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Monday, Feb 26, 2024

SPECIAL REPORT: Valley Sellers Struggle to Reinvest Cash Profits

Out of roughly 109 million square feet of inventory in the San Fernando Valley’s industrial landscape, only about 1.4 million square feet, or 1.3 percent, are vacant, according to data gathered by Colliers International in Los Angeles. John Rad of North Hills bought three Class C industrial and office buildings at 7730-7750 Gloria Ave. in Van Nuys totaling 54,300 square feet in Van Nuys for $8.8 million on Feb. 3 from Douglas Decinces for $8.8 million. Clear Channel Communications Inc. leased 75,200 square feet of office space at 3400 W. Olive Ave., Burbank in February from Worthe Real Estate Group, Burbank. Roze Room Hospice of the Valley Inc. bought the RMC Professional Building, a 28,900-square-foot office building at 18107 Sherman Way in Reseda from 1031 Equity Exchange LLC in February for $5.15 million. Hd28 LLC of Los Angeles bought an 8,100 square foot office building at 4019 Tujunga Ave. in Studio City on March 22 from Ra-tujunga LLC for $1.93 million. BLH Construction leased 6,953 square feet in the Woodland Hills Corporate Center at 21031 Ventura Blvd., Woodland Hills in February from Blackstone Group. In the Central Valley submarket of Van Nuys, Encino and Sherman Oaks, the vacancy rate is even lower at 0.3 percent, down from 0.5 percent a year ago. Rents reflect that tightness at 90 cents a square foot, 30 percent higher than a year ago. The lack of available property also means fewer deals. The amount of property sold and leased over the first quarter is down by more than half from a year ago. Chris Jackson, executive vice president of NAI Capital Inc. in Encino, said the tight Valley market, particularly in the Van Nuys area, is driving up rents. For example, rents rose about 20 percent over what they were 12 years ago in a Sun Valley building NAI is selling, Jackson said. “The owner is an institutional REIT (real estate investment trust) and its philosophy is it can ask higher because it can sit, if need be, and wait because it’s going to get higher rates,” Jackson said. Some REITs are predicting a downturn in the market next year, depending on the outcome of the presidential election, and so they want longer leases to lock in current rates, Jackson added. Low interest rates, particularly for Small Business Administration loans, have encouraged buyers, but investors are hesitant to sell because once they get the money they have to reinvest that cash or face steep taxes. “If you own, and can sell at the height of the market, then you are going to have to buy at the height of market,” Jackson explained. The office market is experiencing similar conditions, although on a different scale. Vacancy rates slid to 13.7 percent across the Valley from 15.6 percent a year ago. The rate is lower than L.A. County’s rate of 15.8 percent. The Central Valley has the least amount of office space available at 9.5 percent, down from 11.2 percent in the same period a year ago. Rent rates in the Valley were $2.30 in the first quarter, up 12 cents from a year ago. That’s still a good deal compared to the average L.A. County rates of $2.91. Certain Valley submarkets fetched higher rents this quarter compared to the prior year. The healthiest boost was in the East Valley, where rents rose 27 cents, or almost 12 percent, to $2.58 from the year-ago period. Stacy Vierheilig-Fraser, managing director for Charles Dunn Co. in Sherman Oaks, said there are no office buildings for sale to investors looking to buy. “No one wants to sell, because they can’t exchange into anything,” Vierheilig-Fraser said. As a result, tenants are preferring to stay where they are and work out deals with current landlords rather than pay to move, she added. That’s also because rents are getting steeper and some landlords are getting $3 a square foot, Vierheilig-Fraser said. That amount is way above the Valley averages, according to Colliers data. An example is 15060 Ventura Blvd., a Class A office building in Sherman Oaks, which Vierheilig-Fraser said is now leasing at $3 a square foot. “We’re still considered very cheap compared to Hollywood,” she said. “That’s where things start at over $3 a square foot.” – Carol Lawrence

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