valley recolumn/howard/mike1st/jc2nd BOB HOWARD How real is the San Fernando Valley real estate recovery? Consider the recent sale of Toluca Terrace Apartments in Toluca Lake. The 113-unit complex had been losing between $35,000 and $45,000 annually, but sold recently to a Beverly Hills investment firm for a premium price: $10.5 million. That’s $93,000 a unit, said H. Bruce Hanes, president of Burbank-based Hanes Investment Realty Inc. Hanes built the Screenland Drive complex in 1988 and has managed it ever since. Hanes said what’s most remarkable about the deal is that the buyer is willingly paying top dollar for a property that is losing money. “The fact that the investors know the building has a negative cash flow and are willing to pay that much for a building that is losing $35,000 to $45,000 a year tells you something about this market,” he said. “This is an indication that the competition for large apartment projects in good locations is a white-hot market for investors.” The buyer of the building, a limited partnership affiliated with Beverly Hills-based Francis Property Management Inc., agreed. “We felt very fortunate to get the building,” said John Francis, whose father, Richard B. Francis, heads the company. Francis said the deal makes financial sense because the main reason the building is losing money is that the mortgage, which the buyers are assuming, carries a relatively high interest rate of 9.75 percent. But the mortgage can likely be refinanced at a significantly lower interest rate after November 1999, Francis said. Both he and Hanes said refinancing doesn’t make sense right now because the mortgage carries such a stiff prepayment penalty if it is refinanced before November 1999. According to Francis, his company has been tracking the Toluca Lake property for several years, waiting until the 1999 date drew closer, so it would only have to take losses for a relatively short time before refinancing. But the investors didn’t want to wait any longer because the bidding wars for good properties are heating up and “top-quality buildings like this are getting scarcer,” Francis said. Francis added that smaller investment firms such as his also want to snap up good properties while they can because competition from huge pension funds and real estate investment trusts is getting fierce. Francis and Hanes both cited the property’s location in the Burbank portion of Toluca Lake just across the street from Warner Bros., as another reason it sold for a premium price. “I don’t think you could find a better location,” Francis said. According to Hanes, the deal suggests that investor interest is approaching pre-recession levels. “This is the way the market used to be,” said Hanes, a 33-year veteran of the industry. Prices for apartment complexes are rising at all price levels, according to Raffi Krikorian, managing director of the Encino office of Sperry Van Ness. The brokerage negotiated two recent sales of apartment buildings for a combined total of $13 million, further evidence that the apartment market has rebounded from the Northridge earthquake and recession, Krikorian said. The deals included the sale of the five-building, 200-unit Tarzana Villas for $7.6 million, or $38,100 per unit, and the sale of the 86-unit Tarzana Tennis Club Apartments for $5.5 million, or $64,000 per unit. Tarzana Villas was only on the market a month and was sold despite complicated negotiations that included three different sellers, all individual investors, and five different lenders, according to Krikorian. He said the relatively short time on the market is another indication of increasing investor interest. The per-unit sales prices are higher than those paid for other comparable complexes recently, said Krikorian. Insurer signs interim lease Plans by 20th Century Insurance Co. to consolidate its offices in 1999 prompted the company to sign a 27-month lease, valued at $1.84 million, for its 22,700 square feet in the Warner Gateway project in Woodland Hills, according to David Massie, asset manager at the building. Massie said 20th Century, which has divisions in a number of buildings around the Valley, is trying to time all of its leases to expire on Nov. 30, 1999 in anticipation of its overall consolidation into one centralized location. That search by 20th Century to find a new 400,000-square-foot permanent home in 1999 is one of the largest space requirements on the market right now, and one which developers and landlords are chasing hard to land. As for 20th Century’s new 27-month lease, it is actually a renewal of a lease that was due to expire March 3, 1998, Massie said. So the company in effect extended that lease for another 20 months, a relatively unusual step in a world where extensions are usually in three- and five-year increments. West Valley deal American Express Tax and Business Services has leased a full floor of 17,331 square feet in a $2.4 million deal at the Trillium in Woodland Hills. The firm is relocating from within Woodland Hills and is scheduled to move into the new space by September, according to Grubb & Ellis Co., which represented the landlord, the California Public Employees Retirement System. New life Woodland Hills-based Realty Bancorp began a $13 million refurbishing of the 217,000-square-foot former Baxter Travenol building at the Valencia Corporate Center on June 9, according to Norm Kravetz, president and principal of Realty Bancorp. Kravetz said the four-story building, in the city of Santa Clarita near the intersection of Interstate 5 and Valencia Boulevard, will be “totally rehabbed inside and out” and retrofitted with new earthquake safety features. Kravetz said the building was vacated by Baxter shortly before the Northridge earthquake, in which the building was damaged extensively. He bought it from Baxter last year for an undisclosed sum and has spent the past year planning the rehab. Kravetz expects the project to be finished by the end of the year.