Developers Shift to Residential in Warner Center By SHELLY GARCIA Senior Reporter A large office property in Warner Center has been sold to developers who intend to redevelop a portion of the parcel for residential use. Morgan Group Inc., a Houston-based company that specializes in multifamily development, acquired the 11-acre parcel at 6200 and 6250 Canoga Ave. in mid-December from Trizec Properties Inc. Morgan last year acquired an adjacent property at 6150 Canoga Ave., the former site of an office complex, and is now under construction with about 130 apartment units on that parcel. The move is the latest in a growing number of efforts to convert commercial real estate into apartments and a further sign of the dramatic erosion that has taken place in the office real estate market. As office vacancy rates have risen and leasing activity has come to a standstill, buyers have grown reluctant to pay top dollar for office properties because it could take years before those purchases yield returns. Meanwhile, demand for apartments continues to escalate. “People are paying a premium for office buildings with the whole intent of converting them to residential,” said Gary E. Mozer, CEO at George Smith Partners Inc., a real estate financing and consulting firm that has worked on several such deals. “Right now, the highest and best use in these dense urban areas is residential.” Earlier this year, Archstone Communities in Irvine began seeking permits to construct 522 apartment units on the site of Ray-Art Studios, the Canoga Park sound stages. Other companies, including Westfield America, are also said to be considering residential projects in Warner Center where, for years, most of the development emphasis centered on commercial uses. “First and foremost, there’s a very high demand for housing,” said Brad Rosenheim, principal of Rosenheim & Associates, a Warner Center lobbying and real estate consulting company. “In Warner Center specifically, when the specific plan was developed, part of the goal was to encourage more residential units, and there were incentives created to allow for that.” Along with the increased demand, financing has become more readily available for residential projects. In Warner Center in particular, fees and other costs associated with commercial development are not imposed on residential developers. Morgan paid nearly $33.3 million for its most recent purchase, which includes two office buildings, one with 104,000 square feet and one with 120,000 square feet of office space. The company was among some 20 bidders for the site, which was put on the market without a listing price. Onlookers say the sum paid was out of reach for office developers given current market conditions. “They paid a huge number,” said Kevin Read, vice president of acquisitions at Lennar Partners, which is developing LNR Warner Center. “It’s too high for office (property). Rental rates right now just don’t justify it.” Vacancies in the office sector hover around 20 percent in the West Valley, while apartment vacancies have remained under 5 percent. Very little new apartment stock has come on the market in most San Fernando Valley communities in recent years. At the same time, rising home prices have kept residents in apartments for longer periods of time. “If you look at it, most of the apartments are 15 to 20 years old,” said Louis Kuntz, regional partner with Morgan. “Right now, I don’t see supply catching up with demand. I think there’s more people that want housing than is provided right now.” Morgan plans to demolish the larger of the two office buildings, currently occupied by a 20th Century Fox division, among other firms, and erect about 500 ultra-luxurious apartment units. The developer targets what it calls “renters by choice,” those who can afford homes but opt for the convenience of rentals instead. The complex, which will be called Plaza at Warner Center, will feature such amenities as nine-foot ceilings, oversized kitchens and baths, wood floors and crown molding. Typically, the apartments also have full-size appliances, including washers and dryers, microwaves and upgraded cabinetry along with community amenities like movie theaters, state-of-the-art fitness centers, game rooms, pools and spas. The company is also considering some units designed for sole practitioners like attorneys or accountants, which would have office space on the ground level with a residence above. “We really look at these apartments as a convenience animal,” said Kuntz. “People won’t drive long distances to rent. We try to develop apartments around business communities. We want to be close to jobs.”
