Suburban Jewel

In a part of the San Fernando Valley not known for office campuses — or even office vacancies — one investment group has made the purchase of a rare office park. Harbor Associates has acquired Encino Office Park, the longtime Moss Group-owned, four-building, 213,459-square-foot, transit-oriented campus in Encino, for $47.9 million. “The project was brought to the market after Labor Day weekend in 2018,” Harbor Principal Paul Miszkowicz told the Business Journal. “We started zeroing in on the opportunity in November and December before putting the project under contract in January. The transaction itself was pretty straight forward.” CBRE Inc. brokers Anthony Delorenzo, Mark Shaffer, Todd Tydlaska and Mike Longo represented the seller. Shaun Moothart, Bruce Francis, Dana Summers and Katie Diaz of CBRE arranged the financing through PNC Bank for the Long Beach-headquartered buyer. “From our perspective, this is an excellent value-add opportunity for Harbor Associates,” said CBRE First Vice President Shaffer. “It’s interesting to see this property trade for the first time since it was built from the hands of one of the more prolific office developers in the North Los Angeles office market to one of the most active buyers of suburban office in the same region.” Located at 6345 Balboa Blvd. and adjacent to the Metro’s Orange Line Balboa Boulevard station, the office campus was 89 percent leased when the sale closed. According to CoStar Group, the campus’ current tenants include accounting firms Singer Burke Zimmer, Tax Defense Partners and Diane Ruben CPA; insurance agencies Kramer-Wilson Co. Inc. and FMS Financial Partners Inc.; Spek & Tek Engineering Group; and Adelpha Psychiatric Group. Miszkowicz said Harbor has seen strong tenant demand for differentiated and well-appointed office space, particularly from tenants looking for 1,000 to 8,000 square feet. “The market fundamentals are feeling pretty good,” Miszkowicz said. “Harbor’s portfolio has a tenant base which ranges from Fortune 500 companies to sole proprietors.” He added that Harbor intends to address demand in this space and execute a multi-tenant lease-up strategy. ‘New life’ While not involved in this transaction, Todd Nathanson, president of Illi Commercial Real Estate, told the Business Journal that he has been tracking both this transaction and the overall Encino submarket lately. “Currently, the inventory of office property available for sale in Encino is almost nil,” said Nathanson, whose brokerage is also based in the submarket. “Prices are higher and so is demand. Comparable office product is trading at roughly mid to upper $200s per square foot prices with perhaps a little softening in the near future.” Offering some more context, Nathanson said, “Moss sold their other Encino office property at the corner of Burbank and Balboa earlier this year for approximately $11 million for a building that was a little larger than 43,000 square feet.” That transaction works out to about $256 a square foot Buildings at Encino Office Park feature 12-foot slab-to-slab ceiling heights. There is also subterranean parking and unobstructed views of the Santa Monica Mountains.   Harbor plans to renovate the property, which was built in two phases between 1988 and 1990. The plan right now is to add project lobbies, electric vehicle charging stations and bike rooms, LED site lighting, improvements to the corridors and restrooms, and a new entry. The vacant office inventory will be repositioned as modern spec suites and feature a high-impact reception area, flooring upgrades, glass conference rooms, new paint and carpet and the implementation of energy efficient LED lighting to replace existing florescent lighting fixtures. “We are excited about the opportunity to breathe new life into the project, work with best in class third-party property management and leasing teams and reintroduce the renovated project to the tenant and brokerage communities,” Harbor Vice President Brad Johnson said in a statement. “Our focus is on meeting our tenant’s real estate objectives and delivering efficient solutions.” Miszkowicz added that the office park should attract tenant stability and less volatility than 21st-century-founded companies. “We like that Encino isn’t over-concentrated to a specific industry or a specific tenant and we view the tenant industries in Encino as lower beta relative to the ups and downs of say the technology industry in West L.A.,” he said. “We see the project catering to the in-place demand drivers in the marketplace versus trying to bring new or other types of groups into the area.” North L.A. opportunities One of the most active investors in the North Los Angeles submarkets, Harbor has acquired projects in Thousand Oaks, Toluca Lake, Glendale and Valencia. “We see great relative value in North L.A. versus the other side of the mountain,” Miszkowicz said. He believes the North L.A. region is attractive because “we see a disconnect between the healthy market fundamentals and the investment goals of institutional capital, which we believe creates a compelling buying opportunity,” he said. With the purchase of Encino Office Park, Harbor reaches nearly 1 million square feet in its office portfolio. The firm has a goal of acquiring more than $250 million in suburban Southern California commercial real estate assets in the next year. “Encino Office Park represents our 21st office acquisition in the last four years as a firm and expands our Southern California office portfolio,” Harbor Principal Justin Loiacono said in a statement.  “We have a robust pipeline of activity behind this transaction and look forward to continuing to build our Southern California portfolio.” According to Harbor’s principals, the Valley represents a highly underrated real estate marketplace. “Lots of articles are written about the fundraising efforts of major institutional real estate players and the amount of dry powder groups are sitting on, but in our experience that capital is largely concentrated in West L.A., the Tri-Cities and downtown L.A. and we think North L.A. is under-appreciated by institutional real estate players,” Miszkowicz said. Good deal Ultimately, industry observers such as CBRE’s Shaffer and Illi’s Nathanson believe Miszkowicz and Loiacono have made a good move in pursuing the site. “This project was well conceived by the original developer and has great bones,” Shaffer said. “(Encino Office Park) is a well-built property that for years seemed to be located just outside the desired radius of similar office properties located on Ventura Boulevard about 1.5 miles to the south,” Nathanson added. “With only Birmingham High School across the street to the north and Balboa Park adjacent to the south, better lease deals and the watchful eye of on-site property management kept occupancy rates higher at this property.” Nathanson added that Harbor’s latest acquisition appears well-poised to take advantage of transit access features. “The future of this building and location looks bright, mainly as the adjacent current 9-mile Orange Line bus service becomes a light rail system connecting the West Valley to the east and beyond with a transfer to the subway,” he said. “Lease rates and better-quality tenants should be able to be had as the transportation line adjacent continues to take shape.” Beyond the Valley Beyond the San Fernando Valley, Miszkowicz said his company has found other pockets of northern Los Angeles ripe for repositioning. “We acquired a two-building project in February 2018 in the Santa Clarita Valley, the project is called Commons at Valencia,” he said. “In Ventura (County), we own two projects that both have two buildings. One project is called Conejo Corporate Center and the other asset is called Think Here, both in the Newbury Park area of Thousand Oaks.” Conejo Corporate Center, which Harbor acquired in February 2018, resurfaced in the news earlier this month after CBRE Group closed two leases — with longtime major Conejo Valley tenants Sage Publishing and Atara Biotherapeutics — totaling nearly 100,000 square feet. Harbor will actively look for additional acquisition opportunities in the San Fernando, Santa Clarita and San Gabriel valleys as well as in the Ventura County markets “in order to hit our internal acquisition goal of $250 million in office product in 2019,” Miszkowicz said.