The Westside is the kind of real estate market brokers and investors dream about: rising rents, buildings bulging with tenants, and speculative fever getting hotter by the minute.
“West Los Angeles lease rates are going to hit all-time highs soon. It’s the strongest it has ever been. The demand for space is growing, but the capacity is limited,” said Victor Coleman, executive vice president of Arden Realty Group Inc., a Beverly Hills-based real estate investment trust that has been a buyer of Westside office buildings.
The region’s growing industries entertainment, multimedia and high finance have all deemed West Los Angeles as the place to be.
Does it get any snazzier than Fox Plaza, the Century City tower? The top floor is occupied by former President Ronald Reagan, while financial brokerage Donaldson, Lufkin & Jenrette Securities Corp. expanded its offices in the third quarter, taking 5,000 square feet on the top.
With tenants like that, investors want to own buildings on the Westside.
“The demand for office space has produced a frenzy for investors, primarily large financial institutions and REITs, anxiously bidding for office properties at near all-time highs,” said Vincent Pellerito, senior broker with Cushman Realty Corp. “West Los Angeles has gained so much momentum that many buildings purchased in 1994 have appreciated by as much as 100 percent.”
The improving market was evident in the decline of the vacancy rates 12.5 percent overall for the third quarter, down from 13.4 percent in the second quarter and 14.2 percent for the third quarter of 1996.
The tighest office markets were in Brentwood (8 percent) Beverly Hills (10.1 percent) Century City (10.2 percent) and Santa Monica (10.5 percent).
A total of 267,000 square feet of office space was absorbed in the major Westside markets, with the range of leasing rates holding steady at a low of $1 to a high of $3.50 a square foot.
Deals have been popping all over the Westside, as real estate investment trusts buy up space, or as tenants lease the office space that’s left.
For example, Janss Court, a part of the Third Street Promenade in Santa Monica, was sold to San Francisco-based Office Opportunities Fund in the third quarter. The 131,000-square-foot combination retail, office and movie theater complex was purchased from Janss Court Associates LLC, according to Bob Safai of Santa Monica-based Madison Partners, which brokered the deal. Sales price was in the $295 million range, or about $225 a square foot, a price range that no longer raises eyebrows in Santa Monica circles.
In another sign of the area’s strength, developer Bob Champion, president of West Los Angeles-based Champion Development, purchased a 61,500-square-foot parcel at Wilshire Boulevard and Bundy Drive, where he plans to build a 186,000-square-foot retail center, similar to his shopping development on the corner of Sawtelle Avenue and Olympic Boulevard (famed for its eye-catching “neon aquarium,” featuring fish and porpoises jumping about on a 60-foot-high glass tower).
Champion called his slated development an example of “urban vertical (multi-story) retail infill,” and said that high disposable income on the Westside was one of the fundamental strengths of the project.
Getting the site was a piece of work: “I had to buy eight properties,” said Champion, who praised Grubb & Ellis broker David Lachoff for his help in rounding up the land parcels.
Also in the third quarter, developer Jerry Snyder, chairman of J.H. Snyder & Co., narrowed his list of developers competing to build Water Garden Phase II, a 600,000-square-foot addition to the office building project. “You’ll see the dirt being moved around by December,” said Snyder.
The veteran office builder said he generally expects construction on new Westside office projects to start soon, because “finally rents are back up to where it makes sense to build. That, semi-officially, happened in the third quarter.”
Underlining his point, Snyder in July came to terms with Edward Theatres Circuit Inc. to build a 22-screen movie complex, which will be part of the planned Howard Hughes Entertainment Center, adjacent to the San Diego Freeway (405).
The center will showcase a large-screen IMAX 3-D screen, and will be part of six acres of development. This includes 150,000 square feet, with 15 restaurants, a bookstore, and other amenities, all built in an Art-Deco style, said Snyder.
In third-quarter lease deals, Fox Television took a 70,000-square-foot warehouse at Olympic Boulevard and Bundy Avenue, for conversion into office space, while Cyber Media Inc. took 40,000 square feet, in a sub-lease deal, from L.A. Gear Inc.’s headquarters building in the Santa Monica Business Park.
Virgin Records renewed a 60,000-square-foot lease at 336 N. Foothill in Beverly Hills, and Saban Entertainment finished sub-leasing 100,000 square feet from Philips Media, at the 10960 Wilshire Blvd. building.
Gerald Porter, a tenant representative and president of Brentwood-based Metrospace Corp. who brokered the latter two deals, said that the third quarter “was the best quarter we ever had.”
Third-quarter action, from a broker’s point of view, is about as good as it gets: there are lots of tenants who want space, but there is still enough space available that deals can be cut: “We did twice the volume this (1997) third quarter than we did last year (third quarter),” said Porter.
In some other third-quarter lease deals, Ticketmaster Inc. took 72,000 square feet in the building at 8800 Sunset Boulevard in Beverly Hills, while Asylum Records took 26,000 square feet of converted “bow-truss,” or high wooden-beamed, warehouse space in Culver City.
Hollywood companies have embraced the conversion of warehouse space into working quarters, according to Neal Resnick, first vice president with CB Commercial Real Estate Group Inc.
“In the third quarter, we saw a number of speculative developers eyeing industrial land, with the thought of doing creative rehabilitations for entertainment clients,” said Resnick. “The brick walls, the bow-truss ceilings work for Hollywood.”
There were no mega-deals in the third quarter, such as the sale of Fox Plaza, or the twin Century City towers, which both took place earlier in the year. Nevertheless, brokers said the breadth of deals in the third quarter was better than any time in recent memory.
“I just hope the fourth quarter is like the third,” said Porter of Metrospace. “And so far, it looks like it will be.”
– Janss Court, part of the Third Street Promenade in Santa Monica, was sold for about $295 million to Office Opportunities Fund. Janss Court Associates LLC sold the 131,000-square-foot combination retail, office and movie theater complex for about $225 a square foot.
– J.H. Snyder & Co. solicited bids for Water Garden Phase II, a 600,000-square-foot addition to the office building project in Santa Monica.
– Snyder will also also develop a 22-screen Edwards Theatres movie complex as part of the Howard Hughes Entertainment Center near the San Diego (405) Freeway near Westchester.
– Fox Television leased a 70,000-square-foot warehouse at Olympic Boulevard and Bundy Avenue for conversion into office space.
– Ticketmaster Inc. leased 72,000 square feet in the building at 8800 Sunset Blvd. in Beverly Hills.