Real Estate Column—Burbank Gets Backup Offer on Police Station Parcel

There’s been yet another twist in the storied tale of the redevelopment of the old police headquarters site in Burbank. Concerned that the latest plans for the project may fall through, the Burbank City Council in mid-October invited a second developer to submit plans for the property, about 3.2 acres bounded by Olive Avenue, San Fernando Boulevard, Angeleno Avenue and Third Street. Cusumano Group, a Burbank-based developer and one of the original bidders on the site, will join Legacy Partners Commercial Inc. in drawing up a proposal for the site. Several years ago, when Burbank first turned its attention to developing the parcel, the city selected a proposal by Regent Properties for a mixed-used complex that was to have included office space, retail shops, a hotel and a movie theater. Regent, however, withdrew from the project, in large part because the recent retrenchment of movie theater operators made it unlikely that the company would secure a movie tenant. Legacy stepped in, anticipating that Marriott International Inc., which had been negotiating with Regent, would remain a key tenant in the project, but that prospect too now seems iffy, said Bud Ovrom, Burbank city manager. In addition to inviting Cusumano back into the process, Burbank officials are preparing another request for proposals on the site. “If we can make a deal in the next 30 to 60 days, that’s great,” Ovrom said. “If things don’t work out, we won’t waste any time.” The problem, Ovrom said, is not with the developers, but rather with a fast-changing market. “Every time we turn around, a different market evaporates on us,” Ovrom said. “We (first) thought movies were an important element, then the movie market collapsed. Then we were working with Marriott and financing for hotels has become very difficult.” A revised plan for the site is likely to replace the movie theater and hotel with residential units, said Ovrom. Results Mixed in Third Quarter The central San Fernando Valley was the one bright spot in an otherwise lackluster third quarter for the office real estate market. While vacancies rose or remained flat in most submarkets, rates in the Central Valley, which includes the communities of Sherman Oaks and Encino, declined by 2 percentage points to 9.5 percent from 11.5 percent in the prior quarter, according to figures just released by Grubb & Ellis Inc. Absorption in the submarket, a measure of the net balance between space vacated and space leased, totaled 248,000 square feet. Not so for the other Valley submarkets, where absorption declined steeply, moving into negative territory in two areas, the East Valley and the Conejo Valley. The East Valley, which includes Studio City, North Hollywood and Universal City, took the hardest hit, showing a 4 percentage point rise in vacancies to 11.8 percent for the third quarter of 2000, from 7.7 percent, the Grubb & Ellis report revealed. Even the area’s hottest markets slowed markedly, with the West Valley remaining relatively flat at 10.4 percent, compared to 10.5 percent in the second quarter of the year. Conejo Valley also showed an increase in vacancy levels to 6.3 percent from 5.8 percent in the second quarter of 2000, the Grubb & Ellis data revealed. In the West Valley, absorption dipped to somewhat more than 86,000 square feet for the third quarter of the year, from nearly 138,000 square feet in the second quarter of 2000. (The Health Net lease, amounting to more than 300,000 square feet of space in Warner Center, was not reflected in the Grubb & Ellis numbers because the company had yet to leave its previous space.) Conejo Valley too saw a negative absorption of 34,000 square feet, compared to the second quarter when tenants occupied 149,000 square feet more than they vacated. Brokers attributed much of the downturn to the tech-wreck on Wall Street in April. Although the Conejo Valley has emerged as the address of choice for many new technology companies, the Nasdaq market correction in April appears to have had wider repercussions in the real estate sector, brokers said. “There was a point when we were seeing 30 percent to 40 percent of tenants that were tech-related looking at space,” said Brian Hennessey, vice president at Grubb & Ellis. “Now it’s down to 10 percent to 20 percent, so that tells you that segment of the market is not as strong as it was in the first two quarters of the year.” Most brokers said that the numbers reflected in the third-quarter report do not lead them to conclude that a wholesale slowdown in the real estate market is at hand. Some of the noteworthy transactions in the third quarter included Alcatel’s 200,000-square-foot lease at Conejo Spectrum, Los Angeles County’s deal for 164,500 square feet of office space at Chatsworth Business Park and Countrywide Home Loans’ 140,000-square-foot lease in West Hills Corporate Village. North Hollywood Lease West EFX, a special effects company, doubled the size of its production facilities in a deal for 24,200 square feet of space in North Hollywood. The five-year lease, valued at $770,892, will move the company’s 15 employees to 6840 Vineland Ave. Bob Hoyer, a broker with Delphi Business Properties, represented the tenant in the deal. Nigel Stout of Grubb & Ellis Inc. represented the property owners, Sandra E. Bowman, Sharyn Schrick and Denise McLaughlan. Encino Sales Douglas Emmett & Co. has acquired two buildings in Encino. The company acquired the 200,000-square-foot Pinkerton Building at 15910 Ventura Blvd. and the Encino Gateway, a 334,000-square-foot building at 15760 Ventura Blvd., for a combined $85 million. Staff reporter Shelly Garcia can be reached at (818) 676-1750, ext. 14 or by e-mail at [email protected].