Investors are paying a premium to gain a foothold in Burbank and North Hollywood, a prime office market for media and entertainment tenants. Recent deals demonstrate the region’s mix of amenities, new housing and infrastructure to attract employers and in turn, investors. In June, Walton Street Capital, a private equity firm in Chicago, sold the Burbank Empire Center at 2300 W. Empire Ave. for $133 million – a gain of nearly 196 percent on the price it paid six years ago to buy it. And in May, Beverly Hills real estate investment firm Kennedy-Wilson Holdings Inc. sold 5161 Lankershim Blvd. in North Hollywood for nearly 54 percent more than what it paid four years ago. Kennedy-Wilson also traded North Hollywood’s Academy Tower at 5200 Lankershim Blvd. last fall for a 28 percent increase over what it paid four years ago. According to real estate brokers, it’s all about the tenants. If more office markets bordering Los Angeles had similar densities, their vacancy rates might be lower. “Institutional investors are focused on areas where they see the most demand from the growth industries,” said Mike Longo, who handles institutional properties for CBRE Group Inc. “And those growth industries in L.A. have been more tech and media-related, and centered around ex-urban and suburban markets.” Upside deal In 2011, when Walton Street Capital bought the Burbank Empire Center, it was a bad time for office properties. The amount of vacant office space was near all-time highs, and the two-year-old Empire Center had no tenants yet, and therefore no offices, in its empty 350,000 square feet, Longo explained. Walton Street got it for $45 million, or just under $129 a square foot, but had to spend a lot of money to build out all the offices and lease up the property. “It’s a very reasonable number that they paid for it given other costs,” Longo said. “And the building they’re selling is much more occupied to a bunch of media companies.” Movie production accounting firm Cast & Crew Entertainment Services first leased space there in 2011 and has grown to become the building’s majority tenant. It just signed another 20,000 square feet earlier this year to occupy nearly 90,300 square feet. Other media tenants include Modern VideoFilm and post-production studio Point.360. Ira Schulman, managing principal of Walton Street Capital, said the firm does not comment on specific sales, but he noted “the entire L.A. office market has improved greatly.” The Empire Center’s new owner, New York Life Real Estate Investors in San Francisco, the real estate arm of a subsidiary of New York Life Insurance Co., paid more than $133 million, or about $380 a square foot. When asked about the price gain, Chris Hunt, a senior director New York Life, said the price was substantially less that what it would cost now to build the property. It’s also well-located in Burbank’s Media North submarket with restaurants and retail within walking distance for companies in the building, he added. New York Life plans to upgrade the lobby and add outdoor sitting areas, according to Hunt. The Empire Center is the firm’s only property in Burbank – for now. “L.A. metro is a market where we are actively looking for properties – and the concentration of the entertainment industry in Burbank, and resulting tenant demand, makes that a continued area of interest within the metro,” Hunt said. While high, the price per square foot for Empire Center was eclipsed in January on a deal Longo helped negotiate. Buena Vista Plaza at 2411 W. Olive Ave. changed hands for $52.5 million, or about $445 a square foot, to Menlo Equities of Newport Beach. Walt Disney Co. is the majority tenant with more than 110,000 square feet of the 118,000-square-foot Class A property, which is also in Burbank’s Media District. “That was really reflective of Disney’s long-term commitment,” said Longo, who represented Menlo. Still higher on a price per square foot basis was 2210 W. Olive Ave. in Burbank, a 20,200-square-foot Class B office building built in 1992 that sold for about $453 a square foot last month to the International Alliance of Theatrical Stage Employees. North of Hollywood North Hollywood, Burbank’s neighbor to the west, has attracted investors who’ve paid square-foot prices similar to Burbank deals. Beacon Capital Partners of Boston paid $69 million, or almost $350 a square foot, in May for a 197,000-square-foot office property at 5161 Lankershim Blvd. The Class A building was 87 percent leased at the time of the sale, according to CoStar Group Inc. Kennedy-Wilson sold it with a nearly 54 percent gain over what it paid in 2013 for the property. Longo, with Sean Sullivan and Todd Tydlaska of CBRE, negotiated the deal on behalf of both parties. He said Kennedy-Wilson improved the building after buying it, and was able to successfully target media companies such as Endemol Shine North America, a division of the international Endemol Shine Group. The production company behind such shows as “MasterChef” and “The Biggest Loser” has a lot of young employees, and management was attracted to the up-and-coming nature of NoHo with new apartments, bars, restaurants, retail public transportation and cheaper apartment rents than Hollywood. “They (Kennedy-Wilson) were able to generate demand. Their renovations of these projects proved that if you deliver high-end space, these tenants will move out here,” Longo said.
