Commercial property in Santa Monica holds tight
By JOHN F. MULLER Special to the Daily Press
COLORADO AVENUE — With the addition of one of Santa Monica’s largest office complexes, a national corporation has established a hold on nearly a fifth of the city’s commercial space.
Equity Office Property Trust (EOP) and a joint venture partner acquired the Colorado Center last month for $443.6 million from Tishman Speyer Properties, Inc. EOP paid $228.6 million for about half of the 1.1 million-square-foot center, and will manage and lease the office space in the six-building center, which is currently about 80 percent occupied.
EOP, the nation’s largest office building owner and manager, owns more than 700 properties, comprising 124 million square feet of office space in the country’s major metropolitan markets. The Chicago-based company owns about 2.7 million of the 13.7 million square feet of office space in Santa Monica, according to CoStar Group, Inc., which compiles real estate market data from around the country. Most of the properties EOP owns are along Ocean and Colorado avenues and Broadway.
Company officials said Santa Monica’s location and demographics had drawn EOP to the city.
“We know the market, we like the market, and we like the dynamics of the market,” said Frank Campbell, EOP’s vice president of leasing in Los Angeles. “You have the combination of the entertainment, technology and financial sectors all interested in locating there. Their executives live in the surrounding areas — the Palisades, Malibu, West LA, Santa Monica. And a well educated labor pool surrounds the project.”
Campbell said the company’s decision to increase its holdings in Santa Monica was aimed to better serve EOP’s customers — not to try to corner the market. He said EOP’s corporate strategy — to acquire core, critical masses of buildings in target areas — was designed to allow the company to build long-term relationships with its clients. With large holdings in certain areas, EOP can offer its tenants the flexibility to easily switch offices as their needs change.
The Colorado Center, which was previously called the MGM Plaza, includes company offices for HBO, Viacom and CBS. Campbell noted that not many “class-A” properties like the center have been available recently.
“We believe there’s a positive long-term outlook for the Santa Monica market,” he said. “It’s got fairly constrained supply. It’s not a particularly easy market (in which) to build a replacement product for this kind of product.”
Rick Gold, the senior executive vice president of NAI Capital Commercial, said he couldn’t imagine any other properties like the Colorado Center coming onto the market any time soon. NAI is one of the largest full commercial real estate brokerages in Southern California.
“I don’t envision seeing another Water Garden or Colorado space coming up in the near future considering the city’s policies on development,” he said. Gold has been in commercial real estate on the westside for 28 years. “It’s my personal belief that if the city has any large developable parcels, they’re going to be looking for affordable housing, not office projects. So it becomes supply and demand.”
“I don’t envision seeing another Water Garden or Colorado space coming up in the near future considering the city’s policies on development. ” — National real estate company increases its presence in SM – RICK GOLD Senior executive vice president NAI Capital Commercial
Gwen Pentecost, the city’s senior administrative analyst for economic development, said EOP’s 19.5 percent share of Santa Monica office space won’t have a drastic effect on the real estate landscape. Santa Monica’s office vacancy rate, which mainly takes into account “class-A” spaces, has sky-rocketed in recent years. In the first quarter of 2000, vacancy rates stood at 0.6 percent. By the fourth quarter of 2001, it had reached 20 percent in the wake of the failures of dot-com businesses and an economic recession. Pentecost said the rate has been recovering in the past half year as jobs have slowly begun returning to the city.
“I wouldn’t see it having any impact at all (on the commercial real estate market in Santa Monica),” she said. “Everybody is trying to fill up their spaces. They’re all doing the same thing. Nobody’s saying, ‘I own so much, I’m going to set it all aside.’ Every professional retailer out there is doing his best right now.”
Gold said it was possible EOP’s large market share could have an impact on the market for office space in Santa Monica, but he doubted that possibility would be realized. “(EOP’s large market share) could pose a problem only in the sense that if someone owned a large portion of the market and was unwilling to be coopera-tive and work with people (they could disrupt market dynamics),” Gold said. “It would work in one of two ways. They could try to undercut all the other landlords and create a problem, or on the flip side of the sword, if they were real jerks about it, they could push people out of their buildings and actually help out other landlords.
“I don’t see either of those happening.”
Originally published in the Santa Monica Daily Press print edition on August 24, 2004. Read the original PDF.