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Friday, Sep 30, 2022

Amazon Deal Big Production

It just doesn’t stop: Yet another tech giant is moving into Santa Monica.

Seattle online retailer Amazon Inc. is negotiating a lease of at least 75,000 square feet in the beachside city for its online entertainment production division and other corporate uses, according to sources familiar with the size requirement.

It would be the latest in a long roster of tech industry behemoths to take a significant amount of space in the Westside’s growing Silicon Beach area, now bursting with startups and established firms such as Google Inc., Facebook Inc. and Microsoft Corp.

“Amazon is trying to grow their entertainment production business,” said Andrew Jennison, partner at Santa Monica real estate brokerage Industry Partners who is familiar with Amazon and creative space on the Westside. “They are growing that piece of the business fairly rapidly so they need to accommodate that growth and they want to be on this side of town because of the talent and resources.”

Amazon is close to inking the deal at the Water Garden, a 1.2 million-square-foot office complex at Colorado Avenue and 26th Street, with landlord JP Morgan Chase & Co. Terms of the deal could not be determined, but real estate data provider CoStar Group Inc. reported asking rates at the complex of $3.85 a square foot. That would value the deal at about $3.5 million a year.

IA Interior Architects, which has designed Amazon’s offices nationwide, was said to be designing the Water Garden space.

Representatives of Amazon and JP Morgan did not return requests for comment.

The lure of the Westside, from Santa Monica south to Playa Vista, has been in large part due to the flood of development of original online content as tech firms build off the existing Hollywood infrastructure and talent in Los Angeles.

Microsoft, Netflix Inc. and YouTube LLC have all opened Westside offices as they aggressively pursue the production of original content. Netflix’s quarterly revenue eclipsed $1 billion for the first time in the period ended March 31, a milestone attributed at least in part to the success of its original online drama “House of Cards,” starring Kevin Spacey. The critically acclaimed series has been credited with bringing more subscribers to the service.

Earlier this year, Amazon Studios Inc., the entertainment unit of the online retailer run by former Walt Disney Co. executive Roy Price, began streaming 14 original comedy and children’s pilots through its website. It is turning five of those programs into series starring familiar actors such as John Goodman and Ed Begley Jr. Several of the shows, including comedy “Betas,” were filmed locally.

Creative space

Amazon and Amazon Studios have been operating out of small Sherman Oaks offices at the Sherman Oaks Galleria and 7404 Fulton Ave. Those offices would likely be consolidated into the Westside space.

The Water Garden lease is the latest move by Amazon to dig into Los Angeles. Last month, the company made Los Angeles the second location, after its home base of Seattle, for its Amazon Fresh grocery delivery service. That unit has been leasing industrial space in Los Angeles and in the Inland Empire for storage and garaging its green delivery trucks.

The Water Garden complex, an eight-building, Class A office campus, isn’t considered the typical creative space coveted by tech and entertainment firms. Such space is usually found in a former industrial building that has been brought up to date with polished concrete floors, exposed ceilings and wide windows.

The Water Garden instead offers a more traditional but upscale environment. Its design and amenities include vast lobby atriums with granite and marble flooring as well as restaurants and cafes, a fitness center, hair salon and a dry cleaner. The 17-acre campus has a large landscaped courtyard with a small manmade lake and fountains.

Amazon executives did look at creative space around the Westside but decided to go the more corporate, high-quality office route, brokers said.

Jeff Pion, vice chairman in CBRE Group Inc.’s Miracle Mile office, was not involved in the deal but has represented tech tenants such as Google. He said the decision makes sense for a company like Amazon, which might be looking for the kind of flexibility available in more traditional and institutionally owned office space. Santa Monica’s tight office market, with a second quarter vacancy rate of just 11.5 percent, offers few spaces large enough for the company.

“The market is changing,” Pion said. “The pendulum has swung from a tenant’s market. It is heating up and we are seeing a lot of activity. We are not seeing a lot of big spaces on the market and it’s limiting these companies on where they can locate.”

What’s more, a large complex like the Water Garden provides Amazon the ability to grow and contract as it needs, according to Industry Partners’ Jennison.

“The challenge of a stand-alone true creative space is sometimes you can’t grow,” he said. “The Water Garden has vacancy and has parking. So they can sign for 75,000 square feet and if they need to take 40,000 right away and grow into the remaining 35,000 over time, they can. That’s where the Water Garden has the advantage.”

That flexibility could come in handy as Amazon smoothes out its new entertainment division.

The company has begun its venture with TV-length pilots, but plans to ramp up to full-length feature films. According to its website, the company plans to make money through movie development and has established a production deal with Warner Bros.

Amazon airs the shows through its streaming Prime Instant Video service. The service is free to Amazon Prime account holders, a membership that costs $79 annually and provides access to videos, free two-day shipping and other perks. Viewers provide feedback about which pilots they would like to see move forward, which executives feel will help ensure the shows’ success.

“Amazon Studios is working on a new way to greenlight TV shows,” Jeff Bezos, Amazon’s founder and chief executive, said in a statement after announcing earnings in April. “The pilots are out in the open where everyone can have a say. I have my personal picks and so do members of the Amazon Studios team, but the exciting thing about our approach is that our opinions don’t matter. Our customers will determine what goes into full-season production.”

In addition to projects already in production, Amazon Studios is seeking original scripts for series and movies. It has an online submission forum for anyone from established writers to newcomers to submit scripts.

While it’s not yet clear just how many people Amazon plans to bring into its consolidated office space, it has been hiring for its Amazon Studios locally with at least nine job vacancies posted last week.

Arty Maharajh, vice president of research at Cassidy Turley Inc. who tracks tech companies’ activity in Los Angeles, said he expected Amazon to continue to expand on the Westside as its entertainment arm develops. Google, Facebook and Microsoft began with small offices in Los Angeles and have been expanding rapidly across the Westside in the last two years.

“Amazon has 6 million square feet in Seattle,” he said. “Amazon has a big stake in Los Angeles. Content curation is still in its infancy and it hasn’t reached its boiling point yet. Amazon will mature with this particular move and expand. It will require more down the road.”


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