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Commercial Real Estate

Warner Music to Move to Burbank's Pinnacle

July 02, 2002|BRAD BERTON and CHUCK PHILIPS | SPECIAL TO THE TIMES

Warner Music Group has agreed to become the lead tenant at Burbank's newest office complex in one of the biggest leases of the year in Southern California.

The multi-label recording group, whose artists include Madonna and the Hives, will consolidate several offices at the Pinnacle, a six-story development along the Ventura Freeway at West Olive Avenue.

The deal valued at an estimated $120 million is thought to be the biggest office lease in the Southland in 2002 and may hold that distinction through what has so far been a fairly slow year for landlords.

Warner Music is the first large office tenant to agree to move into the first phase of the Pinnacle, just completed by Santa Monica-based M. David Paul Development.

The 17-year lease will fill 195,000 square feet of customized offices--about half of the $80-million complex's leasable space, said Jeff Worthe, a principal of M. David Paul.

Warner Music Group is media giant AOL Time Warner Inc.'s reorganized record division, consisting of Warner Bros. Records, Elektra Entertainment and Atlantic Records.

Warner Music Group Chairman Roger Ames will remain based in AOL Time Warner's New York headquarters. Elektra Entertainment and Atlantic Records also will stay based in New York.

The company's flagship label, Warner Bros. Records, run by industry veteran Tom Whalley, will remain in its well-known headquarters adjacent to the Warner film studio--where it opened its doors nearly 30 years ago. Warner/Chappell, the company's music publishing arm, also will remain in its headquarters on Santa Monica Boulevard in West Los Angeles.

The following Warner companies will relocate to the Pinnacle:

* WEA Corp., the company's manufacturing and distribution arm.

* Warner Strategic Marketing, the company's catalog sector, which includes Rhino.

* Warner Music Latin America.

* West Coast offices of Atlantic Records, home to Kid Rock and Jewel, and Elektra Entertainment, home to Missy Elliot and Metallica.

"The relocation efforts in Burbank will result in substantial cost savings, money that will we will use for what we to best: discovering, nurturing and marketing artists," a Warner Music Group representative said Monday.

NBC Enterprises also agreed to a 12-year lease of 18,000 square feet at the Pinnacle. Restaurants Arnie Morton's Steak House and Prego are committed.

Warner Music is scheduled to begin moving in November, when the restaurants are slated to open. NBC may begin its move a few months earlier.

Brokers Jim Travers and George Katunich of Travers Realty represented Warner in the deal along with Warner Music Vice President Blake Messinger.

Potential tenants for the balance of the space in the first phase are in discussions with the landlord, said Carl Muhlstein of Cushman & Wakefield, Pinnacle's primary leasing agent. Discussions also are underway with tenants for the project's planned 235,000-square-foot second phase.

Muhlstein wouldn't identify prospective tenants, but said that financial services businesses now supplement the Burbank Media District's entertainment roster.

The Pinnacle's developer faces an unusually high level of competition for tenants in and around Burbank. The office vacancy rate there fell to negligible levels during the late 1990s, pushing many potential tenants to North Hollywood and Glendale. Burbank vacancy subsequently rose as demand slowed and office construction surged.

More than 25% of Burbank's 6.54 million square feet of offices are vacant, according to mid-year data from brokerage Insignia/ESG.

Although Pinnacle and other new buildings have continued to supplement the city's inventory, the amount of space occupied by tenants has shrunk by more than 150,000 square feet over the last year, Insignia/ESG said.

Still, Burbank landlords are seeing more leasing activity than neighboring sub-markets are, said office broker Bill Boyd of Grubb & Ellis.

Warner Bros. Records opened on March 19, 1958, above the film studio's machine shop on Warner Boulevard in Burbank. Warner Bros. Records moved into its current headquarters at 3300 Warner Blvd. in 1975.

Shares of AOL Time Warner fell $1.20 Monday to $13.51 on the New York Stock Exchange.

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