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Trillium Deal Would Make Douglas Emmett Top Owner

Several highly visible office buildings in the Warner Center area have recently changed hands, but the biggest deal may be yet to come. Beacon Capital Partners is close to a deal to sell the Trillium to Douglas Emmett, sources said last week. The property includes two office towers totaling 590,000 square feet, as well as two retail buildings and the land on which an adjoining Hilton is located. The office towers alone could fetch between $160 million and $180 million or close to $300 a square foot, according to industry insiders. Neither officials of Beacon or Douglas Emmett returned phone calls seeking comment. The deal could be closed before the end of the year. Brokers said they believed the offer by Douglas Emmett caught the interest of Beacon managers both because of the offering price and because there is a general assumption that the market for office space is at its peak. Beacon, a Boston-based company that runs four real estate funds, typically holds onto its acquisitions for a limited time, unlike real estate investment trusts which buy and hold properties for 10 years or more. The company’s stated strategy is to provide returns to investors of 18 percent to 20 percent on their investments. Beacon acquired the Trillium in 2001 in a deal that amounted to about $195 a square foot of rentable space. Douglas Emmett had been one of the bidders for the Trillium property, which was sold at the time by California Public Employee’s Retirement System. Perhaps more important, since then, Douglas Emmett has acquired Warner Center Plaza, six high-rise buildings totaling about 1.8 million square feet. The acquisition of the Trillium would essentially tie up the majority of the top tier Class A property in Warner Center in the hands of Douglas Emmett. “That captures the high rise market,” a broker said. “Any tenant that wants a high rise office will have to deal with them.” The sheer numbers of properties under Douglas Emmett’s roof would shield the company somewhat from fluctuations in the market, brokers said, because it would be better able to set lease rates. In the short term, though, the new buyer will likely have some work ahead. For one thing the Trillium, built in 1988 is beginning to show its age, and most believe some renovation would be required. Then too, the Trillium is about to see its occupancy rates sink. Although the building is currently nearly fully occupied, one tenant, WMC Mortgage Corp., is in the process of moving out, vacating about 160,000 square feet of space. And another 190,000 square feet of leases will expire next year. That would bring the vacancy rate up to about 30 percent. “So you’re going to have a lot of vacancy,” said a source. Factoring in the expense of improvements and other leasing expenses would bring the property to the high end of industry estimates, sources said. “I think they weighed the cost of taking it to market and figured they were as close as they could get with the Douglas Emmett offer,” a source said. The Warner Center area has been a hot bed of real estate acquisition activity in recent months. Arden Realty Inc. acquired Warner Corporate Center, a 253,698-square-foot office building from Grosvenor, a San Francisco-based affiliate of a British Investment Co., for $64.5 million. Grosvenor paid about $42 million for the property when the company acquired it in 2001, however the building was more than 25 percent vacant at the time and is now nearly fully leased with Carlton Plaza, a 153,000-square-foot office building, was sold to a joint venture of Guggenheim Real Estate and Bantry Holdings. WarnerView Corporate Center, a 62,000-square-foot office building was sold for $12.5 million. The 21st Century Plaza, a 518,000-square foot property, is reported to be close to a sale, and the owners of a 448,000-square-foot high rise that is home to Wellpoint Health Networks Inc.’s Blue Cross of California unit is also on the block. Beauty of a Deal A deal just completed in the city of San Fernando shows just how few choices there are for those in the market for industrial properties. When Sonya Dakar Skin Care, a Beverly Hills-based developer and retailer of skin care products, was busting out of its tiny 10,000 square foot research and development facility in North Hollywood, the company put out a request for a building of about 40,000 square feet. But instead, the tight industrial market being what it is, Sonya Dakar has acquired a 67,000 square-foot facility and plans to lease out a portion of the space it is not likely to use. The company acquired the building, at 605 8th Street in San Fernando, for $5.7 million. The building will be used as a distribution center along with R & D; and office space. “We were lucky that there was something available in the size range they were looking for,” said George Stavaris, who, along with Darren Cline at Colliers Seeley International, represented the buyer. The seller, G & G; Properties, was represented by Kevin Tamura and Chris Sullivan at Daum Commercial Real Estate Services. Burbank Lease State Compensation Insurance Fund signed a lease for 52,064 square feet of office space at Burbank Empire Center. The 68-month lease is valued at more than $7.3 million. State Compensation will employ about 250 workers at the location. The tenant was represented by Brad Chelf of CB Richard Ellis. Paul Stockwell at Studley represented the landlord, Menlo Equities. Office Market Shows Improvement The office market in the San Fernando Valley has stabilized considerably, according to a just-released report by real estate brokerage Studley. Space availability in the market is down 20 percent for the third quarter of the year versus a year ago. Although asking rents continued to slide in the period, the declines were small. Asking rents in the Valley dipped by just a little more than 3 percent compared to the year ago period. The report also indicates, however, that leasing activity has stalled in the Valley. The available square footage in the third quarter, 3.9 million square feet, is virtually flat compared to the second quarter of the year. Valencia Deal Achway Marketing Services, a unit of Minneapolis based AHL Services Inc., has inked a deal to lease 93,519 square feet of industrial space in Valencia. The 10-year lease, at 28220 Industry Drive, is valued at $6.5 million. With the move, Archway, a fulfillment and information technology company, is consolidating its former facilities, spread over four buildings in Van Nuys and adding about 20,000 square feet of additional space. Craig Peters and Doug Sonderegger, brokers with CB Richard Ellis, represented the landlord, 28220 Industry Drive Property Co. The tenant was represented by Bennett Robinson and David DeFore, also with CB. In another Valencia transaction, Option One, a division of H & R; Block providing residential mortgage services, leased 21,000 square feet of space in Valencia Corporate Center at 27451 Tourney Road. The seven year deal is valued at about $4.8 million. Peters and Sonderegger represented the landlord, Tourney Plaza I LLC. The tenant was represented by Stephen Pisarik and John Erickson at Colliers Seeley International. Canoga Park Deal A 160-unit apartment complex in Canoga Park has sold for $16.5 million. Canoga Island Village, a garden-style complex at 8838 Independence Ave., was sold to a private investor. John Walsh, a broker with Marcus & Millichap Real Estate Investment Brokerage Co., represented both the buyer, a private investor, as well as the seller. Sun Valley Deal Custom Chrome, a division of Global Motorsport Group in Morgan Hill, Calif., has sublet the space formerly occupied by Fitness Products International in Sun Valley in a five-year deal. The company, one of the world’s largest independent providers of aftermarket parts and accessories for Harley-Davidson motorcycles, that was previously located in Sylmar, will sublease 48,000 square feet of industrial space. The facility became available when Fitness Products was acquired by Precor USA, a unit of Amer Group Plc. The new owners have opted for a larger, 101,000-square foot industrial building in Valencia. Brent Weirick, senior vice president at Colliers-Seeley, represented Custom Chrome in the deal. Ross Thomas, a partner at Delphi Business Properties, represented Precor. Paramount Opens New Branch Paramount Rodeo Realty has opened its ninth branch office at 12345 Ventura Blvd. in Studio City. The manager of the new branch is Fif May. About 90 agents will be housed at the location. Senior reporter Shelly Garcia can be reached at (818) 316-3123

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