sources close to the project confirmed that State Compensation Insurance Fund is on the verge of finalizing a lease for about 125,000 square feet of space in the building.

Glendale was also the site of one of the quarter’s biggest building sales, which came when Arai & Co. Ltd. sold the building at 701 N. Brand Blvd. to California Credit Union for about $27 million, said Doney of Cushman Realty, which marketed the building.

“We’re very pleased with the price,” he said. “There’s still good interest from investors (in Glendale buildings), given the underlying dynamics and fundamentals of the market.”

Tri-Cities

Major Events

? Qwest Communications agreed to lease more than 80,000 square feet at 3015 Winona Ave. in Pasadena.

? Raytheon signed a lease for nearly 30,000 square feet at 299 N. Euclid Ave. in Pasadena, while the University of Phoenix signed a lease for nearly 22,000 square feet in the same building.

? Koll Development Co. purchased two acres at 1055 E. Colorado Blvd. in Pasadena for a five-story, 170,000-square-foot office building.

? Morgan Stanley Real Estate Funds bought an 8.2-acre parcel at 250 N. Halstead St. and 300 Foothill Blvd. in Pasadena that will eventually add about 254,000 square feet of office space.

? H.W. Burbank LLC cleared all remaining tenants from a former trailer park at 2240 N. Hollywood Way in Burbank and plans to build 100,000 square feet of office space.

? Arai & Co. Ltd. sold its building at 701 N. Brand Blvd. in Glendale to California Credit Union for about $27 million.