Call it a “towering achievement.” Blackstone Group and Worthe Real Estate Group announced last month that they plan to co-develop an office building in Burbank totaling 500,000 square feet. The two firms are eyeing a 2022 groundbreaking for the structure, which will rise near the Warner Bros. Entertainment lot where Worthe and partner Stockbridge Real Estate Fund are already knee-deep in constructing two buildings as part of the movie studio’s Second Century project, which will ultimately be owned and run by Jeff Worthe’s Santa Monica-based company.
The companies did not disclose the address of the new building.News of the Blackstone-Worthe tower represents the latest ray of optimism about the future of office real estate. Although overall demand for office space across Greater Los Angeles has seen a sharp plunge since the coronavirus outbreak began in March, Burbank has remained a hot market throughout the pandemic, with the new tower anticipating ramped-up demand in Burbank post-virus, especially since September’s news that Netflix Inc.
has signed a lease for 171,000 square feet at Burbank Empire Center to establish its first-ever animation studio.
“Content creation is one of our highest conviction themes,” Nadeem Meghji, Blackstone’s head of real estate in the Americas, told the Wall Street Journal last month. “We’re seeing long-term demand growth.” 2017 alliance The Blackstone and Worthe Real Estate partnership originally formed three years ago. To date, the two entities have invested $1.7 billion into 13 buildings and five development parcels.
“The credibility of what the Worthe organization has done in that market and the financial strength of Blackstone is a monumental marriage of two (heavyweights),” William Boyd, a broker at Kidder Mathews’ Pasadena office, told the Business Journal.
In 2017, Blackstone Group purchased the majority stakes in a half-dozen buildings attached to Worthe in a recapitalization deal worth $1.5 billion, according to a REAlert report. Various partners of Worthe cashed out while Worthe retained a small interest in the portfolio plus management of the buildings. Arranged by Eastdil Secured, the recapitalization gave Blackstone majority ownership of Pinnacle 1, at 3300 W. Olive Ave. in Burbank, and Pinnacle, 2, at 3400 W. Olive Ave., which Worthe owned with Hudson Pacific Properties.
According to reports, the portfolio also included the Pointe offices at 2900 W. Alameda Ave., which Worthe had developed in 2009; The Tower Burbank at 3900 W. Alameda Ave., an acquisition by Worthe with fund operator PCCP in 2014; Central Park at Toluca Lake at 3500 W. Olive Ave., a 14-story, 256,000-square-foot property built in 1985; and 3800 W. Alameda Ave., a 20-story, 425,000-square-foot office tower that Worthe bought from Walt Disney Co. in 2007.The deal may have involved Media Studios North campus at 2255 N. Ontario St., a five-building, 930,000-square-foot collection of office assets near Hollywood Burbank Airport that was redeveloped in phases between 1998 to 2005.
If an office building is only as valuable as its tenants, the Blackstone-Worthe buildings are an abundance of riches. Disney, the largest occupant across the portfolio, claims most of 3800 Alameda, home to Radio Disney, Disney Channel and ESPN, while Walt Disney Pictures leases 150,000 square feet at Media Studios North.
As the biggest tenant at Media Studios with 194,000 square feet and gross rent of roughly $40 per square foot, health care giant Kaiser Permanente remains the portfolio’s second-largest occupant, followed by Warner Bros., which leases 100,000 square feet at the Pointe and 62,000 at Central Park.
Of course, the tenant mix may change once Warner Bros. moves into the 35-acre Burbank Studios, which it bought from Worthe and Stockbridge in 2019 while it awaits completion of Second Century’s 800,000-square-foot Frank Gehry–designed “iceberg” buildings currently under construction for 2023.
Blackstone buys local For its part, Blackstone Group has been aggressive in the North Los Angeles office and industrial sectors. Earlier this year, the New York investment company acquired two adjoining buildings in Van Nuys from Woodland Hills’ Realty Bancorp Equities for $83 million. The deal included one light industrial building for $48 million, plus a warehouse for $35 million. Together, the sites at 8201 Woodley Ave. comprise 290,254 square feet of industrial space on 10.3 acres. According to CoStar Group, these 1965-established structures, which went through a 2000 renovation, currently leases space to Micro Solution Enterprises, a toner and cartridge maker and a subsidiary of Illinois-based Clover Imaging Group; and Blagi Brothers, a Napa-based trucking and logistics company.
The purchases are reflective of Blackstone’s prolific penetration of the overall L.A. industrial market. Additional deals include the $1.04 billion acquisition of TA Realty portfolio; the $5.9 billion purchase of Colony Capital’s warehouses; and the $18.7 billion GLP portfolio.Publicly traded Blackstone is the largest alternative investment firm in the world with nearly 2,400 employees. In 2007, Blackstone went public with a $4 billion IPO, becoming one of the first major private investment firms to list shares in its management company on a public stock market. As of 2019, the corporation had amassed 800 million square feet and $545 billion in total assets, quickly gaining on San Francisco-based REIT Prologis as the industry leader in industrial space ownership. Prologis reportedly owned 3,840 buildings in 19 countries totaling 814 million square feet as of January.
Entertainment office needs With respect to the Burbank market, Blackstone has shown an interest in media production. In August, the firm purchased nearly half of Hudson Pacific Properties’ Hollywood studio and office portfolio plus plans to expand the venerable Sunset Gower Studios in Hollywood by another 500,000 square feet.
At a time when many real estate insiders have all but given up on the office sector, the Blackstone-Worthe tower represents an act of optimism in the future of office.
For broker Boyd, who has specialized in the office sector across five decades, news of a Blackstone-backed Worthe tower confirms something larger.
“The entertainment industry’s need for space won’t abate because of the pandemic,” he said.While Boyd has not worked directly with Blackstone or Worthe, he is well versed in the Tri-Cities submarkets where both companies thrive. He also knows that entertainment, unlike other industries, will always need suites.
“A historic kind of company may need less office space in the future,” he said. “That hasn’t been the evidence for the entertainment industry. Entertainment, by definition, is a collaborative process far more than any other. The content and product to be developed and it needs office space.” After all, Boyd reasoned, the synergy, collaboration and production of creative content can’t all be done remotely.
Worthe said as much in a Wall Street Journal interview last month.
“The studio parking lots are full again because people are back filming,” he said, adding that creating television across Zoom won’t cut it as writers need to collaborate in a shared space. Airport attraction With the lowest vacancies of the Tri-Cities submarkets, Burbank has remained virtually invulnerable to the economic impact of the coronavirus.
Furthermore, Boyd said, what Blackstone and Worthe are working on together or separately — including the upcoming tower and the Warner Bros. lot revamp — promises to positively impact the Tri-Cities, as will Netflix’s animation studio and Overton Moore’s Avion Burbank industrial project, soon home to an Amazon.com Inc. distribution site.
“It is helping to accelerate interest in the airport district because of land constrictions in (Burbank) Media District,” Boyd continued. “The market is looking more seriously at the airport area.” And there is still more “runway,” so to speak, in the Hollywood-Burbank Airport circumference.
“There is a voracious appetite for that space,” Boyd said. “It’s no longer conjecture; we’re actually seeing it happen.”’ Once Warner Bros.’ Second Century is complete, subsidiaries of the studio such as Warner Bros. Animation and Cartoon Network may forfeit office space for the parent entity’s lot. Boyd noted that an analogous situation happened with Imagineering and other Disney arms.
“Disney did vacate square footage at the Tower,” he said. “However, it came back a year later.”