Following a yearlong search that threatened to remove one of the area’s largest employers and taxpayers from Los Angeles, Health Net has settled on a new home in Warner Center. The HMO has inked a build-to-suit deal for about 288,000 square feet of office space at LNR Warner Center, the former Prudential Insurance of America office complex now being redeveloped by Lennar Partners. The deal, the first for Lennar’s project (Aetna Healthcare is expected to complete lease negotiations shortly), keeps Health Net in an area that has garnered the nickname “HMO Row” because of the concentration of health care companies located there. The deal also retains for the city of Los Angeles a prestigious employer with a workforce of about 2,000. “The fact that they have turned away from other locations that have attempted to lure them says a great deal for the benefits and amenities of Warner Center,” said Laura Chick, Los Angeles City Councilwoman for the Woodland Hills district. “We’re in an era where, sadly, we’ve seen a lot of our corporate tenants leaving Los Angeles and here’s an example of a very important one saying, ‘I’m staying.'” Health Net, which has been housed in about 300,000 square feet of space at the Warner Center Plaza I high-rise for the past 15 years, had considered moving to Burbank or the Conejo Valley before selecting the Lennar site. The HMO had explored leaving Los Angeles in part because, like the rest of the health care industry based here, it pays millions more in annual business taxes than it would if located in cities like Burbank or Thousand Oaks. Once utility and business taxes are taken into account, HMOs in Los Angeles can pay up to $18 more per square foot for 250,000 square feet of offices than they would in those other cities, according to estimates by real estate consulting firm Kosmont & Associates. But the move from the Warner Center high-rise to Lennar’s 35-acre, low-rise office complex also allows Health Net to meet its needs with less square footage. Because of the large floor plates in campus-style buildings, “you can make much more efficient use of space,” said Lisa Kalustian, a spokeswoman for Health Net, who confirmed the company’s deal with Lennar. Health Net expects to move to its new offices in phases, beginning in the last quarter of 2001. Lennar earlier this year broke ground on the first of about 10 buildings it plans to erect on the site. The two buildings in phase one are each planned to contain about 178,000 square feet of space. The Health Net deal will lock up about 80 percent of that space, and it has encouraged Lennar to move up the timetable for the next phase of the development. “We’re getting going on the retail portion as soon as possible,” said Kevin Read, vice president of acquisitions for Lennar, of the 10,000-square-foot retail component including food services designed to serve the office tenants. In addition, Read said the company is now planning to demolish one of the existing buildings in preparation for the second phase of construction about 12 months sooner than was first anticipated. Chick believes the decision by Health Net to stay in Warner Center could pump up demand in the area, provided Warner Center can establish a competitive edge, particularly over neighboring communities to the west. Envisioned more than three decades ago as a business hub for the West Valley, Warner Center has also operated with restrictions such as so-called “trip fees” developers must pay on the additional traffic their projects generate. Those disincentives have served to curtail growth and make the area less attractive to developers, she said. “All of those things make it difficult for property owners to attract tenants or to get someone to come in to develop,” Chick said. “I’m hard at work to revisit the Warner Center specific plan and look at ways to further encourage commercial development to locate there. Some of the things we’re looking at is, how do we deal with mitigating traffic impacts without making parking restrictions or trip fees so onerous that developers or tenants choose to go elsewhere.” Others are not quite as certain that the Health Net decision will spearhead a renaissance of interest in the area. “It’s just less space on the market, but I don’t think it’s a huge stamp of approval,” said Tom Specker, a broker with Charles Dunn Co. Inc. who handles office space in the area. “Does it mean that more people will come here? Probably not.” At the very least, however, the Health Net decision vindicates what some thought was a risky gamble by Lennar when it acquired the office complex in 1998 and announced plans to build an additional 1.5 million square feet of office space on the site. Another developer, Katell Properties, pulled out of a plan to develop about 700,000 square feet of speculative office space in Woodland Hills after an unsuccessful attempt to attract tenants. Others wondered whether newly developed projects in West Hills, as well as in Calabasas and Westlake Village, would dampen the market for office space in the older Woodland Hills neighborhood. With office vacancy rates in the West Valley at slightly more than 10 percent, officials at Warner Center Properties, which manages the high-rise that Health Net is vacating, are not worried about filling that space either. With space in the area so tight, Warner Center Properties has had difficulty accommodating current tenants who want to expand. The Health Net decision effectively makes one entire building available to help retain tenants that previously may have had little choice but to relocate. “We made an attempt to keep (Health Net), and we’re sorry to see them go,” said Donald W. Hudson Jr., senior vice president and director of leasing. “But this market is so hot. We’re already working on (contracts to fill) about 200,000 square feet.”
