LA Landlords Are Spending Cash to Attract Tenants

Market Insights
February 12, 2016

Director of U.S. Real Estate Analytics

New building ownership continues to provide properties a much-needed infusion of capital and sets the stage for aggressive leasing campaigns. These investors who have bought, renovated and stabilized assets – particularly creative office space projects - have achieved significant gains.

Greenlaw Partners paid $105.8 million ($184.09/SF) for One World Trade Center in Long Beach this summer. Since Greenlaw Partners bought the building it has completed nearly 100,000 SF in leasing, including a 73,493 SF lease with Molina Healthcare in the fourth quarter. The healthcare firm is expanding its current corporate headquarters located across the street. The 574,981-SF building is undergoing renovations including the rehab of the outdoor plaza adding retail tenants and landscaping.

In a joint venture investment, One Bunker Hill at Fifth and Grand was purchased for an undisclosed amount. As the groups did with the nearby PacMutual building, they plan to restore the building’s original features, ripping out alterations made in the 1980s. As a result of the renovations, the partnership expects to make the building more appealing to creative office tenants. “The current office space is pretty tired,” said Christopher Rising of Rising Realty Partners. “We're going to start immediately on the renovation.”

In El Segundo, Admiral Capital Group sold 1700 East Walnut in October for $33.5 million ($280.37/SF). The seller bought the 119,484 SF building in 2011 for $22.6 million. At the time the building had significant lease expirations and deferred maintenance.

Following the pattern seen in many markets, owners and lenders have been reluctant to pursue speculative development in Los Angeles. However, adaptive re-use and major renovation projects are popping up all over the region. The scale of these improvements varies widely as tenants and their employees benefit from simple upgrades that have become commonplace such as the addition of gyms, rooftop decks, wired common areas and revamped retail. More extensive projects that reconfigure space layouts and modernize building infrastructure and technology will come at a higher cost to owners and in turn to tenants, but they ultimately do a better job of optimizing space efficiency and improving the quality of life for occupants.

The first tenants to sign leases in these properties can sometimes negotiate generous concessions and can also rationalize a higher base rent if they are able to reduce their space commitment due to improved space efficiency.

Read Our Los Angeles 2015 Q4 Office Sector Report

Leasing spread to more areas in the Los Angeles market during 2015. Downtown Los Angeles registered its strongest volume in more than a decade. Nevertheless, the region's availability rate was unchanged from a year ago as some companies shed space.

2015 Q4 Los Angeles Office Sector Report

Keith DeCoster

Keith oversees the production of local and national market materials. Keith also collaborates with his colleagues across the U.S. and Europe, specializing in reports and insights that highlight the impact of economic trends and market fundamentals on tenants.