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Gritty Newsroom Making Way for Luxury Residences

Demolition is about to get started at the former offices of the Los Angeles Daily News in Woodland Hills, but it’s unclear whether the high expectations riding on the project will be fully realized. The 4.5-acre site is slated to be the home of Warner Place, a 540,000-square-foot residential, retail and office complex that is the first development to be approved under the Warner Center 2035 Specific Plan. The 21221 Oxnard St. mixed-use project by Associated Estates Realty Corp. features a five-story, 379-unit apartment building, including 101 live-work units, in its first phase. Later construction calls for a nine-story, 71,000-square-foot office tower with ground-floor retail space to be built when market demand supports it. Associated Estates, a Richmond Heights, Ohio real estate investment trust, has received all its discretionary approvals but only recently decided to build the project on its own after testing the market for a possible sale. Construction drawings are being formulated now with plans for groundbreaking sometime this summer, said Amanda Petrak, director of corporate communications for the REIT. The Warner Center plan was passed in 2013, after eight years of planning, and opens the floodgates for large development in the area. It divides the 1.5-square-mile neighborhood into eight districts, with varying commercial, residential and retail uses. Under the plan, the biggest boom will come from residential development. There are less than 10,000 living units currently within Warner Center, and the plan allows that number to rise to 20,000. The city expects the plan will bring more than 42,000 new residents and nearly 49,000 new jobs to the area. The proposed development, near the intersection of Oxnard Street and Canoga Avenue, won city approval last August, within a few months of being proposed – rather than dragging out over years – because it was designed from the outset to conform to the 2035 Specific Plan, said attorney David Goldberg, partner at the Los Angeles firm Armbruster & Goldsmith & Delvac LLP, who represents the developer. “There was expeditious approval, grassroots support and a great result. I’d not seen anything quite like it before. It’s really the poster child for smart planning,” he said. An appeal filed against the project by a neighborhood group last September was considered frivolous and quickly denied, said Scott Silverstein, chairman of the Woodland Hills Warner Center Neighborhood Council and a broker with Lee & Associates in Calabasas. Newspaper headquarters The vacant, 124,000-square-foot building that will soon be razed dates back to 1974 and was the home of the Daily News from the mid-1980s until the newspaper moved out in 2008. The building was sold in an off-market transaction to New York media company Hearst Corp. in 2007 for an undisclosed amount. Hearst never occupied the building and it has sat vacant since the Daily News left, though its classic cubicle-farm interior has made it a popular location for filming television commercials, including spots for Staples Inc. and Nissan Motor Co. Ltd. Associated Estates purchased the site for $15.8 million from Hearst last November, according to the REIT’s annual report. Hearst was motivated to sell because it considered the parcel surplus corporate real estate. Associated’s portfolio consists of 57 apartment communities with 15,206 units in 10 states. It specializes in off-market transactions negotiated directly with property owners. Warner Place will be Associated Estates’ first San Fernando Valley project. It entered the Southern California market in 2012, when it purchased Desmond’s Tower, an art deco building that formerly housed a department store on Wilshire Boulevard that has been converted into office space. It is building an upscale 175-unit apartment complex with a pool, spa, billiard tables, community exercise facilities and rooftop decks on the former parking lot behind the tower. The $70 million project is expected to be completed sometime this year. The REIT also is developing a 472-unit, mixed-use project with 21,000 square foot of retail space in the downtown Los Angeles Arts District, adjacent to the Southern California Institute of Architecture and across from the recently completed One Santa Fe mixed-use complex. Silverstein said Associated Estates’ interest in Woodland Hills likely reflects the current state of the multifamily market in the San Fernando Valley. “In my opinion, the current demand for multifamily is extraordinary. There’s a lot of REITs and other well-funded organizations that are in the multifamily business that are actively searching for multi-unit properties,” he said. Other projects in the pipeline include the Boulevard Woodland Hills luxury apartment complex at 20600 Ventura Blvd. and a mixed-use project by Malibu developer Richard Weintraub at 6219 DeSoto Ave., at the former headquarters of camera maker Panavision. Plan challenges But with a steady stream of large projects coming online over the past five or six years, there’s been no real rent growth in the area, noted John Battle, managing director and principal at Lee & Associates – LA North & Ventura in Sherman Oaks. “Owners of new projects offer incentives like free rents – and the owners of existing units have to match that in order to keep their tenants,” he said. The other downside of conforming to the specific plan guidelines is the phased development timeline for Warner Place. Associated’s residential construction will be completed first, but the second phase – the nine-story office tower – has no official construction date. For now, the land allotted for office use will be used as surface parking for the residential complex until the market is ready to absorb the space. It’s not permitted for any other use. “The (Warner Center 2035 Specific Plan) asks for projects to have a mix of uses in line with the goal of developing a mixed-use, transit-oriented Warner Center. But it recognizes that market forces are at play and it’s not always possible to build certain components up front,” said Goldberg, the developer’s attorney. Silverstein said the commercial requirement in the plan was put in place to ensure that thousands of new residents wouldn’t flood into the area – only to commute to far-flung jobs and add to the area’s traffic woes. “We’re hoping, going forward, that this developer will be a visionary like (Warner Center developer) Bob Voit was back in the mid-1980s, when he built the other high-rise buildings here,” he said. But he acknowledged that with the West Valley office market still struggling to recover from the lingering effects of the recession, that vision might be murky for now. Vacancy rates for Class A office buildings in the area have been stuck in the double digits for years and rose six-tenths of a point to 16 percent in the fourth quarter last year, according to data provided by the L.A. office of Colliers International. Lease rates fell 23 cents to $1.94 a square foot. “With first-class office projects, you have to get every bit of $3-plus a foot to make it pencil. In an economy with weak demand for office space, that’s just not financially feasible,” Silverstein said. Another obstacle, Battle said, is that developers tend to be specialists: “Most apartment developers hate retail and office because they’re apartment guys. High-rise, Class A office buildings are incredibly expensive to build. That inhibits the growth of your profits and has a real impact on limiting the pool of people who want to buy.” In fact, that limitation may have put a crimp on Associated Estates’ efforts to sell the project late last year. John Shannon, Associated’s senior vice president of operations, disclosed on a fourth-quarter earnings call to shareholders in February that the company put the property on the market to test a sale. He characterized the episode positively, saying the company received numerous offers. “It is clear we have created significant value over the last two years in titling the site for a specific 379-unit development,” he said. But brokers familiar with the Woodland Hills market said that a purchase offer fell through over the uncertainty around the cost of construction, causing Associated to move ahead on its own.

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