For developer Mark Scheu, opening day has finally arrived. Fourteen years after scooping up 84 acres on the slopes of Ladyface Mountain in Agoura Hills, Scheu put 19 commercial condos on the block October 6. The public unveiling included a martini luge, wine tasting and a Marilyn Monroe impersonator. But the economic recovery is faltering and the party is over. Now Scheu faces significant challenges. The commercial condo market, real estate observers say, is anemic at best. “I think he’ll end up leasing some,” said Michael Tingus, president of Lee & Associates–LA North/Ventura Inc. “There is not enough demand to sell off all the office condos.” The commercial condo market, he said, is “just God awful.” Filling office condos has been tough, because many small companies are hamstrung by various constraints, including long-term leases, said Jeffrey Gould, a senior associate with Colliers International. “A lot of smaller companies are afraid of taking on more debt, so they move a lot slower than your typical real estate investor,” he said. While the commercial condo project may be a risky bet, in local real estate circles Scheu is considered a well-respected developer known as much for his market calls as his wealth. Standing in the shadow of a two-story, earth-tone building on a recent afternoon, Scheu said he’s convinced buyers are out there for his condos. The striking views of the chaparral-strewn Santa Monica Mountains or the Conejo Valley will lure them into the space, Scheu said. Why buy an office condo? After-tax benefits, current low rates for SBA financing and low property values, make now a ripe time to buy, Scheu said. But some businesses should be wary of a purchase, because it would zap needed flexibility to expand or contract as needed. Because of that, Scheu says the units are ideal for businesses willing to ink at least a five-year lease. “If they are an expanding or contracting company, this isn’t for them.” The condos, which range from 1,174 square feet to 3,469 square feet and can be combined, are designed for businesses with 16 or fewer employees, he said. Prices for single units will range from $400,000 up to $2.4 million. Likely clients include accounting firms, medical companies or other professionals. For these kinds of businesses, he said, the opportunity to build equity instead of paying rent is an attractive one — especially because once the economy recovers rents will rise. “It’s a huge plus to purchase. It’s really a no brainer,” said Scheu, a Thousand Oaks resident. The development, known as The Ridge, comprises two buildings totaling more than 72,000 square feet. One building, which has 19 units, is currently for sale. The second, which has 21 units, is scheduled to open for business as early as next month. Scheu donated 60 acres of his original purchase to the Santa Monica Mountains Conservancy. When finally completed in the coming months, Scheu said the development will be worth $30 million. According to the Los Angeles County Assessor, the property was worth $5.7 million in January — well before it reached completion. The city of Agoura Hills hopes the project is fully sold and the new building can bring in new firms while upping the clientele for nearby businesses, said Mike Kamino, the city’s planning and community development director. But that could be tough in a sputtering commercial real estate market. While now is a good time to buy, the buyers just aren’t there, said Coldwell Banker broker Lori Lynn Pecikonis, who is selling office condos at another Agoura Hills project. “There are just not a lot of interested buyers out there — period,” she said. One plus in Scheu’s favor, said Jared Smits, a vice president with NAI Capital Inc., is healthy demand for small, stand-alone, owner-user office buildings and a lack of supply in the heart of the Conejo Valley. “It’s just, do they want condos, or do they want to find a needle in a haystack and see if a free standing building comes up?” said Smits, who specializes in office sales and leases in the West San Fernando Valley and the Conejo Valley. Making the leap While Scheu has put his weight behind the office condo concept, lenders and other industry experts attended the kick-off event to answer hesitant business leaders’ questions, it wasn’t always that way. That decision, Scheu said, came in 2007 right before the recession hit. A smaller office condo project in Westlake Village gave the real estate scion confidence an office condo market existed in the affluent Conejo Valley, he said. Selling the space, he added, allows his company to diversify its portfolio. Since forming the Scheu Development Company, Scheu has developed and currently manages about 250,000 square feet of office and industrial space, he said. In 2009, Scheu finished Simi Valley Corporate Point — a three story, roughly 64,000-square-foot building in Simi Valley. Brian Gabler, Simi Valley’s director of economic development, said the Class-A building is “a beautiful project” and one of the highest-end spaces in the community. But the project is still only about 50 percent leased, although negotiations are underway for much of the vacancies, Scheu said. “The timing may have been off in terms of where the economy was,” Gabler said. “But they have done a good job in filling up space within the building.” Scheu Development, which is held by the Scheu family, is just one aspect of an empire that began with Mark Scheu’s great grandfather more than 100 years ago. Today, the family’s enterprises — known as the Scheu Companies — manage roughly 750,000 square feet of office, industrial and retail space throughout California and are also active in manufacturing, farming and ranching. “He is definitely a name you hear around town as knowing the market and being successful in the marketplace,” Smits said. A history Scheu purchased the land that now is home to The Ridge in 1997 from a local church. Long ago, it was home to cattle and horses for grazing. The Chumash Indians even once called the project area home. Coyotes and deer still meander along the hillside abutting the property. A common joke during construction, Scheu said, was the project took so long because “the crews were stopping and looking at the hills.” Given the sensitive location at the foot of iconic Ladyface Mountain, which rises above Agoura Hills, the project was tied up for years with the city and redesigned several times. Scheu broke ground on the project in 2008 —11 years after he purchased the land, which was assessed by the Los Angeles County Assessor at $600,000 in 1998. Kamino said Scheu was quick to respond to the city’s requests and was understanding of the sensitive nature of development on Ladyface Mountain — a “landmark for the city.” In the 1990s, Agoura Hills passed the Ladyface specific plan, which placed restrictions on development, including barring building above 1,100 feet. Scheu met that requirement and was able to create a project that visually blended into the slopes of Ladyface Mountain, Kamino said. Although selling prices will be lower than first planned in 2007, Scheu said the office condo market in the Conejo Valley was only just tapped before the recession hit. Interest from CPA’s, doctors and lawyers has been high so far, said executive vice president Michael Foxworthy of Daum Commercial Real Estate Services, the brokerage handling the sales. And Jeff Albee, a senior vice president with Colliers International, said the commercial condo market is about to turn, although he hasn’t sold any office condos this year. Low prices and SBA rates will spike demand, he predicts. Asked if he’ll turn a profit, Scheu paused. “Time will tell,” he said, standing on the second floor of one of his nearly finished buildings. Scheu then quickly pivoted, ensuring a profit will be made.
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