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Friday, Jun 9, 2023

RE Column

recolumn/bb/mike1st/mark2nd By BRAD BERTON A 50-percent ownership interest in one of the Valley’s most recognizable and most valuable office towers has quietly traded hands. The 36-story 10 Universal City Plaza Tower rising just east of the Hollywood (101) Freeway at the north end of the Cahuenga Pass is now owned outright by Universal Studios Inc., which was known as MCA Inc. until early this year. Universal and Getty Oil jointly developed the 740,000-square-foot, diamond-shaped tower in the early-1980s to house Getty’s local offices and other tenants. The tower rose on Universal-owned land near the famed Universal Sheraton before Universal CityWalk and the Universal Hilton were developed. But even before the landmark highrise’s completion, Texaco Inc. bought Getty and thus became Universal’s partner in the project. Texaco also agreed to a master lease for about three-fourths of the tower’s total office space for 20 years, a lease which expires in the year 2004. Essentially, that means the oil giant has been collecting rent from itself and other tenants on the master-leased floors and, in turn, has made regular housing payments to the Universal/Texaco joint venture at a pre-determined rate. The joint venture has collected rents from the sterling roster of tenants in the balance of the tower as well. In the wake of the sale of its 50 percent interest in the tower, Texaco still makes those master-lease payments. But now the checks are made out to Universal alone. So just how much did Universal pay for Texaco’s share of the income-producing property? Universal and Texaco aren’t talking, but some might call it a $64 million question or $74 million. Actually, it’s probably somewhere between those two figures, according to estimates from knowledgeable sources. Clearly, “10 UCP” ranks among Southern California’s top office properties given not only its quality and visibility but the strength of the marketplace in which it is situated. The vacancy rate in the Class A office sector in and around Universal City and the Burbank Media District is negligible. And as we have reported time and again, that’s leading a sharp spike in rental rates and forcing the area’s big media outfits to seek offices elsewhere. “It’s a terrific, trophy property standing by itself in the Universal City district,” said Howard Sadowsky, executive vice president with the commercial property brokerage Julien J. Studley Inc. He added that tenants are waiting in line for any space that becomes available in the building. Actually, Texaco currently occupies 250,000 square feet and subleases the balance of its master-leased portion to other tenants. Universal occupies at least 100,000 square feet at the tower. And a roster of professional and entertainment firms round out the tenant roster. Considering the sky-high amounts aggressive institutional investors have recently paid for well-leased office properties on L.A.’s Westside where rents at some of the better buildings are comparable to those in Burbank and Universal City one would expect the entire 10 Universal Tower to fetch well over $250 per square foot. At that rate, the total tower’s market value would approach the $200 million mark. While Universal was undeniably the most logical buyer for Texaco’s interest, informed sources say at least one investment group had approached Texaco about purchasing the company’s stake in the tower. However, Universal exercised a long-standing right of first refusal and now owns the tower lock, stock, and barrel at what some real estate sources say is quite a bargain. SunAmerica To Warner Center Over at the western end of the Valley, the Warner Center commercial district long has been considered a lower-cost alternative market for big, labor-intensive tenants trying to escape pricey downtown L.A. high-rises and posh Westside office complexes. And indeed, as so many building-top signs illustrate, Warner Center attracted a bevy of insurance companies, health care firms and other such institutions in the 1970s and 1980s. And now that rents in some Westside office submarkets Century City and the east Valley (Burbank and Universal City) in particular are becoming cost-prohibitive for some types of operations, Warner Center is once again seeing a trickle of bargain-seekers. We reported a couple of months back that Financial Indemnity agreed to relocate from the Disney Channel Building in the virtually full Burbank Media District into 55,000 square feet at Warner Center’s newest highrise, the 25-story Warner Center Plaza III along Oxnard Street’s “highrise block.” And now that Century City rents are skyrocketing back to 1980s’ levels, one of that highrise district’s most prominent tenants has opted to relocate out to Warner Center. Billionaire businessman Eli Broad’s SunAmerica Inc. financial services firm which moved from Brentwood to Century City’s newest highrise when the market was at the bottom of the cycle about four years ago has agreed to lease a full 24,300-square-foot floor at the Plaza III tower and may soon take another floor. Uncertainties surrounding some of the big health care firms and other major tenants still make market observers a bit jittery about Warner Center’s near-term future. But CB Commercial Real Estates Group Inc.’s Andy Fishburn who oversees leasing at the huge, institutional-owned Warner Center portfolio that includes the highrise block and most of the lowrise Warner Center Business Park reports that his portfolio has experienced robust leasing activity over the last few weeks. In addition to SunAmerica (represented in its lease negotiations by Jim Travers and Lawson Martin of Travers Realty Corp.), Fishburn’s group: – brought McGraw-Hill’s religious book division (represented by Cushman Realty Corp.’s Todd Andersen) from Mission Hills into 19000 square feet at the Plaza I Tower; – expanded Sterling Software (represented by Studley’s Mark Sullivan) from 43,000 to 60,000 square feet at the Warner Center Business Park; – expanded Science & Applied Technologies (represented by Travers’ George Katunich) from 13,000 to 28,000 square feet at the Warner Center Business Park; – renewed Malibu Grand Prix’s lease of 32,000 square feet at the Business Park; and – is in final documentation to consolidate CNA affiliate Continental Casualty Co. (represented by Studley’s Steve Barker and Steve Walbride) from the Business Park and a highrise office into 35,000 square feet in Plaza III. Warner Center lease rates haven’t yet jumped in response to the activity, but Fishburn said he expects to see increases within the next six to 12 months. And if downtown L.A. ever sees a major rental rate spike, we can probably expect even more migration to the west Valley.

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