Real estate investment firm DivcoWest doubled its footprint in Los Angeles last week as it swept up two office buildings in deals worth about $232 million.
The San Francisco firm purchased the Telephone Building in Santa Monica for $52.5 million and the Glendale Plaza in Glendale for $179 million, according to sources familiar with the transactions. Both properties are almost fully leased.
In a statement confirming the deals, Divco Managing Director Michael Provost emphasized the company’s confidence that employers located in both neighborhoods are positioned to attract and retain talent.
The company declined interview requests.
Divco, which manages more than $2.5 billion in equity, also owns an office complex in El Segundo and one in Playa Vista. It sold Gateway El Segundo in November for $120 million and the Pasadena Business Center in June for $67 million.
The company and its affiliates manage funds from institutional investors and high-net-worth families. It does both asset and property management, and has acquired more than 30 million square feet of commercial properties since its founding in 1993. Current holdings – mostly office buildings – are clustered in Austin, Texas; Boston; the Silicon Valley; and Los Angeles.
The Santa Monica and Glendale deals set up Divco in two office markets that are unlikely to see new construction anytime soon, although for different reasons. Santa Monica is tight on space and tough on development. Glendale has space to spare but office rents would need to double in order to justify construction costs.
Calling Santa Monica
Provost highlighted the squeeze on the office market in Santa Monica as a key reason to pick up the Telephone Building, a recently renovated six-story property a half-mile from the beach at 1314 Seventh St., near Arizona Avenue.
“The Telephone Building is an irreplaceable, top-grade commercial asset in a severely supply-constrained submarket of Los Angeles,” he said in the statement.
The building’s ownership is unusual in that the property was divided into condominium units in 2012. Verizon California Inc. retained a portion of the building that is used for switching equipment and sold a 58,540-square-foot condominium interest to Pacshore Partners and Alcion Ventures for $19.5 million through an entity called Alcion PS Santa Monica Owner, according to public records. The Verizon interest is now owned by Frontier Communications, which bought that company’s wire-line operations in California last year.
The $52.5 million price tag for the section sold to Divco equates to $897 a square foot, on par with several other recent office sales in the beach city, including Colorado Center’s sale in May of a 50 percent stake for $863 million, or $863 a square foot. The Lantana campus followed in November for $400 million, or $825 a square foot.
However, these all rank far below November’s sale of the office complex at 2600 and 2700 Colorado for $368 million, or $1,165 a square foot. Software giant Oracle Corp. bought the building with the intention of occupying the space.
Doug Bond, Andrew Harper, Ryan Gallagher, Michael Leggett, and Michael Matchett of Holliday Fenoglio Fowler held the listing for Pacshore and Alcion, while Divco represented itself.
The Telephone Building is 85 percent leased, according to HFF, including Verizon Communications Inc., venture capital firm Upfront Ventures, and restaurant Cassia.
A creative office renovation of the 1930s-era building was completed in 2015, and it now commands some of the highest rents in Santa Monica, HFF said.
Average monthly rents in Santa Monica hit $5.76 a square foot last quarter, the highest in Los Angeles County, according to Jones Lang LaSalle.
CBRE data had Santa Monica with a net absorption of 537,513 square feet last quarter – a record for the submarket that represented about a quarter of L.A.’s total net absorption in the period. As a result, the office vacancy rate slid from 15 percent to 9.5 percent in Santa Monica, leaving less than 1 million square feet available for lease.
Glendale gem
Glendale Plaza is a more traditional office animal – a limestone-clad, 25-story tower built in 1999. Prudential Financial Inc. picked up the property through a subsidiary in the boom times of 2006 for $215 million, making last week’s sale at $179 million a remarkable discount. The sale translated to $327 a square foot.
Sean Sullivan of CBRE, who marketed the property along with Todd Tydlaska and Michael Longo, said Glendale values have been popping up lately.
“You can look at it as coming down a lot in the last 10 years or up in the last three years,” he said. “The Glendale market has never been better than it is today.”
Glendale Plaza attracted a dozen bids in what Sullivan sees as a sign of investor interest heating up as an influx of apartment and retail projects help the city shed its suburban image. The market is also unlikely to see more supply become available, because average rents are too low to cover construction costs.
“We’re a long way from any new office construction in Glendale, so people are betting on significant office rent growth in Glendale,” Sullivan said.
The Glendale Plaza site, on North Central Avenue near the 134 freeway, appealed to Divco for its proximity to the city’s shopping and apartment hubs, the company said.
“Developers like Rick Caruso have created a powerful sense of place in Glendale with visionary retail and residential developments like Americana at Brand,” Provost said in a statement.
Glendale Plaza counts DreamWorks Animation, an NBCUniversal subsidiary, as one of its largest tenants, according to CoStar. The building is 95 percent leased.
The new owner plans to spruce up common areas in the 547,300-square-foot building and aims eventually to capitalize on rents that have been steadily creeping upward in the market, the company said.
Average monthly rents in Glendale rose to $2.64 a square foot last quarter, according to JLL, with vacancy sliding to 10.7 percent. In comparison, average monthly rents are $3.52 a square foot in nearby downtown Los Angeles.
