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COMMERCIAL REAL ESTATE

Tinseltown Properties Again Cast in Attractive Spotlight

September 08, 1998|BRAD BERTON | SPECIAL TO THE TIMES

Providing further evidence that real estate investors are betting on a Hollywood comeback, Kennedy-Wilson Inc. is buying two of the long-decayed district's biggest office buildings, and an unidentified institution is buying the well-known CNN tower.

Kennedy-Wilson last week bought the 12-story building at 7080 Hollywood Blvd. for about $18 million and will pump another $2 million into improvements, said Bill McMorrow, chief executive of the Santa Monica-based company. This week, Kennedy-Wilson expects to close its purchase of Hollywood's biggest office tower, 22-story 6255 Sunset Blvd., for $31 million. It will complete the building's ongoing renovation with additional investments totaling about $4 million.

And the office many consider Hollywood's most prestigious--the 15-story CNN building at 6430 Sunset Blvd.--is being acquired by a domestic institutional investor for a price market sources estimate at around $25 million.

Local real estate professionals attributed the investments to much-improved tenant demand--including companies returning to relatively affordable Hollywood after leaving for more upscale locations that were undervalued during the early-1990s recession--as well as general revitalization that includes new real estate developments and the opening of the Metro Rail subway next year.

"The area from the [Sunset] Strip in West Hollywood all the way over to Vine Street is seeing a major resurgence, and you can still buy [office buildings] there for well below their replacement cost--similar to what's happening in downtown L.A.," McMorrow said.

"There's so much activity there right now, the entertainment industry is still going strong and people are looking for reasons to go back to Hollywood," he said.

"After 15 years of broken promises, Hollywood is finally revitalizing," added real estate broker Dave Doupe of Greenwich Group International, which is handling the sale of the CNN building on behalf of the partnership that has owned the property for many years. Doupe declined to identify the buyer or confirm the estimated price but noted that the property should formally trade hands in November.

Hollywood office buildings are selling for substantially less than it would cost to build them today, which means it will be some time before rent levels rise enough to justify new office development, according to Doupe and other real estate professionals. One exception on Hollywood's eastern flank, however, is Santa Monica-based M. David Paul Development's plan for 12 acres the firm is buying from KTLA-TV owner Tribune Co. KTLA and other Tribune operations are set to occupy part of a 200,000-square-foot building the Paul group expects to build next year.

Investors are encouraged because rents within the district's few "Class A" properties have risen sharply during the last 18 months and should continue rising during the next 18 months, Doupe said. And the trend is boosting property values.

A primary factor behind the rising demand for Hollywood offices is the dramatic rise in rents on the more costly Westside and Burbank vicinity, which is motivating entertainment-related tenants to turn to Hollywood where rents can be 30% to 50% lower. Doupe also cited two large projects as driving interest in Tinseltown: TrizecHahn Centers' $385-million retail and entertainment project (including a permanent venue for the Oscars) at Hollywood Boulevard and Highland Avenue, and Pacific Theatres' renovation and expansion of the Cinerama Dome on Sunset Boulevard. Beverly Hills-based Regent Properties also plans an entertainment-oriented retail center at the high-profile intersection of Sunset and Vine Street.

And along the Sunset Strip in West Hollywood, Indianapolis developer Mark Siffin is pursuing a $200-million project, which would include 400 hotel rooms, a 10-screen theater and 200,000 square feet of high-end shops and restaurants surrounding the landmark office tower formerly occupied by Playboy Enterprises.

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