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Offices at the top are going empty

Penthouse floors are vacant in some of the best office buildings in Los Angeles County, a sign of the troubled economic times and the gulf between asking prices and what tenants are willing to pay.

July 18, 2010|By Roger Vincent, Los Angeles Times

The chief executives at Atlantic Richfield Co., the oil company once based in Los Angeles, ran their international empire from some of the most regal corporate offices ever created in Southern California.

With Arco's 20-foot ceilings, dark wood paneling and private rooftop helipad, "this was corporate America as people thought of it," said Kent Handleman of Thomas Properties Group Inc., the building's landlord.

That was then. Nowadays, the landlord can't find a renter for the space's 1970s-era sumptuousness.

There are also plenty of other catbird seats for choosy chief executives to pick from. Penthouse office floors with drop-dead views are vacant in some of the best office buildings in Los Angeles County, a sign of the troubled economic times and the gulf between what landlords think their top-shelf product is worth and what tenants are willing to pay.

Some of these standoffs between prospective landlords and would-be tenants have been going on for years, with no sign of abating. In the most extreme case, the top two floors of a premier Westwood high-rise have been empty since the building was completed in 1989.

A survey by real estate brokerage Jones Lang LaSalle found a score of tall buildings downtown and on the Westside where the penthouses are vacant. In several of these buildings, the floors just below are also empty.

For instance, the two uppermost (23rd and 24th) floors of a high-rise at 10960 Wilshire Blvd. last occupied by Sony Entertainment are connected by a grand curved staircase, said real estate broker Hunt Barnett, who is trying to find tenants for the space. If you rent all 50,000 square feet, the landlord will even put the name of your company in big letters on top of the building.

The space is not ostentatious, Barnett says, but it has been empty for a year and a half. The landlord wants $3.95 a square foot per month for the top floors, compared with $2.95 for space on lower levels.

At Center West, the Westwood high-rise completed in 1989, landlord Kambiz Hekmat wants $6.50 a square foot for the 23rd and 24th floors, 35% more than the rent for the floors below, according to real estate data provider CoStar Group Inc. So far he's had no takers.

Owners expect their loftiest offices to fetch premium prices because the views are great and, after all, who doesn't want to be top dog? Penthouse-level executives interviewed by The Times in the 1980s explained that it was important to keep up appearances.

"People expect the top person to have the top office," said Joseph J. Pinola, then-chairman and chief executive of First Interstate Bancorp, who had the highest perch in the city — 59 floors up — during the '80s. "It's protocol."

Pinola divulged that he, of course, was too busy to look out the window. When a new skyscraper 13 stories higher went up nearby in 1989, however, Pinola moved his headquarters and snagged the penthouse at what became First Interstate World Center, retaining his celestial bragging rights. (Real estate investment firm CommonWealth Partners rents the top floor of offices today in the 72-story skyscraper now known as U.S. Bank Tower.)

A real estate broker at the time speculated that skyscrapers reflected a primal militaristic impulse.

"It's important to build your victorious camp on the top of the hill," the broker said. "Being up high is an extension of men wanting to be big and strong and over 6 feet tall."

Like the three-piece suit and other signs of corporate power from the Reagan era, the giant imposing office has gone out of style. Companies' priorities have changed since those years, said Whitley Collins, regional manager of Jones Lang LaSalle.

Setting up shop in the penthouse is "a bad statement for companies to make" in this ailing economy, Collins said. "The last thing you want to do is go over the top on your space. You want to appear fiscally responsible."

Collins predicted that most of the penthouse offices empty now will still be empty in a year or two.

"If the economy takes off, maybe someone will reach for a top floor," he said. "But it's not going to happen unless they get a discount."

But landlords, who have been quite willing to bargain lately on most of their empty space, seem determined to wait for tenants who will pay full freight to be on top. Thomas Properties is in no rush to rent the old Arco space or the former Bank of America Corp. executive offices on the top floor of the matching tower next door, empty since 2004.

On the top floor of what was then the best skyscraper in the city, Arco bosses set themselves up in palatial quarters that still command awe more than a decade after the company was purchased by British Petroleum, known these days as BP, and cleared out.

There are only seven offices on the 51st floor of what is now the City National Tower on Flower Street, each with its own marble bathroom and shower. Law firms on lower floors easily fit 50 offices for attorneys in the same amount of space.

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