WOODLAND HILLS — In another sign of resurgence in the area's commercial real estate market, potential buyers are jostling to snap up two Prudential office buildings on nearly 35 acres of prime Warner Center property.
Since Prudential quietly began shopping the buildings around about a month ago, the company has received more than a dozen bids--a response that market experts say would have been unthinkable only recently.
"The concept of somebody buying a large piece of land with existing buildings is something nobody would have touched a couple of years ago," said Seth Dudley, senior vice president of the commercial real estate firm of Julien J. Studley Inc. "It's an indication of how quickly this market has turned."
Dudley and others say they expect the Prudential property to be sold quickly--and to a prestigious if still unknown tenant. While declining to name a prospective buyer, Prudential spokesman Rick Matthews said he is hopeful a tentative deal will be struck within 30 days and closed within the second quarter.
Prudential plans to lease back one of the buildings, Matthews said, allowing the investor to lease the second building to others and--in a growing trend--enabling the insurance giant to free up capital. The two buildings, situated at 5800 Canoga Ave. and 21261 Burbank Blvd., contain a combined total of nearly 500,000 square feet of office and warehouse space.
But what makes the property interesting, observers say, is its potential for future development--a possible doubling of the amount of usable space, an increasingly attractive feature in today's tight market. Warner Center's office vacancy rate has shrunk from 22% in 1993--one of the recession's worst years--to a current level of 11%.
With several other large projects on the table--including plans by 20th Century Insurance Co. to erect an 11-story, 275,000-square-foot office tower, a major expansion of the Ray-Art Studios and several desirable new tenants at the Promenade Mall--the future continues to looks bright for Warner Center.
"It's very encouraging," said Brad M. Rosenheim, a consultant for the Warner Center Assn. "It shows that Warner Center is viewed as a desirable place to be."
"It's clear we're finally coming out of the real estate recession," added Ken Bernstein, a planning aide for Los Angeles City Councilwoman Laura Chick, whose district includes the business center between Topanga Canyon Boulevard and De Soto Avenue, Vanowen Street and Ventura Boulevard. "There's stepped-up activity in Warner Center."
To keep the momentum going, Chick played an active role in negotiations with the Los Angeles Unified School District, which sued the city over the effect of new Warner Center development on two nearby schools. Earlier this week the two sides reached a tentative agreement in the long-simmering dispute, which took on a new urgency after several developers expressed concern and even threatened to pull out of Warner Center due to the cloud of uncertainty hanging over the area.
20th Century Insurance Co., for instance, was reluctant to pull permits to build its new offices on Owensmouth Avenue until the case was settled. Bernstein also cited expansion plans by Ray-Art--the entertainment industry's foothold in Warner Center--as another reason the dispute needed to quickly be resolved.
Once a seismic retrofit to the film-production facility is completed, a major expansion is expected to follow, which could include four new sound stages and 50,000 to 60,000 square feet of office space, bringing the total to eight stages and nearly 120,000 square feet of office space.
"It could potentially add more than 100 new jobs," Bernstein said.
Sources say plans for a major expansion of the Topanga Plaza mall are also in the works, though still in the planning stage. The mall's operators announced plans last June to increase Topanga Plaza's size by more than 40%, but have released few details since.
In the meantime, the recently renovated Promenade Mall has continued to attract high-end tenants, including Restoration Hardware and the Valley's only Z Gallerie, which will open this spring. A popular home decorating and furniture store known for its cutting-edge merchandise, Z Gallerie will occupy a 13,000-square-foot space on the mall's lower level.
The collection of snazzy home-decorating stores now housed in The Promenade--Hold Everything, Pottery Barn, Williams Sonoma--has prompted the mall's marketers to nickname it "Robertson Boulevard West," after the Westside's interior design district.
Warner Center's rosy new outlook is a tremendous turnaround from even a year ago, when four health maintenance organizations, including Prudential, threatened to pull out and leave Los Angeles. At issue was the city's tax formula, which the HMOs deemed as unfair, resulting in a new formula that kept the HMOs in Warner Center.
Prudential Healthcare, an insurance company subsidiary, also agreed last year to lease 300,000 square feet of office space downtown for a regional customer service center, which would provide 1,100 new jobs and move about 300 positions from the company's California headquarters at Warner Center. The shifting of the positions to the downtown facility, according to Matthews, created extra space in the company's Warner Center office buildings.
"We really don't need all that space now," Matthews said. "So we decided the best way to really get the right value out of the property was to sell it and lease back what we need."
Matthews said the considerable interest the property has generated so far is due to a number of factors, including its location near the Ventura Freeway, the lushly landscaped property itself, and the rights to add another 500,000 square feet of office space.