One of Burbank's signature high-rises, the 32-story Tower, is being sold by its Japanese owners for almost $100 million to a real estate investment fund managed by Boston-based Beacon Capital Partners.
Beacon is buying the Tower from Tochikogyo USA Inc., an affiliate of Japanese real estate and construction giant Kumagai Gumi Co. Escrow is scheduled to close this week. Walt Disney Co. is the main tenant in the Tower, one of the tallest concrete-framed high-rises in the West.
A Kumagai Gumi subsidiary developed the building at 3900 W. Alameda Ave. in 1989 in a venture overseen by local real estate entrepreneurs Stephen Geiger and Dee Christiansen. Saudi arms dealer Adnan Khashoggi was the key financial partner in the $85-million development before the Japanese took over.
The transaction represents the last investment for the Beacon Capital Strategic Partners I fund, said Jeremy Fletcher, chief executive of Beacon Capital's Western region. The company's next fund, Beacon Capital Strategic Partners II, will spend $500 million or more to buy office properties in select markets, including California.
"Southern California office markets have actually been holding up pretty well." Fletcher said. "We've been able to pull the trigger consistently and still purchase properties for less than replacement cost."
The Tower's price factors to $215 a square foot. Fletcher estimated it would cost $275 to $300 a square foot to replicate the building today. Peter Spies of the Lazard investment banking group brokered the transaction with Fletcher and Beacon's acquisitions chief, Wistar Wood. MetLife provided more than $60million in mortgage financing.
Disney leases 93% of the Tower's 465,000 square feet of office space in an agreement that runs for six more years and includes renewal options. The Tower's tenant roster also includes Morgan Stanley Dean Witter and Charles Schwab & Co. One floor is vacant.
Considering the Media District's popularity with the entertainment industry and Disney's recent lease renewal, Beacon negotiated "a great price," said Bill Boyd, a senior vice president at brokerage Grubb & Ellis Co.
The building's rental income is especially important because demand for Burbank offices has been sluggish and new competing developments are nearing completion. For instance, M. David Paul Development's 425,000-square-foot Pinnacle will open soon across the Ventura Freeway from the Tower but hasn't formally signed a tenant. Nor have some other new buildings in Burbank's downtown and airport districts.
Vacancy in the 4-million-square-foot Burbank office market has nearly doubled to 13.7% over the last year, and an additional 1.13million square feet of buildings are under construction, according to Grubb & Ellis. Asking rents at top-quality buildings average about $31.50 a square foot annually, unchanged from the rate a year ago.