Playa Office Projects Turn the Marina Tide

The Bayside Boom
By: DANIEL MILLER: Los Angeles Business Journal Online
Marina del Rey, Playa Vista and the surrounding environs are experiencing an office boom, partly due to price as rents rise nearby.

A “For Sale” sign hangs in front of a former residence on Beach Avenue in Marina del Rey that speaks volumes about the changing area.

The sign lists the usual information – contacts and such – but it also indicates that the property is zoned for commercial use. And it’s not the only residential property to feature such a sign in the area near Redwood Avenue.

So called live/work units – where people live in the same space as their small business – are being built next to creative office space. And those little spaces are playing off the big, billion-dollar projects that are also going up in that area.

Indeed, Marina del Rey, Playa Vista and the surrounding environs are experiencing an office boom.

Part of the attraction has to do with price. As office rents skyrocket in west Los
Angeles, users are looking to the Marina del Rey area as the last large-scale opportunity for new office space.

And another part of the attraction has to do with traffic. Spurred by the success of the Playa Vista residential development – which provides new and mostly upscale housing for workers – all sorts of office users are staking their claim in the area.

“For the pure amount of size of acreage and square footage that can be built, it is the final frontier for office space on the Westside,” said Steve Solomon, Senior Vice President at Jones Lang LaSalle Inc.

Developers and politicians alike say they dream of an entire live/work region that would make the car an unnecessary component of the work day.

“The ultimate dream of mixed use is meaning you can live, work and play in same neighborhood,” said City Councilmember Bill Rosendahl, whose district includes Playa del Rey and Playa Vista. “With the new office, I don’t want more car trips coming into the district, what I want is people living in the district working in it.”

Vacancy rates and asking rents for Class A space on the Westside show why office tenants are looking to the Marina del Rey area. For example, Santa Monica had a 5.9 percent vacancy rate for first quarter, compared to the county average of 9.5 percent, according to Grubb & Ellis Co. data. Also, Santa Monica’s average asking rent for Class A space was $5.17 per square foot per month – the highest price in Los Angeles County, where the average asking rent is $3.

“The West L.A. market has seen an enormous amount of growth in the survivors of the technology market and growth in the media market, where Los Angeles has an enormous amount of skilled employees,” said David Binswanger, executive vice president of Lincoln Property Co. of Dallas.
Earlier this month, Lincoln broke ground on a 15-acre creative office campus at Playa Vista. The project will be built in phases – with the first portion slated to open fourth quarter 2008 – and includes a total of 950,000 square feet of Class A office space.

Binswanger said that Playa Vista offers the only opportunity in Los Angeles for this sort of large scale office development.

“Being able to put together a project of this scope and size – nearly 1 million square feet – is nearly impossible in West L.A.,” he said.

Projects galore

The Marina/Culver City office market currently totals 5.61 million square feet. But observers say that by 2009 an additional 2 million square feet will be on the market, with more to follow.

“It will certainly be a nice size market and it will be the newest office market in the West L.A. market to be developed,” said Rick Buckley, a principal at real estate firm Madison Partners.

There should be no problem filling the new space, said Buckley, who cited Madison Partners data that showed the Marina del Rey/Venice submarket had a first quarter vacancy rate of 5.3 percent.

Madison Partners is the leasing agent for a new office project at Howard Hughes Center, the 70-acre mixed-use campus just off of the San Diego (405) Freeway that is already dotted with office buildings and includes the Promenade shopping center. CarrAmerica Realty Corp., an affiliate of Blackstone Group LP, will break ground this fall on a Gensler-designed, five-story, 250,000-square-foot office building at 5901 Center Dr. The building is slated to be completed in early 2009, and CarrAmerica has plans for a second building of similar size.

Because the office market in the Marina del Rey area is so tight, it is an enticing opportunity for developers.

“It is tight as a drum,” Buckley said. “That leaves us with the perfect storm with fundamentals in place (for prices to rise).”

In addition to Lincoln’s project, there are other office projects slated for development at the nearly 1,100-acre Playa Vista mixed-use development. The Los Angeles Clippers held a groundbreaking ceremony April 5 for a 42,500-square-foot training facility, which will include gyms and offices for the Clippers Basketball Operations Department. The project is slated to be completed early next year.

The largest office development at Playa Vista is the joint venture between New York-based Tishman Speyer Properties LP and Chicago-based Walton Street Capital LLC, which have teamed up to develop an office complex on 64 acres. The firms purchased the property on the east side of Playa Vista in February. Tight-lipped Tishman Speyer did not return multiple calls seeking comment.

The low-rise office buildings will be adjacent to Lincoln’s project and a 9-acre park. Tishman Speyer’s property includes historic buildings originally constructed for Howard Hughes’ Hughes Aircraft Co.
Construction will begin in 2008, and will be completed in four stages for a total of about 1.6 million square feet of space delivered by 2012, according to Tishman Speyer documents.

Industry experts say that the Playa Vista office projects will attract marquee tenants in the interactive media and entertainment fields. That has already happened – video game developer Electronic Arts Inc. has a 250,000-square-foot office on Lincoln Boulevard in Playa Vista.

“We are going after the convergent type of tenant and interactive tenant. We’ve seen the growth of companies like Google, YouTube and Yahoo and certainly all of those types of tenants should take a look at Playa Vista,” Binswanger said.

Real estate investment firm the Lionstone Group has purchased a 392,000-square-foot building that was formerly owned by the United States Postal Service but had been acquired by The Home Depot Inc. The building at 13031 W. Jefferson Blvd. is located on nearly 20 acres and will be redeveloped into creative office space.

“These are all financial giants so they will implement their plans as the market deems appropriate,” said Carl Muhlstein, executive vice president at Cushman & Wakefield Inc. who represented Playa Capital Co. LLC in the sale of property to the office developers.

Living and working

The success of the currently sold-out Playa Vista residential development has bolstered developers who are convinced there is a segment of the population interested in living close to – often within walking distance of – the forthcoming office developments.

“This community is a microcosm of urban melting pot L.A. living – without the car,” said Steve Soboroff, president of Playa Vista.

And at Playa Vista, there are plans for significant mixed-use development that brings residential units to the doorstep of retail and office amenities. Caruso Affiliated has plans for a large retail center that will also include apartment units. Developer Rick Caruso said the Village project will break ground at the end the year.

“The daytime population in the office market is important to us,” said Caruso, who added that office users will have a variety of dining options including fine dining and a “daily market.” “All of that services the office product.”

Looking beyond Playa Vista, there are several mixed-use and live/work residential projects being developed in the Marina del Rey area to take advantage of the area’s burgeoning office market.

Ken Kahan, president of California Landmark, is building multiple residential projects in the up-and-coming Marina Arts District, including two projects on Redwood Avenue. The Redwood buildings will include live/work units and the industrial-style loft buildings will be marketed toward interactive media workers who may make the short drive to Playa Vista.

“We love live/work,” Kahan said. “The community would like some commercial on these streets, not just residential. We are in favor of it. We think it is great for the community. There needs to be alternatives that are less costly for people to have office space.”
And at 8601 Lincoln Blvd., Los Angeles-based Decron Properties Corp. has broken ground on a 539-unit rental building and will deliver 405 units in September 2008. The project – called Playa del Oro – will include 27,000-square-feet of retail space and 12 live/work units.

“We think that the residents that will be living in our complex will be likely nearby office users and it will likely be working force housing for those office developments,” said Decron president David Nagel. The Playa del Oro project is about a quarter mile from Playa Vista. “We think there is a shortage in that direct community for quality rental housing and we think our project will serve that.”

Kahan said that new mixed-use projects signal a shift in thinking for the area.

“People will start making concentric circles that are smaller and smaller. We are trying to create a neighborhood out of the Marina Arts District,” Kahan said. “Playa Vista is doing the same thing.”

Traffic issues

All of that development – residential and office alike – means that the Marina del Rey and Playa Vista area is set to deal with a significant spike in traffic. While much of the area’s forthcoming office development is designed to give Westsiders new office opportunities so they need not look further to places like downtown or the Tri-Cities, it is bound to increase traffic in the area.

Marina del Rey already is significantly congested, which in some cases has kept prospective office tenants away from the area.

Faced with a rent increase, Michael Schneider, chief executive of West L.A.-based design agency Fluidesign, is considering leaving his office space on Wilshire Boulevard for new Westside digs. But he is not considering a move to the Marina del Rey area because of traffic concerns.

He favors Venice and Culver City because his employees work there. “I am not going to spend 45 minutes a day going three miles,” he said.

While Playa Vista has spent more than $100 million on traffic mitigation – improving intersections and installing traffic lights – some areas still need significant improvements. Commuting artery Lincoln Boulevard in particular is cause for concern, with Soboroff admitting that traffic has gotten worse on that thoroughfare since Playa Vista opened. Government officials agree there is more to be done.

“The biggest question of the supervisor’s concern has to do with transportation and traffic control,” said David Sommers, spokesman for Los Angeles County Supervisor Don Knabe, whose district includes the area. “You can’t increase the number of people without addressing capacity.”

While shuttle programs in Marina del Rey and Playa Vista aim to lessen the burden on the area’s roads, developers agreed that continued mitigation is necessary to help solve the problem.

But the prospect of creating smaller, “walkable” communities – like the work being done at Playa Vista and the Marina Arts District – appear to be solutions for alleviating gridlock.
“You have more and more people living, working and dining and being entertained in a small radius,” Caruso said. “Playa is a good example of a small, well thought-out community that allows people to walk or hop on a bus. There should be more communities like that.”

With millions of square feet of office space coming online soon in the area, community stakeholders say they are prepared to deal with the good and bad that comes with all of the development.

“The area is experiencing a renaissance,” Binswanger said. “The area has come a long way and it has a long way to go.”