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Friday, Jun 9, 2023


By SHELLY GARCIA Staff Reporter The good news is that PacTen Partners finally snagged a tenant for its pricey new Glendale Plaza office tower. The bad news is, that tenant the State Compensation Insurance Fund is hardly one of the high-rent entertainment clients the developer had hoped would flock to the class-A building. The 125,000-square-foot State Compensation lease gives PacTen a safety zone as it opens its new, 24-story tower later this month and continues its efforts to market the building. But the entertainment companies that were once expected to lease offices at the property have so far failed to materialize. And that’s been something of a disappointment to brokers who hoped that Glendale Plaza would help push the city into the premium rental ranges that Burbank, with its strong entertainment tenant base, enjoys. “State Comp is a good lessee, but it does establish a trend for that market that says it’s not going to be an entertainment market,” said Larry Kosmont, president of real estate consulting firm Kosmont & Associates. “I see opportunity for entertainment in the low-rise industrial product, but I see much less of it in the high-rise product.” When PacTen began developing Glendale Plaza four years ago, the office market in the East San Fernando Valley was experiencing a robust rebound, largely fueled by strong growth in the entertainment industry. As companies spilled into Glendale from Burbank, it appeared that Glendale would become a second home for the industry. But by the middle of last year, much of that growth had tapered off, sharply changing the tenant pool from which PacTen could draw. At the same time, entertainment companies have demonstrated a decided preference for campus-style facilities with large floorplates that allow them to locate the entire company or division on a single floor, rather than high-rises. “The entertainment companies are going right by the Glendale building, and we think it’s because of the design,” said Bill Inglis, a broker with CB Richard Ellis Inc. Though he calls Glendale Plaza “absolutely magnificent,” Inglis added that it is more suited to conventional tenants like lawyers and accountants. “I think it will attract the old-line, ordinary class-A Fortune 500 company, perhaps outside of the entertainment industry.” With PacTen’s experience as a warning, other developers have scaled back their high-rise projects. In November, Maguire Partners, which had received entitlements to build 1.1 million square feet of office space at the corner of Brand Boulevard and the 134 Freeway, revised its plan, taking the project down from seven buildings ranging between five and eight stories in height, to 750,000 square feet, which will be comprised of two buildings of 10 floors each. The project is currently on hold until Maguire Partners locates a tenant. “I think it was the reality that the market was beginning to change,” said Timothy Walker, a partner with the company. “A smaller agreement had a higher (chance) of starting sooner rather than later (because) you’d be able to finance sooner.” Also in November, Dorn, Paltz Inc., which had planned a 20-story, 461,000-square-foot office tower at 450 N. Brand, cut its plans by more than half, opting instead for a nine-story, 192,000-square-foot building with another 55,000 square feet for a health club. “I don’t expect that there are going to be very many larger office buildings coming forward, at least in the near future, just judging by how long it’s taken for PacTen to get office tenants,” said Derriel Quaschnick, assistant director of the Glendale Redevelopment Agency. “I think that’s probably a concern to everybody out there who is thinking about building an office building.” PacTen, which built Glendale Plaza as a speculative development, last month landed State Compensation Insurance Fund as its first tenant. The organization will occupy 5.5 stories of the 24-story building, according to John Barganski, vice president of marketing and leasing for PacTen. Barganski said Glendale Plaza will have no trouble attracting entertainment companies once their space needs pick up again. “Our experience has been that there is not a tremendous amount of advance planning (with entertainment companies), so the fact that we have a 530,000-square-foot class-A office tower now ready for occupancy will be an attractive alternative,” he said. Barganski would not comment on the lease with State Compensation, saying he was bound by a confidentiality agreement, but others close to the deal said it amounted to $2.60 a square foot for a 10-year lease. At that rate, Glendale Plaza falls at the high end of Glendale’s office market, but still below what the company hoped to achieve before the market slowdown. “They’re not hitting the numbers they wanted, but it’s 125,000 feet of space they need to lease,” said Tom Festa, a broker with Grubb & Ellis. The softness in lease rates is not limited to Glendale Plaza. Rents in the city, which were rising rapidly until about six months ago, have peaked. “The softness is in finding tenants that would pay what you’d like them to pay,” said Paul Novak, the head of Novak + Associates, a Glendale-based land-use consulting firm. “There may be some things affecting the whole region, but I also think sustaining a vacancy rate of 8 percent or less with rising rents is a difficult thing to do. We’ve had very low vacancy and rising rents for three or four years. That’s tough to sustain.”

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