Recolumn 1/25/99/garcia/24″/dt1st/mark2nd By SHELLY GARCIA Staff Reporter Class-B office properties, which until now have not garnered as much attention as the prime class-A spaces, may be the next beneficiaries of the real estate recovery in the San Fernando Valley. Until now, most of the activity has centered on class-A properties, where demand has been strongest. But as declining vacancy rates for these properties push rents higher, some expect that at least some tenants will turn to the older, class-B properties. The reason? During the economic recession, a number of companies were able to make lucrative deals for class-A space, even though their needs were more modest. Now, as these leases come up for renewal, tenants are facing rent hikes of as much as 15 percent, and are likely to take a hard look at their current needs. “There are tenants that signed deals in the middle of the recession who were not necessarily class-A tenants, but they were getting a good deal,” said Ron Wade, associate director at Cushman & Wakefield Inc. “Those guys will say, ‘I’m finishing up my lease at $1.90 and I don’t want to jump up to $2.35. Where can I go that’s close where I can keep the same sort of rental structure I had?’ So you can expect tenants that don’t require class A will move back into class B.” Class-B lease rates in more desirable areas have been inching up, from an average of $1.50 per square foot to $1.70 per square foot, Wade said. But even at those prices, class-B space is far more affordable than the class-A properties coming on the market. Though office vacancies are on the decline for all classes of buildings, class-A vacancies have been declining at a faster clip. For the fourth quarter of 1998, office vacancies for all properties throughout the Valley stood at 12.4 percent, according to Cushman & Wakefield. Some areas, including Chatsworth, Northridge and Canoga Park, had vacancies of 13 percent and higher. By comparison, the average vacancy rate for class-A properties throughout the Valley was 10.6 percent. Some areas fell well below 10 percent; the east Valley registered 6.5 percent and the west Valley registered 8.9 percent. Glendale action California Credit Union bought the 130,000-square-foot office building at 701 N. Brand in Glendale for an estimated $27 million. The nine-story building is fully occupied. The seller, Arai & Co. Ltd., was represented by R. Todd Doney, Bill Puget and Ryan Smith at Cushman Realty Corp. Hayden Eaves, Shaun Stiles and John Minervini at Cushman & Wakefield represented California Credit Union in the transaction. Northridge facelift A Woodland Hills developer has acquired the Devonshire Reseda Shopping Center in Northridge with plans to expand the complex by as much as 25,000 square feet. KMI Real Estate Group Inc. acquired the 136,000-square-foot shopping center from RREEF Funds, a real estate investment group in San Francisco, for $19.5 million. The center, which currently houses Recreational Equipment, Carrow’s, Outback Steakhouse and Home Savings Bank, also includes a Lucky’s market, which is not part of the acquisition. About 45 percent of the center has been vacated in preparation for the sale. “We’re not certain yet if we’re going to go up to the full 25,000 square feet (of additional space), but our intent is to give it a major remodel,” said Jay Kerner, president of KMI. Kerner said that the demographics of the area coupled with the high traffic at that intersection make the center a desirable acquisition. “The current vacancy rate is about 6.5 percent, so there’s a high demand in the area, and there are still quite a few tenants not represented in the marketplace,” Kerner said. “Our intent is to bring in some new, big-name tenants.” KMI expects to submit its proposal to the city in the next 90 days. If the company receives the necessary approvals, construction could begin by the end of the third quarter. Sears moves sales offices Sears Roebuck & Co. has signed a lease for 15,000 square feet of office space in the Pacific Business Center in Chatsworth. The site will be used for the company’s area sales offices, which are currently in other facilities in Chatsworth and Burbank. About 90 employees will be assigned to the new facility. Scott Caswell of Delphi Business Properties represented the landlord, Northeast Valley Industrial Park. Brad Chelf, CB Richard Ellis Inc., represented Sears. Apartment deals Two multi-family investment properties in North Hollywood have been sold. Noho Star LLC purchased Tiffany Court, a 40-unit building at 11109 Otsego Street. The dwelling, built in 1990, is fully occupied. Cote d’Azur, a 24-unit building at 111117 Hartsook Street, was purchased by private investors. Melinda Russel of Capital Commercial/NAI represented the sellers for both transactions, valued at a combined $4.2 million. NRG Financial represented the investors who purchased Cote d’Azur. Semiconductor firm on the move Ultron Systems, a manufacturer of equipment for the semiconductor industry, acquired an industrial building in Moorpark for $1.3 million. Ultron will be relocating to the new facility, at 5105 Maureen Lane, from another Moorpark location. Craig Weisman of Told Partners represented the buyer and seller, David Bantle, in the transaction. Chatworth apartments sold De Soto Apts 171 LLC, a Beverly Hills-based partnership has acquired Villa Del Sol Apartments in Chatsworth for $5.9 million in cash, according to Dean Zander and Steve Bristol at Sperry Van Ness, the Encino brokerage that represented the buyer and seller in the transaction. Villa Del Sol, at 10025 De Soto Ave., is a 104-unit apartment complex that is fully occupied. The building was constructed in 1979 and substantially renovated after the Northridge earthquake. The seller was WHC-Three Investors.