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Warner Center Office Towers for Sale

Portfolio of properties could fetch more than $450 million for its institutional owners.

July 31, 2001|BRAD BERTON | SPECIAL TO THE TIMES

One of Southern California's biggest contiguous collections of commercial real estate is on the sales block.

The institutional owners of Warner Center's signature development, the 2.3-million-square-foot Warner Center Properties portfolio in Woodland Hills, have selected Secured Capital Corp. of Los Angeles to find a buyer, industry observers say.

The 50-odd acres, which include the reflective-glass high-rises along Oxnard Street, might fetch well over $450 million, local commercial real estate professionals say. In addition to the six Warner Center Plaza office towers and the adjacent parking structures, the portfolio includes the low-rise Warner Center Business Park to the east.

The move to sell the portfolio comes after one of its two primary owners, Harvard University's endowment fund, spent months trying to sell its minority stake. It also comes as national and regional economies have slowed, reducing demand for office space. Warner Center Plaza also is losing its biggest tenant, health maintenance organization HealthNet Inc., to a new corporate campus nearby.

But the Los Angeles Basin has continued to see lively bidding for well-leased, high-quality office properties in preferred commercial centers. Although Warner Center values haven't returned to their late-1980s peaks, at least two other large office properties in the district are close to being sold.

Investment interest remains strong because supply and demand for commercial space in the western San Fernando Valley remains balanced despite softening demand from tenants, said Kevin Dretzka, managing director at Eastdil Realty in Century City. Dretzka and associates are helping landlords sell two Warner Center office complexes.

Although trophy-type office properties in prime Southland districts will always generate buyer interest, Dretzka said, the number of players able to complete such a large transaction has dwindled. Still, such investors as publicly traded behemoth Equity Office Properties and local institutional advisor Douglas Emmett & Co. are expected to compete for the prime real estate assets.

The portfolio's majority owner is the Alaska Permanent Fund Corp., which is charged with investing that state's oil revenue on behalf of its citizens. Boston-based AEW Capital Management oversees APFC's investment in Warner Center.

Neither AEW Capital nor Secured Capital would comment on the proposed sale. Although the size of the Warner Center Properties portfolio limits the number of viable buyers, many see an opportunity to add to the properties' value by filling space HealthNet is vacating, Dretzka said. More than 300,000 square feet will be available in January after HealthNet moves out of 15 floors of the 20-story Plaza I tower, according to the landlord's Web site. The asking rental rate is $33.60 a square foot annually.

Warner Center pioneer Bob Voit and his local associates developed the portfolio, mostly in partnership with an institutional fund managed by the former Copley Real Estate Advisors (that firm has since merged with AEW). Voit's ventures built the center over about 15 years, finishing Warner Center Plaza III in 1991.

That 25-story tower symbolized the local real estate crash during much of the early-1990s recession. It was perhaps the area's most-visible "see-through" building--its core and shell were finished but no interior offices were occupied for years after its completion.

The tower didn't sign its first tenant until late 1994. It finally achieved 90% occupancy four years later as the economy resurged. Meanwhile, APFC and Harvard took over ownership through a comprehensive recapitalization of the real estate's debt and equity.

Warner Center rents and values have continued to rise with the improving economy, but new construction has been modest compared with the 1980s binge.

Rents in the greater San Fernando Valley have climbed moderately this year, according to brokerage Colliers Seeley. Vacancies may increase as developments are completed, but the relative absence of dot-com failures in the Valley should prevent significant erosion of rental rates, the brokerage said.

Asking rents in the 16-million-square-foot western Valley market now average about $27 a square foot annually. The vacancy rate, including sublease space, is 11.3%. At the beginning of the year, the vacancy rate was slightly lower at 10%, but rents landlords were asking were lower at about $25 a square foot, according to Colliers Seeley.

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