Two years ago this month, the Encino Terrace Center office building opened on Ventura Boulevard. Built at an estimated cost of $35 million to $50 million by the Japanese construction firm Fujita, the building occupies one full block. But from the start architects and leasing agents were panning its design. Prospective tenants weren't lining up to lease space, either. In September, 1986, nine months after it opened, the building was still 85% empty.
Today, Terrace Center is still so empty that visitors can hear the buzz of its fluorescent lights and the whoosh of its air-conditioning system. "I'd like to see more people in here," said Carlton Masi, president of Acquired Excellence, one of the building's 15 tenants.
Last summer, Seth Dudley, one of the leasing agents for Terrace Center, predicted that by the end of 1987, the building would finally be half full. But as of Monday, Dudley and the two other leasing agents had rented only 43%, or 173,000 of the building's 400,000 square feet, a good 27,000 feet short of Dudley's summer forecast.
"Give me a break. This is not an exact science," he said.
Dudley, a vice president with Julien J. Studley in Encino, Terrace Center's leasing company, insists that a national brokerage firm is very close to signing a deal that would finally bring the building to the halfway mark.
But in the meantime, Terrace Center's occupancy level could sink even lower. Coca-Cola, one of the building's original tenants, is moving out and canceling its lease of 6,600 square feet. Another tenant, De Laurentiis Entertainment Group, is in financial trouble.
"It definitely is the largest chunk of space available in the Valley," said Tracy Woods, director of research with the commercial real estate brokerage of Grubb & Ellis.
Several leasing agents estimated Fujita is losing at least a couple of million dollars a year on Terrace Center. Most buildings don't break even until they are 80% to 85% occupied.
"From an American perspective, it's a poor investment," said Bruce Kusada, a leasing agent with Charles Dunn Co. in Encino. "But in Japan you have to remember the philosophy is to never sell real estate."
Some leasing agents say that Fujita is now willing to bend more on tenant concessions. Howard Zarett, president of the Woodland Hills real estate brokerage of the same name, said he placed two tenants inside Terrace Center and both received about a year of free rent and $30 to $35 in improvements per square foot, including plush carpeting and wall coverings, on 10-year leases.
The major problem, however, leasing agents say, is that the building's design is ill-suited to the Encino office market.
Terrace Center is not a typical San Fernando Valley office complex. It is only six stories high but is 575 feet long, nearly the length of two football fields. And in some spots, it is as much as 135 feet wide. Leasing agent Richard Abbitt said Terrace Center is essentially a 20-story building laid on its side.
No Expense Spared
Fujita had it designed that way to get around a city-imposed moratorium on skyscrapers. Built on a former supermarket site at 15821 Ventura Blvd., Terrace Center fills an entire block on the north side of the street between Gloria and Densmore avenues, not far from the San Diego and Ventura freeways. No expense was spared on the building's interior--the lobby, elevators and even the lavatories are finished in red granite. There are terraces on four floors, and the company is installing a $200,000 fitness center.
For all that effort, however, "Some people say it's an ugly white elephant," Zarett said.
Because there are only six stories, the building's floors are enormous. Each floor is between 60,000 and 80,000 square feet--four times the floor size in a standard office building. Planners say those kinds of dimensions, particularly on the lower floors, are only suited for corporate users who need a lot of space and not a lot of windows.
But in Encino, the average tenant leases less than 5,000 square feet, according to Grubb & Ellis. "It has huge floors, and that appeals to the institutional-type tenant, but the market the building is in is for lawyers and accountants who want a lot of windowed offices," said Jim Nolan, a leasing agent with Grubb & Ellis. "I think the building they designed is in the wrong market," he said.
Fujita's competitors have filled their buildings a lot faster. First Financial Plaza on Ventura Boulevard opened five months after Terrace Center did, and 88%, or 191,000 square feet, of its space already is leased. Encino Executive Plaza opened 11 months after Terrace Center, and 83% of its 176,000 square feet is filled.