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Equity Office Daily Brief: February 20, 2018

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Daily Brief

February 20, 2018

  EquilityOffice

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CBS' streaming services draw 5 million subscribers; network plans

L.A. Times

 

CBS Corp.'s two streaming services — CBS All Access and Showtime — have racked up a combined 5 million subscribers, showing promise for the TV broadcaster's digital ambitions. CBS Chief Executive Leslie Moonves touted the numbers Thursday and said the company has...

 


Tri-Cities Office Sales Up

Los Angeles Business Journal

 

A spate of major deals has made the Tri-Cities the hottest commercial real estate market in Los Angeles, surpassing West L.A. and Hollywood. The most recent trade was a nearly 878,000-square-foot Glendale bundle – including two class A buildings, 801 N. Brand Blvd. and...

 


Report: E-sports, Social Media Stars Drive Digital Media Job Growth

LA Business Journal

 

Employment in the entertainment industry in the Los Angeles Basin grew 19.6 percent from 2006 to 2016, outpacing 4 percent growth across all industries in the area over the same 10-year period, a new report says. The breakdown: Entertainment (up 7 percent), digital...

 



BLOG & ONLINE NEWS

 

New Rendering Details Oceanwide Plaza's Two-Acre Amenity Deck

Urbanize LA

 

A new rendering offers up a detailed look at Oceanwide Plaza's two-acre amenity deck. The $1-billion project, named for developer Oceanwide Holdings, consists of three towers at 1101 S. Flower Street.  A 49-story, 677-foot tower at the north side of the property will...

 


From Bullish To Bearish: Tips To Prepare For The Inevitable Real Estate Downturn

BisNow

 

It is the question often discussed among panelists at the latest industry events, the buzz passed among colleagues during coffee breaks and a factor investors are weighing heavily before making the next move and deploying capital: When is the correction going...

 


Atlantic Pearl Investments Spends $13.3 Mil on Long Beach Office Property

RENTV

 

In a recent office investment buy in Long Beach, a 78.3k sf building was purchased for $13.35 mil ($170/sf) by Atlantic Pearl Investments, a high net-worth group based in Los Angeles. It was 88% occupied at the time of sale.  The four-story...

 


Rockwood Capital Venture Buys Water's Edge Campus in Playa Vista

RENTV

 

Water’s Edge, a 260k sf creative office campus at the western edge of Playa Vista, was purchased by Wedge Office, a Rockwood Capital-led entity, in a transaction said to be worth around $190 mil, or $650/sf. Water’s Edge is located at 5510-5570...

 


Goldman Sachs, Harbor Associates Purchase 157,000 SF Office Building in Valencia, California

RE Business Online

 

VALENCIA, CALIF. — A joint venture between Goldman Sachs Asset Management Private Real Estate (GSAM) and Harbor Associates has purchased Commons at Valencia Gateway, a 157,000-square-foot office building in the Santa Clarita submarket of Valencia. The Class A asset is situated...

 


Property Managers Are Driving Big Changes

Globe St.

 

Property management firms are proving to have an important impact on driving value and the success of an asset. One example of the growing importance of property managers is Catalina Landing. Colony Northstar purchased the struggling 280,00-square-foot office property in August 2015, and...

 


Teledyne Wins $45.7M Military Contract

SoCal Tech

 

Thousand Oaks-based Teledyne Technologies Incorporated announced this morning that it has been awarded a $45.7M missile defense contract, by the U.S. Army Space and Missile Defense Command (SMDC). Teledyne said the award went to its subsidiary, Teledyne Brown Engineering, and is related to...

 


WeWork says revenues will likely top $2.3B this year

The Real Deal

 

WeWork expects revenues to top $2.3 billion this year, the New York Times reported. The coworking startup is growing revenues quickly amid its rapid expansion to 20 countries and some 200,000 members. And backed by a $4.4 billion investment from Japanese technology group SoftBank, the...

 


Is Tech The Biggest Disruptor CRE Will Face?

Globe St.

 

SAN DIEGO—Technology is the biggest disruptor the commercial real estateindustry will face, but simple data collection is not unique enough; we need to use technology in a way that gives companies a competitive advantage in the marketplace, said speakers at the MBA CREF/Multifamily conference Tuesday....

 


"Opportunity Zones" Program Could Bring Investment to Unincorporated Communities

Urbanize LA

 

Buried within the controversial Republican-backed tax bill that passed into law late last year is a new Federal program intended to encourage new reinvestment in low-income communities.  The Opportunity Zones Program allows the Governor of each state, with approval from the United...

 


How To Stand Out In Office And Industrial Redevelopment

Globe St.

 

NEWPORT BEACH, CA—Buying value-add industrial properties at well below replacement cost and being very selective about office acquisitions is part of CIP Real Estate’s investment strategy, principal Eric Smyth tells GlobeSt.com. The CRE investment and management firm completed in excess of $273 million in commercial real estate transactions from...

 


Tech Firms Continue to Seek Out New Markets for Expansion

National Real Estate Investor

 

As the U.S. economy continues to evolve, the high-tech sector is growing at four times the rate of the national economy and is expected to generate 9 million new jobs between 2012 and 2022, according to the U.S Bureau of Labor...

 

FULL TEXT


CBS' streaming services draw 5 million subscribers; network plans

L.A. Times

 

CBS Corp.'s two streaming services — CBS All Access and Showtime — have racked up a combined 5 million subscribers, showing promise for the TV broadcaster's digital ambitions.

CBS Chief Executive Leslie Moonves touted the numbers Thursday and said the company has plans to expand its digital portfolio, which also includes a 24-hour CBS News livestream, by offering new free services supported by advertising.

The company plans a CBS Sports service that should launch this month before the March Madness college basketball tournament. A celebrity-rich "Entertainment Tonight" digital product is being designed to launch this fall.

"There is a tremendous appetite in the marketplace for entertainment news," Moonves said during a Thursday conference call to discuss CBS' fourth-quarter earnings. "We believe we can build a significant audience by launching an ad-supported free service with full mobile and on-demand capabilities."

CBS has pursued a different streaming strategy than other major media companies. Because CBS does not own a piece of the streaming platform Hulu, it has been testing so-called over-the-top variations and partnerships.

"Delivering these services over-the-top also allows us to attract the next generation of viewers with an average age that's approximately 20 years younger than those who watch broadcast or cable television," Moonves said.

For example, the average age of a digital CBS News viewer is 38.

In addition to launching more services domestically, CBS plans to export its $5.99-a-month All Access streaming service to Canada. Later it will introduce the service in Australia, where the company recently purchased the Ten television network, and then in Europe. CBS also offers a $9.99-a-month commercial-free option.

Meanwhile, CBS board members have started to evaluate a potential merger with Viacom Inc. Both companies are controlled by the Sumner Redstone family, and Shari Redstone, vice chair of the two publicly traded companies, has signaled that she wants to bring CBS and Viacom back together.

During Thursday's conference call, CBS executives declined to discuss the proposed consolidation.

Instead, the traditional broadcasting company touted its strong operating performance as a stand-alone entity.

CBS' fourth-quarter earnings beat analyst expectations. For the quarter that ended Dec. 31, CBS reported 11% higher revenue to a record $3.9 billion. Much of the increase came from content licensing and distribution sales, which soared 33.4% to $1.19 billion for the quarter.

The company posted a net income loss of $41 million, or 10 cents a share, down from a net loss of $113 million or 27 cents, a year ago. Adjusted earnings were $1.20 a share. Analysts surveyed by FactSet had projected adjusted earnings of $1.14 a share on revenue of $3.71 billion.

The drop was due, in part, from a $129-million charge to prepare for changes to U.S. tax law. In addition, CBS purchased an annuity — which resulted in a one-time accounting charge of $352 million — to help cover the company's considerable pension obligations.

CBS reported earnings after the market closed. In regular trading, the stock climbed 1.6% to $56.74. In after hours, the shares rose about 2%

-Meg James

Tri-Cities Office Sales Up

Los Angeles Business Journal

 

A spate of major deals has made the Tri-Cities the hottest commercial real estate market in Los Angeles, surpassing West L.A. and Hollywood.

The most recent trade was a nearly 878,000-square-foot Glendale bundle – including two class A buildings, 801 N. Brand Blvd. and 700 N. Central Ave.

CBRE Global Investors Ltd. bought the portfolio from New York hedge fund Blackstone Group for $122 million at the end of 2017.

Several months prior in September, Blackstone was on the buying end, paying an impressive $1.7 billion for a portfolio of Burbank office buildings controlled by Worthe Real Estate Group. The deal included the Pinnacle I and II, a pair of buildings on West Olive Avenue with tenants Warner Bros. Entertainment, Warner Music, Fox Twentieth Television, I Heart Media and Morton’s The Steak House. Another jewel in the package was The Pointe at 2900 W. Alameda Ave. The nearly 500,000-squarefoot building houses KCET-TV, Legendary Entertainment and DC Comics. Blackstone also purchased 3500 W. Olive Avenue, where major tenants include Worthe, Turner Entertainment and Shamrock Holdings Inc.

In addition to the Blackstone transactions, Intercontinental Real Estate gained the 180,180-square-foot Connexion Burbank at 303 N. Glenoaks Blvd. for roughly $125 million while other stalwart transactions included the 700 Allen Ave. multi-property portfolio ($10.9 million) and 1600 E. Colorado St. in Glendale ($2.85 million). In Burbank, 2720 W. Magnolia Blvd sold for $1.95 million and 127 S. Glenoaks Blvd. traded for $1.5 million.

According to David Nusbaum, senior research analyst at CBRE Southern California research, Burbank had a strong 2017, with a 230,000-square-foot net absorption while Pasadena reported 120,000 square feet of net absorption. While Glendale posted -52,000 square feet absorption for the year with several companies such as ACCO and Nestlé USA (in 2018) moving out, that statistic belies the overall trend in the Tri-Cities’ market.

“Tri-Cities is up 250,000 square feet in net absorption for 2017,” Nusbaum said. “(Companies are) coming in because they see that value.”

Entertainment as driver 

Media and entertainment companies account for most of the newcomers to Burbank. Prior to the Great Recession, Nusbaum said, Burbank enjoyed a strong market with vacancy rates in the low single digits. By 2012, vacancy had spiked to 20 percent but has since dropped to 11.5 percent.

“When they’re talking about Hollywood as content capital of the world, they’re really talking about Burbank,” said Josh Gertler, CEO of Burbank-based Consensus, a public relations firm.

In December 2016, after 20 years in downtown L.A., Consensus moved its operations to the Tower at 3900 W. Alameda Ave. in Burbank. Construction of the building finished in 2015, and Consensus was one of its earliest tenants. Gertler’s prime reason for taking his company to Burbank was for the city’s media facilities and talent.

“The creative office environment was much further advanced (in Burbank) than it was elsewhere,” Gertler said.

Moving into 2018, Stacy Vierheilig-Fraser, senior managing director of Sales & Leasing Division at Charles Dunn Co. Inc. in Sherman Oaks, believes many office brokers are waiting for the other shoe to drop on Walt Disney Co.’ s acquisition of 21st Century Fox.

“Does that bring more people from the Westside to Valley-side?” she asked. “Nobody knows yet.”

Gertler said one detriment of relocating his 20-person agency from downtown L.A. was moving further from its events. However, better freeway access and an easier commute were all worth the trade-off for this East Valley resident.

“Burbank is known to be exceptionally business friendly,” Gertler said. “The rates per foot were pretty comparable (but) parking is less expensive, and the business tax is less expensive.”

Entertainment and media tenants often want creative office space, which includes a large and centrally located kitchen, recreation space, open floorplans and outdoor meeting space.

Natalie Bazarevitsch, senior vice president of CBRE Advisory & Transaction Services, said that at two Glendale locations, 450 N. Brand and 625 N. Brand, “they are activating their exteriors, taking the office space from interiors and adding plaza seating, umbrellas, tarps and lunch destinations.”

“There’s been a culture shift,” she explained. “It’s about tenant attraction and retention. Your office space has to offer way more than before. It can’t just be really comfortable chairs and a nice desk.”

Glendale’s transformation

The strength of the capital markets has helped transform Glendale, according to Bazarevitsch.

“A lot of national and local players have moved (into the submarket),” Bazarevitsch said. “The city of Glendale embraced it and didn’t put a moratorium on the number of units. They were truly business-friendly people.”

Last month, Newmark Knight Frank Executive Vice President Steve Kolsky told GlobeSt.com that the Tri-Cities market has become a solid lower cost option for entertainment and media companies looking or leasing in Hollywood.

“Burbank specifically has become Hollywood North,” he said. Bazarevitsch added that while “Pasadena has always been a strong market, Glendale has the greatest runway (for raising rents). It has become a market unto itself.”

“Glendale is still lower priced than Burbank and Pasadena, but it’s catching up,” Nusbaum added. “It’s no longer seen as the third wheel of the Tri-Cities market.”

According to Colliers International, by the end of 2017’s fourth quarter, office rents in Burbank rose 27 cents from 2016’s Q4 to $3.44 a square foot to become the most expensive submarket in the San Fernando Valley while Glendale rents increased 16 cents from 2016’s Q4 to $2.78.

In terms of investor interest, most of Glendale’s Class A office properties have sold to new ownership in the last 48 months, said Bazarevitsch.

Nusbaum said many recent Glendale acquisitions indicate a turnover of big funds cashing in on recession-purchased acquisitions to compensate their investors.

“This is a city that wanted to build up its downtown area,” Nusbaum said. “Now you have a vibrant community. It’s seen its vacancy rate go from more than 25 percent in 2010 to 11 percent as of in 2017.”

Big moves

Bill Boyd, senior managing director at the Glendale office of Charles Dunn Co., feels the Disney-Fox deal’s significance on Tri-Cities real estate may be overstated since Disney still has a lot of room for growth on its Burbank lot. What Boyd believes may have more import is Nestlé’s gradual relocation of its 750 employees to Arlington, Va. after nearly 30 years at Glendale’s 800 N. Brand Blvd.

“It’ll have a significant impact on the rental rates,” Boyd said of the chocolate company vacating 350,000 square feet. The effect on leasing absorption will increase vacancy by at least 3 percent as Glendale only has a collective 6.5 million square feet of inventory.

Despite Nestlé’s upcoming Glendale abandonment, such wholesale exoduses from Tri-Cities are an anomaly and agents such as CBRE are already marketing the space.

A year ago, the Business Journal reported how Children’s Hospital, which already had two floors at 800 N. Brand, signed on to absorb another two floors of Nestlé’s former office space. 

Meanwhile, smaller tenants are flocking to Glendale. CBRE moved from Universal City to a renovated 1928-built, 59,492-square-foot building, which developer Caruso acquired for $6.6 million in 2015, and Bazarevitsch said “everyone is thrilled” about the move to Glendale’s erstwhile Masonic Temple.

“At Universal City, it was more about geography than amenities and now we’re about amenities over geography,” she said.

Another business that migrated to Glendale is Lewis Roca Rothgerber Christie LLP. The law firm moved in 2011 to 655 N. Central Avenue, a handsome, more contemporary, 24-story, 1999-completed edifice.

“It was absolutely the right decision,” said the firm’s Chief Financial Officer Albert Woo. “There is no other building like this in Glendale. When we moved in, it was about 60 percent occupied. Today, it’s fully occupied.”

Before its December 2011 move-in, LRRC had been located within walking distance of Old Town Pasadena’s lunch spots. 

“That was something a lot of the attorneys missed (post-move),” Woo said.

However, a dearth of restaurants is no longer an issue as hip eateries such as Lemonade, Eggslut and Shake Shack have since planted flags in Glendale.

Many attribute Glendale’s blossoming to “the Caruso effect” or “the halo effect from the Americana,” as Woo described it, referring to a whole new wave of retail and residential investment. Since Caruso’s Americana at Brand opened in 2008, myriad eateries, cafes and stores have populated around the outdoor mall’s parameters.

“The growth has been nothing short of phenomenal,” Woo said. 

-Michael Aushenker

Report: E-sports, Social Media Stars Drive Digital Media Job Growth

LA Business Journal

 

Employment in the entertainment industry in the Los Angeles Basin grew 19.6 percent from 2006 to 2016, outpacing 4 percent growth across all industries in the area over the same 10-year period, a new report says.

The breakdown: Entertainment (up 7 percent), digital media industries (up 15 percent), professional business services-related employment (down 8 percent), distribution-related jobs (up 82 percent) and non-internet-related publishing (down 6 percent).

The report, released earlier this month by the Center for a Competitive Workforce, attributes much of the growth to an increase in the category that includes promoters, agents and managers, which added more than 36,000 jobs over the decade (see related story, page 1; list of talent agencies, page 14).

The growth includes both new agencies as well existing talent and management firms that have added new digital branding departments devoted to e-sports and social media stars.

Entertainment industry observers say those personalities are increasingly tapping managers to help monetize their emerging brands.

Some in the business of representing such young stars might offer help navigating the specific metrics that may be attractive to advertisers.

“You may have five million followers, but what if only 5,000 actually like your post?” said Ellie Altshuler, a partner at downtown’s Nixon Peabody law firm who represents numerous YouTube stars in entertainment and fashion.

“YouTube, Snapchat, Facebook, Twitter and the multi-channel networks (MCNS) have created a democratization of celebrity,” said Chris Rico, director of digital media and entertainment industry development at the Los Angeles County Economic

Development Corp. (LAEDC). “This has created an ever-expanding market for agents and talent managers to monetize these creators and their content.”

The LAEDC is a partner in the Center for a Competitive Workforce, along with 19 Los Angeles region community colleges in the in the L.A./O.C. Regional Consortium; the Los Angeles Area Chamber of Commerce; and the Center of Excellence for Labor Market

Research at Mt. San Antonio College.

Amy Neben, a talent manager for Select Management Group, is one of a new group of digital talent representatives.

Select Management Group has a team of 13 including four or five managers.

“There is a lot more you can do from the beginning with these folks’ careers than you can do with a traditional actor,” she said, citing revenue streams such as tours for self-invented music stars, or developing merchandise related to the content of the star’s social media posts, such as makeup or cookbooks.

Working with digital talent breaks down barriers to entering the competitive entertainment business, both for the personalities, and their representatives, Neben added.

“This is kind of like the early days of cable, when young (talent) jumped in fairly quickly,” she said. “Younger agents are seeing a bigger opportunity and leading the charge. The same is true on the management side.”

The Center for a Competitive Workforce is studying six target industries expected to undergo significant middle-skill job growth between 2016 and 2021. One of the consortium’s goals is to use the data to support industry-driven career education and workforce development programs.

-Diane Haithman

New Rendering Details Oceanwide Plaza's Two-Acre Amenity Deck

Urbanize LA

 

A new rendering offers up a detailed look at Oceanwide Plaza's two-acre amenity deck.

The $1-billion project, named for developer Oceanwide Holdings, consists of three towers at 1101 S. Flower Street.  A 49-story, 677-foot tower at the north side of the property will offer a 184-key Park Hyatt hotel as well as 164 branded condominiums.  Twin 40-story building south down Flower Street will feature an additional 340 housing units.

CallisonRTKL is designing the project, which incorporates mid-century modern design in a high-rise setting.  The two-acre amenity deck, featuring a swimming pool and grass fields, will sit atop an open-air retail podium featuring 166,000 square feet of shops and restaurants across two floors.

Oceanwide Holdings has announced a collaboration with celebrity trainer Harley Pasternak, who will be curating wellness programming within the project's amenity spaces.

-Steven Sharp

From Bullish To Bearish: Tips To Prepare For The Inevitable Real Estate Downturn

BisNow

 

It is the question often discussed among panelists at the latest industry events, the buzz passed among colleagues during coffee breaks and a factor investors are weighing heavily before making the next move and deploying capital: When is the correction going to hit? MRI Software Industry Principal Brian Zrimsek said the question owners and operators should be asking themselves is not when the next downturn will hit, but are they prepared for when it does?  “It is like preparing for a storm," Zrimsek said. "You put yourself in the best position to ride out the storm." Commercial real estate has been experiencing a record run of rising valuations for about eight years, and many experts believe the industry still has room to grow. But recent drops in national CRE pricing, rising interest rates, a lack of attractive product on the market and the age of this cycle have some wary of a correction on the horizon.  Zrimsek said now is the time to take what is left of the good times — while money is relatively cheap, vacancies are low and rents are high — to prepare for the inevitable downturn. For some, that could mean offloading assets not strong enough to weather the storm. For others confident their properties can hold up long term, these four tips could prove beneficial: 

1. Negotiate Long-Term Leases

During a downturn when overbuilding has pushed vacancies up, having long-term, stable tenants on the books to generate steady cash flow is imperative, Zrimsek said. Operators should examine their tenants and take note of the best performers to determine which have expiring leases that need to be renewed, and which should be replaced.  “Maybe if you look at which tenants are doing well and which sectors are doing well and are more recession-proof, you can discuss a renewal or an extension instead of waiting until the lease ends,” Zrimsek said.  Keystone Properties President and Chief Operating Officer Richard Gottlieb, who is particularly bullish on real estate right now and does not foresee a downturn hitting soon, said flexibility and staggered leasing is key.  “Be more flexible on the type of space . Even in a downturn, small companies are still looking for space,” Gottlieb said. “Try to extend lease terms and get long-term value anytime. You want fully leased buildings with strong leases and tenants who can pay rent and weather a downturn.”

2.Pursue Rehabs And Upgrades

Investing in property upgrades and face-lifts ahead of the inevitable downturn is important, Zrimsek said, pointing to the current low-interest-rate environment and stable cap rates as an incentive to improve the quality of one’s assets. Owners should aim to have their assets in tiptop condition ahead of a correction, so their product will remain attractive to tenants seeking a renewal or looking to expand their offices.   “If you don’t believe in the long-term viability of your asset, then you should sell before the market takes a downturn. If you think you have good real estate, make sure you have the ability to maintain the property and go through a downturn. In a good market, even mediocre property can do well,” Gottlieb said. 

3. Stop Putting Off Maintenance

Deferred maintenance is the simple act of delaying repairs on a property to save on costs and balance one’s budget. While this is common practice, Zrimsek said now is the time to tackle all building upkeep while capital is still relatively cheap and readily available.  “Short-term thinkers can easily justify to themselves deferring maintenance,” he said. “ when in a downturn, the purse is tight and money is expensive." Gottlieb said Keystone makes a habit of tackling all deferred maintenance on any recently acquired assets.  “When we underwrite and buy a building, we want to fix everything, especially deferred things. Then we keep on top of it. It is easier to keep up than to try to get capital to fix everything ,” Gottlieb said. 

4. Embrace Technology

The time to invest in tech solutions to automate aspects of one’s business is now, while new CRE solutions are hitting the market to make the act of trading and managing commercial properties more efficient, Zrimsek said.  “Look at your business again while times are good and there’s more cash available  — whether cash flow from businesses or money from lending — and use those dollars to make yourself more efficient,” he said. “It’s much harder to scale up or down when relying on manual practices … if you add tech, you can scale up and repurpose people to more valuable activities scale down and have more flexibility with what you do with your workforce.”

-Champaign Williams

Atlantic Pearl Investments Spends $13.3 Mil on Long Beach Office Property

RENTV

 

In a recent office investment buy in Long Beach, a 78.3k sf building was purchased for $13.35 mil ($170/sf) by Atlantic Pearl Investments, a high net-worth group based in Los Angeles. It was 88% occupied at the time of sale. 

The four-story office building is located at 1501 Hughes Way. It features flexible floor plates, an updated lobby and a steel construction and glass façade. The site provides easy access to the 405/710 Fwy intersection. 

CBRE’s Mark Shaffer, Anthony DeLorenzo, Gary Stache and Doug Mack, members of the firm’s Investment Properties SoCal Team, represented the seller, a Brookfield-sponsored private real estate fund. 

“Long Beach and Southern California have gone through a tremendous recovery. This has attracted employers, employees and in turn investors.” Noted Shaffer. “High net-worth investors are ceasing opportunities to buy office properties with good in-place cash flow at rents that have not yet met or exceeded the previous peak, offering the potential for significant upside.” 

The Long Beach office market has been steadily improving, with overall vacancies at 15.5% in the fourth quarter, down from 16.4% a year earlier, according to the latest CBRE research. Asking rents for the same time period climbed 8.4% to $2.46 per square foot. 

Rockwood Capital Venture Buys Water's Edge Campus in Playa Vista

RENTV

 

Water’s Edge, a 260k sf creative office campus at the western edge of Playa Vista, was purchased by Wedge Office, a Rockwood Capital-led entity, in a transaction said to be worth around $190 mil, or $650/sf.

Water’s Edge is located at 5510-5570 Lincoln Blvd, at the northeast corner of the intersection of Lincoln and Jefferson Blvds, near Marina del Rey. The two-building asset was sold by a partnership of DivcoWest and Maguire Investments, who acquired the campus in 2014 for $132.5 mil. 

The existing buildings at Water’s Edge were developed by MaguirePartners. They consist of the distinctive green-glass encased 58k sf Water's Edge I building and the four-story, 185k sf Water's Edge II building, built at a total cost of $77 mil. The project includes plans for a third, and final, building of 130k sf, which would bring the entire campus to almost 400k sf of space. 

The buildings, which were completed in late 2002, were at one time both fully leased by Electronics Arts, which now maintains a scaled back presence in less than half the space it once occupied. Other tenants at the property include Popchips, Doner and Pop Media Group, along with an LA Fitness location. 

Eastdil Secured represented the seller in the transaction. 

Goldman Sachs, Harbor Associates Purchase 157,000 SF Office Building in Valencia, California

RE Business Online

 

VALENCIA, CALIF. — A joint venture between Goldman Sachs Asset Management Private Real Estate (GSAM) and Harbor Associates has purchased Commons at Valencia Gateway, a 157,000-square-foot office building in the Santa Clarita submarket of Valencia. The Class A asset is situated directly off the I-5 freeway. The price was not disclosed.

The partnership intends to implement a capital improvement program to refresh vacant suites and upgrade the overall appeal of the property for tenants. It will also introduce environmental initiatives that can improve the property’s brand.

-Nellie Day

Property Managers Are Driving Big Changes

Globe St.

 

Property management firms are proving to have an important impact on driving value and the success of an asset. One example of the growing importance of property managers is Catalina Landing. Colony Northstar purchased the struggling 280,00-square-foot office property in August 2015, and hired Rising Realty Partners to develop and execute a strategy to turn the property around. Leveraging the firm’s third-party property management Asset Enhancement Program and 5×5 Telecom, Rising was able to increase rents by 20%—the highest rates in Downtown Long Beach—renewed or expanded leases with 19 tenants and signed substantial new leases with Sprint, the California State University Chancellor’s Office, and Barrett Business Systems. To find out more, we sat down with Marc Gittleman, EVP at Rising Realty Partners and chair-elect of BOMA-GLA, for an exclusive interview.

GlobeSt.com: How has Catalina Landing evolved since Rising was hired as a property manager?

Marc Gittleman: Catalina Landing is now one of the premier office destinations in Downtown Long Beach. Asking rents at the property have increased more than 20 percent since Rising’s Asset Enhancement Program™ commenced in 2015.  The campus now commands the highest asking rates within the Downtown Long Beach submarket.  Since Colony engaged Rising, 19 existing tenants have either renewed or expanded their leases. Additionally, three prominent new tenants have moved to the building: Sprint, the California State University Chancellor’s Office, and Barrett Business Systems. Rising also created significantly more value for Colony by activating 29,000sf of previously un-leasable space and converting it into, what is now, the most desirable office offering in the campus.

GlobeSt.com: How did you drive leasing activity and interest in the property?

Gittleman: Rising brought a thorough Asset Enhancement Program to the assignment and implemented capital projects focused on creating a lifestyle workplace with a focus on experience, community and sustainability. The unique waterfront location and need for capital investment led to a great opportunity to not only repair the neglected property but to enhance aesthetics, utility and attractiveness to new and current tenants alike. Among Rising’s changes include: The removal of two large harbor-side landscape berms, installing new glass sliding wall systems, and transforming a dungeon-like storage space, previously leased for $1PSF, into 25,000sf of lifestyle office space with two private waterfront patios. Filled with natural light from all sides, the newly activated space is the premier location at the property, with commensurate asking rates, and frankly, is the most unique office space in Long Beach. Colony engaging 5×5 Telecom to provide direct fiber Internet to One Wilshire, saving tenant customers $.05 to $.30per square foot, per month through substantial reduction in their telecom cost. Since installation, every new tenant at Catalina Landing chose to use 5×5 Telecom, and existing tenants are converting to this fast, valuable, cost-saving amenity. 5×5 Telecom also installed the fastest free Wi-Fi in the world (200mb x 200mb) and Connectible Square Footage Catalina Landing tenants can have access to their own private secure Wi-Fi throughout all the new outdoor common areas. Connectible Square Footage effectively expands tenants functional workspace by thousands of square feet.

Creating the Promenade Lounge, an outdoor ocean-view tenant patio with shaded space to work or play, the space is also available for private events creating additional revenue opportunities for Colony. Implementation of cost-saving, tenant-centered, sustainability initiatives such as the installation of EV charging stations, upgrading of landscaping to drought tolerant and native plant species, and the use of renewable hardwoods throughout the exterior common areas.

In addition to these substantial changes, Rising’s Asset Enhancement Program also includes the installation of modernized elevators, upgraded restrooms, and welcoming lobbies. Best-in-class property amenities, added by Rising designed to attract more tenants, include a fitness center, conference center, Long Beach Bike Share and daily-catered lunches by Fooda in the onsite cafe.

GlobeSt.com: What were the major challenges of this property?

Gittleman: The property faced significant challenges having fallen into a state of disrepair after years of neglect by a previous owner: The property commanded only average market rental rates despite the prime location, an occupancy rate below market standards, and was fast becoming an eyesore. The effect: Severe issues in retaining existing tenants and an even bigger challenge: attracting new tenants. Despite the issues, Catalina Landing had significant potential: Offering exquisite waterfront views, the Catalina Landing campus wraps around a uniquely dedicated and active harbor, home to the Catalina Express ferry service and the gateway to Catalina Island. The property is adjacent to Downtown Long Beach landmarks, the Pike, Aquarium of the Pacific, and Shoreline Village.

GlobeSt.com: Did you approach the lease-up differently because you don’t own the property?

Gittleman: Rising and our listing brokers worked hand-in-hand on the Asset Enhancement Program in prioritizing projects that would have the largest impact on leasing activity. Curb appeal was issue number one, so the exterior repair, appearance and amenities were tackled first. The idea of removing the berms to create the sea level space came from the brokers. Rising ran with it and engaged a structural engineer and architect to plan and price the project.  At owned/managed buildings, Rising has the same relationship with the brokers, where it is truly a team effort in creating the vision and driving it to completion.  We brought the same approach and energy that we bring to our owned and managed buildings to this 3rd Party Contract successfully.

GlobeSt.com: What is next for the property?

Gittleman: We are continuing to implement our Asset Enhancement Program. Our next projects include creating an additional first floor spec suite; renovating and modernizing the lobbies; and two to three more sets of restrooms will be updated in conjunction with leasing activity.

-Kelsi Maree Borland

Teledyne Wins $45.7M Military Contract

SoCal Tech

 

Thousand Oaks-based Teledyne Technologies Incorporated announced this morning that it has been awarded a $45.7M missile defense contract, by the U.S. Army Space and Missile Defense Command (SMDC). Teledyne said the award went to its subsidiary, Teledyne Brown Engineering, and is related to missile defense modeling and simulation tools and software. Teledyne said the contract covers the Teledyne Brown Engineering Extended Air Defense Simulation (EADSIM), a software tool used by perational commanders, trainers, and analysts to model and evaluate the performance and effectiveness of a broad range of current and future defense systems. The software was originally developed in 1989.

WeWork says revenues will likely top $2.3B this year

The Real Deal

 

WeWork expects revenues to top $2.3 billion this year, the New York Times reported.

The coworking startup is growing revenues quickly amid its rapid expansion to 20 countries and some 200,000 members.

And backed by a $4.4 billion investment from Japanese technology group SoftBank, the company is expanding services into areas like gyms and a kindergarten school.

But not all investors are entirely gung-ho on the idea that WeWork would stray from its core business of leasing desks to office workers.

“I’ve made that argument,” said WeWork board member Bruce Dunlevie, a  partner at the venture capital firm Benchmark. But, he added, “great entrepreneurs like Adam don’t listen to guys like me.”

Company cofounder Adam Neuman last summer said the company was working toward hitting $1 billion in revenues, and confirmed that the company plans to go public, but did not give a timeline.  

— Rich Bockmann

Is Tech The Biggest Disruptor CRE Will Face?

Globe St.

 

SAN DIEGO—Technology is the biggest disruptor the commercial real estateindustry will face, but simple data collection is not unique enough; we need to use technology in a way that gives companies a competitive advantage in the marketplace, said speakers at the MBA CREF/Multifamily conference Tuesday. Panelists for the session “Disruptors, Innovation and Managing Change in CRE Finance” tackled what they believe are the significant current and future drivers of change in CRE finance and ways to navigate through the shifting landscape.

Moderator Justin Wheeler, CEO of Berkadia, asked the panelists to define disruption in CRE. Thomas Dennard, chairman of the board and CEO of Grandbridge Real Estate Capital LLC, said we just witness a whole lot of disruption since the recession and we will continue to see more of a free-market environment. He added that Millennials are the future of our industry.

Shekar Narasimhan, managing partner of Beekman Advisors Inc., said disruption is the result of taking a problem, turning it on its head and solving it; this is how simple ideas get elevated into multi-billion-dollar businesses. Willy Walker, chairman and CEO of Walker & Dunlop, added that there are competitors looking to disrupt what we do every day. “There are upstart companies ,” which many never would have predicted would succeed, but have. “This is an industry ripe for disruption. There are too many people” involved for it to continue without these disruptors.

Narasimhan pointed out that GPS is the biggest invention of his lifetime. “Could you exist without GPS today?” But, he said, we need neurodiversity. With that, change will be so ubiquitous that we won’t even notice it.

Walker said what distinguishes people, products and companies in the era of technology is not simply the ability to eliminate paper from the workplace—everyone can do this, so there’s no competitive advantage—but to improve things in a way that puts them ahead of everyone else. Dennard added that it’s a matter of how quickly you can get your people to adopt a technology that will make the difference.

Wheeler asked if tech replaces a bunch of people, and Narasimhan said, “Technology doesn’t eliminate jobs; it eliminates professions.” The speed to change for CRE has been slower than in other industries because our industry is such that it can’t grow as fast as technology has (e.g., the rate of growth in the number of Facebook users over time). He added that loan officers will likely lose out to technology.

Walker said the traditional way of investors meeting with their life companies before disbursing capital has to end, but they will need a trusted advisor to guide them through the process. Technology has an impact in ways we may not even begin to imagine—for example, the iPhone has impacted Invisalign sales since people are taking so many selfies and want their teeth to look good. “It’s not so much that we can get online to sell, but the ancillary bites will crop up to feed that.”

Dennard said it’s all about efficiency, the but human touch is still very important. While robotics can do certain tasks well, people are much more efficient and can do more with less. We can decide what our niche is, service it and do it better than anyone else. Also, the cost to process a loan is coming down.

Walker said, “But the big controllers of capital will continue to consolidate capital,” and Dennard said, “They may find out it’s not as efficient toe run debt through a proprietary arm.”

Wheeler said we will always need that human touch. No how much bandwidth we install, we still need that last mile of copper to reach each individual door.

When discussing which innovation excites them the most, Walker answered, “Real-time data that allows people to make decisions that make a difference,” and Narasimhan said, “The intermediaries of the future will act as fiduciaries.”

Walker said this used to be a clubby industry, and client relationships are sticky, but platforms that provide efficiencies will help. “The biggest mistake I’ve seen is tech companies thinking they can do everything. We need to be realistic about disintermediating the entire industry—you’ll fall on your face if you try.”

Narasimhan said just being big is not going to be sufficient in the future; companies need to take advantage of the partnerships they create to generate a network that makes them unique.

Another innovation that will have great impact on CRE, the panelists said, are driverless cars, which will spark a reuse of parking garages into buildings. Dennard said owners will need to figure out what to do with parking garages in order to make money on the space. Blockchain, on the other hand, will not change everything in CRE finance or US currency, they agreed.

-Carrie Rossenfeld

"Opportunity Zones" Program Could Bring Investment to Unincorporated Communities

Urbanize LA

 

Buried within the controversial Republican-backed tax bill that passed into law late last year is a new Federal program intended to encourage new reinvestment in low-income communities. 

The Opportunity Zones Program allows the Governor of each state, with approval from the United States Department of the Treasury, to designate up to 25 percent of eligible census tracts as "Opportunity Zones."  Eligible census tracts within metropolitan areas are defined as those in which the median income does not exceed 80 percent of the greater statewide median family income or the metropolitan area family income.

Per a motion by Los Angeles County Supervisor Mark Ridley-Thomas, the program "creates a mechanism that enables private investors with capital gains tax liabilities to receive competitive tax breaks for investing in Treasury Department-approved Opportunity Funds for at least ten years."  Thomas' motion goes on to describe the program as "a unique opportunity to drive new investment and create new jobs in low-income urban and rural communities that have not benefited from the economic resurgence that has taken place since the end of the Great Recession."

Should the motion be adopted by the full Board of Supervisors at its February 20 meeting, various County departments will be instructed to work with Governor Jerry Brown's Office of Business and Economic Development to provide input into designated unincorporated tracts in Los Angeles County for Opportunity Zone designation.  Governor Brown has until March 21 to select the census tracts or to request a single 30-day extension.

-Steven Sharp

How To Stand Out In Office And Industrial Redevelopment

Globe St.

 

NEWPORT BEACH, CA—Buying value-add industrial properties at well below replacement cost and being very selective about office acquisitions is part of CIP Real Estate’s investment strategy, principal Eric Smyth tells GlobeSt.com. The CRE investment and management firm completed in excess of $273 million in commercial real estate transactions from January 2017 to early February 2018.

The robust activity includes six dispositions totaling $246 million across California, Nevada and North Carolina, in addition to the $27.1 million acquisition of a Northern California business park. The company also announced aggressive plans to invest $150 million in strategic acquisitions for its commercial portfolio in 2018.

We spoke with Smyth about the firm’s investment strategy, including the markets where it has chosen to dispose of properties and the markets in which it is choosing to acquire properties this year.

GlobeSt.com: How would you characterize your firm’s investment strategy for the long term?

Smyth: Our company started out in 1995 buying multi-tenant industrial properties, and a few years later started acquiring office assets. We’re strictly buyers of industrial—usually multi-tenant—and multi-tenant and multi-story office assets. In the office sector, we’re traditionally value-added buyers. In industrial, we definitely pursue value-add opportunities and can do more core-plus with our business partners.

Our product range is broader in industrial than in office. We like Southern California to buy, although we bought our first asset up in the Bay area and want to buy more industrial assets in Northern California. We sold a lot of our Las Vegas portfolio, and we’re looking to buy both office and industrial in Vegas. We have been aggressive in Arizona, and we’re looking in the Carolinas and on the East Coast. We want to expand in areas such as the Carolinas, Nashville, Atlanta and Dallas—primarily industrial. We’ve stayed pretty close to product type, but we’re more flexible in geography.

GlobeSt.com: Which markets are you looking to invest in during 2018, and why?

Smyth: We’ve had the same investment criteria since our inception: we like to acquire assets well below replacement costs, generally those for which we can do something physically or rebrand or put in place better management practices. We’ve acquired bank REO assets, and we don’t mind taking on difficult assets. We like to acquire below replacement cost in markets where it’s difficult to buy in those asset types in those markets.

GlobeSt.com: Which markets are you looking to dispose of properties in this year and why?

Smyth: With some notable exceptions where we’ve owned property long-term, we acquire it with our institutional partners, and the business plan is typically three to seven years in term. When we reach the end of our business term, we tend to sell. So, it has more to do with our business plan than the market itself. We can be a buyer and a seller in the same market depending on the businesses.

GlobeSt.com: What else should our readers know about office investment for 2018?

Smyth: We are very bullish on the markets and product types I mentioned in industrial. From a macro and a micro business plan, it’s very difficult to reproduce industrial in a lot of markets. In office, we are a little more selective; we want to be in markets where it’s difficult to reproduce the office product, and we want to be competitively priced against other office assets. We are not retail buyers in office. In Charlotte and Raleigh, we want to be office buyers—the dynamics of those markets leave us with a lot of rental growth.

-Carrie Rossenfeld

Tech Firms Continue to Seek Out New Markets for Expansion

National Real Estate Investor

 

As the U.S. economy continues to evolve, the high-tech sector is growing at four times the rate of the national economy and is expected to generate 9 million new jobs between 2012 and 2022, according to the U.S Bureau of Labor Statistics (BLS). And with stiff competition for talent in major existing tech hubs, including San Francisco and Seattle, tech companies are opening offices in new markets, according to Colin Yasukochi, director of research and analysis for Northern California with real estate services firm CBRE. They are looking at cities that have a critical mass of STEM (science, technology, engineering and mathematics) talent and/or universities graduating significant numbers of STEM professionals.

Currently one of the fastest-growing tech markets in the country, Phoenix is an example of an emerging tech hub, as the number of people employed in tech occupations over the last five years has grown by 48 percent, according to real estate services firm JLL. The region has a relatively low cost of doing business, an affordable cost of living and several universities, including Arizona State University.

JLL reports that nearly 40 percent of the population in the Phoenix region over age 25 has an associate degree or higher, about 31 percent holds a bachelor’s degree or higher, of which about 24 percent are STEM degrees.

Consequently, Phoenix experienced nearly 8 percent net absorption in office space, and Tempe, where Arizona State is located, saw office rents climb about 28 percent over the two-year period in 2015 and 2016, according a the CBRE report.

Julia Georgules, JLL senior vice president, director of technology research and co-author of JLL’s Tech Office Trends 2017 report, notes that while there’s still lots of growth in top tier tech markets—San Francisco, Seattle, the Silicon Valley, Boston—these markets also have the most expensive cost of living. Educated millennials want a work/life balance, she says, and are migrating to cities like Nashville, Tenn. because they offer a relatively low cost of living and an attractive lifestyle.

“Well-educated new graduates are going to places like Denver and Salt Lake City—the Silicon Slope—because they offer an active, outdoor lifestyle, and tech companies are chasing them,” adds Steffen Kammerer, JLL senior vice president and technology group lead. As a result, he notes, “New tech hubs are popping up in markets across the country.” Over the last five years, for instance, the number of people employed in tech occupations in Denver grew by 19 percent.

Foremost among the considerations for a tech company considering entering a new market is the talent pool, says Georgules. Secondly, the company will look at how attractive is the specific location or district within that market is to millennial employees and what it amenities it offers. The availability of attractive housing and entertainment options nearby, a pedestrian-friendly setting and adequate parking all make a difference. Lastly, what is the cost and condition of real estate; if it’s a second-generation asset, can it be modified to attract talent and what would that cost?

Over the last few years, 25 cities have achieved double-digit job growth in the tech sector, according to CBRE’s 2017 Tech-30 report. These include Austin, Texas, Denver, Charlotte, N.C., Nashville, Portland, Ore. and Atlanta, among others. Thirteen cities also achieved double-digit rent growth, CBRE reports.

However, the influx of tech companies tends to drive a market’s vacancy rate down and rents up, Yasukochi says. And while this is good for landlords, continued rent growth in urban centers is causing an exodus of non-tech office users to lower-cost space in suburban markets.

Expansion in the tech industry is expected to continue in 2018, albeit at a slower pace, due mostly to insufficient talent to fill a growing number of jobs, according the CBRE report. “The tech sector has been growing so fast since 2011, its bound to slow down,” Yasukochi says. “The lack of talent is putting constraints on growth. Companies can’t fill jobs.”

CBRE predicts that the tech industry’s positive impact on the office market will last through 2019.

-Patricia Kirk

Daily Brief February 20, 2018 unsubscribe

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