By Christina S. Porter
Maguire Partners has reportedly agreed to purchase 1 California Plaza in downtown Los Angeles from Metropolitan Life Insurance Company.
The purchase price is said to be $225 million for the 975,000-square-foot office/retail building, with the seller funding more than half of it and charging a fixed interest rate of 4.73 percent. With the completion of this acquisition, Maguire will own approximately 60 percent of the office space on Bunker Hill, according to the buyer. Robert f. Maguire III, chairman and co-CEO of Maguire Properties was quoted as saying “The building has very attractive investment characteristics for us. For example, we estimate that the purchase price is about 65 percent of replacement cost and the in-place rents are 20 percent below the rents we are achieving in our other buildings.” Sounds like a great deal. It also is interesting that the office building is currently 92 percent occupied at this time. In this market, an office building with such a low vacancy rate is rare. However, a low vacancy rate also is the case for Glendale Plaza, owned by Glendale Plaza Realty Holding Company. The building won a very prestigious award given out by Building Owners and Managers Association of greater Los Angeles to honor the region’s office buildings of the year. Currently the 532,815-square-foot office building is 99.7 percent occupied — quite an achievement in this dawdling leasing market.
It is clear that running a successful building has many components. Some of them are: ■ Team work between building owners and managers. ■ Responsive ownership. ■ Monitoring the tenant’s opinions through surveys. ■ Giving tenants what they want. The commercial real estate market has been difficult in many ways and keeping tenants happy is key. It is clear that when owning a building that depends on income from tenants you must seriously consider tenant retention. The average tenant today has many choices and in order for an owner to protect its investment, they must be particularly sensitive to a tenant’s needs.
As we all know, providing consistent, quality service to your tenants is a given. Being creative and flexible in lease negotiations can get you a long way. After reading about the owners of the above-mentioned office buildings it is clear that they are “tenant oriented” and consider being that way a significant contribution to accomplishing such low vacancy rates. After the fat days of the ‘90s it has been difficult for some owners to come down to the harsh reality that we are in, and have been in, a tenant’s market. Santa Monica and the westside of Los Angeles have been known for high lease rates, however it is clear that building owners’ expectations are becoming more realistic and deals are finally being made. Tenants should not take this for granted. Most of us agree that it’s anyone’s call on how long lower lease rates will remain, but I think lease rates will increase and vacancy rates will decrease sooner than later. (Christina S. Porter is a senior associate at NAI Capital Commercial Real Estate, specializing in leasing, and selling office and industrial buildings.)
Originally published in the Santa Monica Daily Press print edition on October 15, 2003. Read the original PDF.