Disney

The office vacancy rate in Glendale is topping 16 percent and speculative development has all but vanished. So why is Walt Disney Co. undertaking a 125-acre redevelopment project on the southwestern edge of the city? The answer has as much to do with the dynamics of the Glendale real estate market as it does with Disney’s needs for the future. While there is room to spare in many traditional Glendale office buildings, tenants are scouring the area for locations that can be converted into the kinds of industrial-tech work spaces with exposed ceilings and beams and brick and steel architectural details that have become the signature of new-media and entertainment companies. Disney’s aim for redeveloping the site known as Grand Central Business Centre is, first and foremost, about controlling its own real estate facilities. But the company is likely to have no difficulty leasing out a portion of that redeveloped space to third-party tenants. “The bottom line is, it’s a very different product type and it’s a product type that’s sorely needed in the area,” said Paul W. Stockwell, corporate managing director of commercial real estate brokerage firm Julien J. Studley Inc. On Sept. 1, Disney announced plans to redevelop the business park, which it has occupied since 1961, as the headquarters for its Walt Disney Imagineering division, the unit that designs and develops entertainment, hotels and resorts, retail ventures and theme parks. Disney purchased most of the property which is bordered by Sonora Avenue, the Los Angeles River, Flower Street and Air Way three years ago. It now employs some 3,000 workers on the campus. Disney officials describe plans for the site, which will be renamed Grand Central Creative Campus, or GC3, as being in the “high-level concept” stage because no specifics have been drawn up as yet. The concept in its current form calls for as many as 40 new low-rise buildings with sound stage and production facilities. “One of the primary notions is, we’d like to control real estate costs and, of course, increase planning flexibility,” said Ed Chuchla, director of development at Disney. “Along with that comes operational efficiencies and creative synergies.” Unlike the other major Hollywood studios, which each own and operate about 30 sound stages in the L.A. area, Disney owns only a handful. To accommodate its production needs, Disney rents out sound stages on a project-by-project basis. The Grand Central Creative Campus will further expand Disney’s already sprawling presence in the East San Fernando Valley. It occupies some 3 million square feet of space spread out from its studio headquarters in Burbank to as far east as North Hollywood’s Academy building. Like many entertainment companies that were expanding rapidly through much of the ’90s, Disney aggressively snatched up space to accommodate its growth, and much of that space was leased in traditional high-rises. But with entertainment companies competing fiercely to attract and retain the most talented workers, having hip-looking workspaces (rather than traditional, staid high-rise offices) takes on increasing importance. Though Disney officials declined to specify which operations now housed in leased high-rise space might be relocated to GC3, several Tri-Cities-area brokers said the campus gives Disney an opportunity to transition out of much of its high-rise space. “The Glendale marketplace is primarily a vertical environment, and the entertainment users that are there ended up (in high-rises) in spite of the product type,” said Mark Sullivan, executive managing director at Julien J. Studley. “They ended up there because, before they made it to Glendale, they leased every other space that was appropriate for them along the way. If you were to ask any one of those users if they would exchange that for a low-rise campus, they’d do it in a heartbeat.” Indeed, while much space in Glendale goes wanting, low-rise offices are being snapped up almost as soon as they come onto the market. In Burbank, M. David Paul Development LLC’s Media Studios North, a 215,000-square-foot, five-story office building, is nearly 75 percent leased less than a year after opening. Another building at 400 N. Brand Blvd. in Burbank is almost fully occupied less than a year after opening. New Wave Entertainment, a film advertising company, was so intent on being in a campus-style environment that it recently acquired a 40,000-square-foot building in Burbank for $6.9 million and plans to invest another $2.5 million to expose ceilings and undertake other remodeling to give the space a contemporary, industrial-tech look. BRC Imagination Arts, a designer of theme attractions, also has relocated its headquarters into a 50,000-square-foot, campus-style facility in Burbank. Glendale has some low-rise spaces as well, but they are mostly relegated to the area’s industrial core along San Fernando Road, and many of the warehouses there are not easily adaptable to office uses. “Not every low-rise building is adaptable to this type of new-media use, because it does need adequate, office-standard parking,” said Stockwell. “If you have a building built as a warehouse, it may not have enough suitable space to be converted.” Disney is tentatively planning to lease out as much as 27 acres of its GC3 campus to other media and technology companies, but it expects those tenants to be businesses that work closely with the studio, either as suppliers or ancillary services. While the addition of so much space will increase competition in the Tri-Cities market, brokers point out that there is, after all, relatively little space available in the market right now. The total inventory of rentable office space in Glendale is only 4.4 million square feet, and Burbank has just 3.5 million square feet, according to Cushman Realty Corp. That compares with nearly 9 million square feet in Century City. “When you build the type of space that people want, they will come,” said Stockwell. “So having additional inventory in the Burbank and Glendale market of the proper space, and underline that phrase, is very good for the market.” Indeed, J. Allen Radford, managing partner of Jarco Inc., which is slated to begin a major commercial redevelopment project in North Hollywood, said he is not worried about the potential competition from Disney. “We’re talking to close to 1 million square feet of tenants in the media and entertainment business,” Radford said. “We expect to have some leases signed by the time we break ground nine months to a year from now.”