77.3 F
San Fernando
Monday, May 16, 2022

Life After Leno

With high-profile departures such as Jay Leno and television station KNBC-TV, it may seem like the Burbank Media District is struggling. In fact, the blows have largely been to the city’s ego. Though the commercial vacancy rate has risen in the city, new tenants are moving in and construction is planned. And most of that activity can be traced to Jeff Worthe and his Worthe Real Estate Group in Santa Monica. Worthe virtually controls the Burbank Media District, with more than 3.3 million square feet and an additional 2.1 million entitled out of some 3.6 million existing space in the district. Among his tenants are Walt Disney Co., NBCUniversal, Warner Bros. and others. “‘The Tonight Show’ is a huge loss because of Jay and what he did in the community, but it’s overblown as it relates to the real estate community. This is still the media capital and people are going to want to be here,” said Worthe. “We feel that having large blocks of space is going to drag more people into the Media District. And the demand here is always good.” Leno’s departure vacated Stage Complex 9 and 11 at the former NBC studios, which with support buildings adds up to more than 100,000 square feet of space. But Worthe said he is in final talks with a large studio user to take over the whole complex. What’s more, Worthe plans to break ground on two new studios later this summer. Worthe Real Estate manages other large office towers in the Media District, including the Pointe, the Pinnacle, Burbank Centre and more. Still, despite Worthe’s optimism, the overall 6.8 million-square-foot Burbank office market – dominated by the Media District – is not doing well. Vacancies rose nine tenths of a point to 21 percent in the first quarter, according to the L.A. office of Colliers International. “This will be a very, very curious year. We have no experience with having this much square footage available in the market,” said William R. Boyd Jr., senior managing director at the Glendale office of Charles Dunn Co. Inc., who has worked the market for decades. “We’re at the very starting point and we have to wait and see which way this market goes in 2014. There’s no evidence at this time to expect any dramatic absorption.” Worthe, 47, entered real estate more than 25 years ago as a broker in Santa Barbara after he graduated from University of California at Santa Barbara. He got into the development business when he jointed Santa Monica development firm M. David Paul & Associates in 1991 and then formed Worthe Group four years later. Worthe, a Santa Monica resident, remains associated with M. David Paul, which was founded in 1967 and owns projects throughout the Valley and in L.A. In 1984, the company built its first office building in the Media District at 3500 W. Olive Ave. Since that time the firm has developed another eight office properties in Burbank and purchased two more, including the recent acquisition of Tower Burbank. The highest profile asset in Worthe’s portfolio remains the Burbank Studios, which was bought from NBCUniversal at the top of the market in 2007 for nearly $250 million. There are currently eight sound stages on the studio lot, home to high-profile shows such as “Days of Our Lives” and “Access Hollywood.” And while KNBC vacated the 3,000-square-foot Stage 7 in February, Worthe said there is more than a year left on the lease and that he expects to fill it before the expiration. In fact, Worthe plans to break ground on two new studios later this summer, which along with support buildings will add up to about 72,000 square feet – a $25 million investment. “They will be the biggest stages we’ll have on the lot,” Worthe said. “With these new stages, we’re going to look to relocate someone that has an inferior facility from elsewhere.” And as creative space becomes all the rage in commercial real estate, Worthe will soon have that to offer on the lot as well. The company has begun work to convert The Mill, a large structure where studio sets were constructed on the lot, into about 150,000 square feet of creative space. The Fairway Building should be completed in the next six months. One of the biggest new draws for the lot is the iHeartRadio Theatre, which last year took over Stage 1, the space where Johnny Carson hosted “The Tonight Show” for decades. (See story page 19.) Burbank Mayor Emily Gabel-Luddy shrugged off the loss of Leno, saying the city is “in transition.” “For Burbank, we’re transitioning into the 21st Century media here with tenants like iHeart and DC Comics,” she said. “We knew shifting was going to happen, but what’s coming in to me is an indication that we’re getting more hip. Burbank is resilient.” Outside of Burbank Studios, Worthe operates some large office towers. His newest building, The Pointe, was built in a down market in 2009. The building offers top amenities, such as floor-to-ceiling glass in suites. And while it struggled to attract tenants initially, last year was a strong year for the complex, which leased about 200,000 square feet and is now about 75 percent full. “It was a dramatically different time in office space,” Worthe said of 2009. “But we’re getting there and I expect we’ll be fully leased by the end of summer.” Among the new tenants are DC Comics, a unit of Warner Bros., which will move operations from New York City to Burbank over the next year – a move that in total will bring in some 400 jobs. The move consolidates on the West Coast all of DC Entertainment operations dealing with the development and production of feature films, television, videogames and consumer products featuring its stable of popular superheroes, including Batman and Superman. In addition, the Pointe has brought in Legendary Entertainment and FreemantleMedia, a unit of German mass media company Bertelsmann SE & Co. KGaA. But one of the first major tenants to turn the building around was public television station KCETLink, which sold its Sunset Boulevard studio to the Church of Scientology for $42 million in 2011 to move to Burbank. It leased up two floors or about 55,000 square feet. However, financial troubles continue to plague the station. And in the last year, an audit has raised questions as to whether or not the station can survive long-term. Just last month, its chief executive of 18 years, Al Jerome, stepped down. And then there’s Worthe’s latest endeavor, Tower Burbank. Disney vacated 470,000 square feet at the building last year, leaving it virtually empty. There were rumors owner BlackRock Inc. of New York, which paid $167 million in 2005, wanted to dump the building right away. But a vacant tower in a struggling market doesn’t attract many offers. Last month, Worthe spent $109 million to buy the 32-story office tower at 3900 W. Alameda Ave. The 485,000-square-foot building will take some work to fill up, but Worthe is bullish on the prospects. “We’re always concerned about demand, but we’ve always been prepared to see through any slowdown,” he said. “Eventually all the product in Burbank will fill up.” However, concerns about the office vacancy rate have reached City Hall, where Luddy said the long-term implications of a soft office market aren’t lost on her. “It is true that there are some challenges, especially with Disney moving out of that building,” she said. “It is concerning to me if it is going to go on because it would indicate a weakened office market.” But even Boyd, the veteran Charles Dunn broker, said Tower Burbank should eventually lease given its prime location. “There will be a premium at Tower Burbank. It’s ground zero when it comes to the Media District,” he said. “And because it’s an existing building, it will be able to achieve a lower rent than the Pointe. It doesn’t have to keep up with such a high construction cost.” Despite the soft market and loss of high-profile names, Worthe isn’t budging on deals. He said all his Media District properties lease at between $3.45 and $3.65 a square foot. For the Pointe, he said all the leases were signed at $3.65 a square foot. Worthe’s other major buildings enjoy healthy occupancy rates. The 425,000-square-foot Burbank Centre at 3800 W. Alameda Ave. is fully leased, with the Disney Channel occupying nearly all of it; and the Pinnacle, a 395,000-square-foot building at 2400 W. Olive Ave. is more than 90 percent leased with tenants that include KIIS-FM (102.7) and Warner Music Group. Future construction Worthe has more than 2 million additional square feet entitled in the area, but he isn’t the only one looking to build. One of the most high-profile developments planned for the Media District is the Talaria at Burbank, which will have a Whole Foods market on the ground floor and 241 apartments. “Talaria will meet a housing demand in Burbank that is not currently being met,” said Michael Cusumano, managing director of Cusumano Real Estate Group in Burbank, which is developing the project. “It will be more costly than traditional housing. But if you look at the Media District and city as a whole, there is a strong demand for the high-end experience.” The developer estimates the 400,000-square-foot project at 3401 W. Olive Ave. will cost more than $150 million. Adjacent to where Talaria is land once owned by the Bob Hope family. Worthe also has that project in his entitlements, set for an office structure about 111,000 square feet. The developer purchased the entitled property, which has a long history, from the family about a year and a half ago for $8 million. (See article page 20.) There is virtually no timetable when any of Worthe’s entitled space might get constructed. He said the market isn’t in a position to welcome new construction. “We’ve got time on the entitlements. We’ll build it out when it’s reasonable,” he said. Boyd cautions, however, that the longer the Burbank market remains weak, the more things could begin to change, perhaps even further delaying new construction. “It takes the market two to three years to react to a slowdown in leasing activity,” Boyd said. “The situation in Burbank is too new to impact rents yet. If this goes for two years, you’ll see more concessions in 2015 and 2016.”

Featured Articles

Related Articles