Developers Dish Up Slimmer Pickings in Office Projects

BURBANK —  Ben Reiling, the amiable owner and president of The Zelman Cos., figures he got more than a hundred phone calls last week when word got out that his small Los Angeles-based development company was picked by Lockheed Martin Corp. to turn a barren 103-acre stretch of former defense-industry land into a mixed-use commercial complex.

More than a dozen of those calls were from national retail chains inquiring about inclusion in the $100-million retail-office-auto project in Burbank that’s been on the drawing board for more than two years.

He got a number of calls, too, from potential office tenants.

That part, he said, was a pleasant surprise.

“Not as many as for retail,” said Reiling, who will be undertaking his first big project in the San Fernando Valley, “but, candidly, more than I expected.”

A number of developers have lowered their expectations in light of a noticeable slowdown in office-space consumption, much of it due to the diet-conscious demeanor of the once ravenous entertainment industry.

Luscious-looking plans for upscale, up-sized office complexes that were cooked up when appetites for office space were greater--a period as recent as 18 months ago--are now in the freezer. Others have been slimmed down.

Meanwhile, developers like Reiling are moving forward with plans for more modest fare--fewer stories, less sophisticated--appealing to cost-conscious tenants who still want nice office space, but don’t need expanses of marble and granite.

It’s a strategy that some real estate experts say is gaining cachet across the country.

“In the late ‘80s you saw all of these gorgeous towers, monuments to the developer,” said Andrew Ratner, executive vice president of Cushman Realty Corp., who tracks the office-space market nationwide. “Now the market is starting to turn.

“There are a variety of issues that you can’t skimp on [in construction],” he added. “But today, you don’t have to spend excess dollars to attract tenants.”

Some real estate experts say that nationwide, they’re seeing more buildings that would fall in a category that could best be described as “Class A-Lite,” not your typical granite-enveloped tower, but certainly no storage shed.

Several developers listed a mid-rise, multiphase complex in Burbank, called Media Studios North, and a nine-story Brand Boulevard office building developed by the Howard-Platz Group, as two East Valley examples of this new approach, which they said is attracting more adherents in corporate America.

Plans are still being drawn for the office complex on the Lockheed property, the land where generations of warplanes were born.

But Bob Tague, Burbank’s director of community development, envisions a 600,000-square-foot office complex that won’t be the typical Class A-type development, but still will be nice enough to attract some smaller entertainment companies and other so-called “back-office” tenants.

Don’t look for underground parking or structures much taller than three stories in the Lockheed office complex, which will be located at Buena Vista Street and Empire Avenue.

And with lower construction costs, “they’ll be able to make their rental rates there cheaper,” Tague said, guessing monthly rents could be about $2 per square foot.

That’s nearly 20% cheaper than the $2.45-per-square-foot monthly price tag at the Media Studios North office complex, a mid-rise complex crafted by developer M. David Paul that’s just six blocks west of the Zelman site.

Clearly the showpiece in an area otherwise dominated by low-slung industrial-style buildings--with neighbors like Molding Corp. of America and Industrial Metal Supply--the first two phases of Media Studios North have attracted upscale tenants like Disney and the offspring of IBM, Texaco and the New York Stock Exchange.

The recent addition of Alltel Information Services, a wholly owned subsidiary of the NYSE, pushed the occupancy level to 60% in Phase II of Media Studios North, a five-story 215,000-square-foot facility that opened in late 1998.

Jeff Worthe, a principal with M. David Paul, said the company is looking at a summer groundbreaking for Phase III, which, if built on a speculative basis, will include 110,000 square feet of space in three stories.

Burbank’s Tague knows the new Zelman project eventually will compete with Media North for tenants. That’s part of the reason, he said, the city is looking at a more modest project on the Lockheed site--to attract more of the bargain hunters.

Developer Dan Selleck, who was part of a team that had expressed interest in the Lockheed project but opted not to submit a formal proposal, thinks there’s enough room in the market for the neighboring projects.

“My opinion of that market is that it’s very strong,” said Selleck, adding that the Zelman project, which is tentatively being called the Empire Center, “should compete favorably with other projects from both an office and a retail standpoint.”

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Without question, the office market in the eastern San Fernando Valley remains strong.

A recent report from Charles Dunn Co., one of the largest real estate firms in the West, put the direct vacancy rate for the East Valley--including Burbank, Glendale, North Hollywood, Mission Hills, Studio City and Universal City--at 6.94% in the fourth quarter of 1998, a figure that was plumped up by a whopping 16% vacancy rate in North Hollywood alone.

Separated out, Burbank posted an enviable 3.63% vacancy rate for Class A space, according to the Dunn report, an occupancy level that usually lures developers back into the building frame of mind. For all classes of space, that report, and a similar report from Cushman Realty Corp., put Burbank’s direct vacancy rate at roughly 5%.

Some developers, encouraged by the high levels of office space absorption from 1996 through mid-1997, did announce plans for additional upscale projects.

For example, a groundbreaking ceremony was held in January 1998 for the Media Center in Burbank, planned as a 585,000-square-foot Mediterranean-style six-story office complex on Olive Avenue, across from NBC Studios.

Initial schedules called for construction to begin in mid-to-late 1998. Now Burbank officials describe the project as “on hold.”

Said Milt Swimmer, a partner with developer J.H. Snyder Co.: “At this point we have not started construction. That’s all I’m going to say. We hope we would start construction within a year.”

Also on the drawing board is a $60-million office, hotel and retail complex called Burbank Plaza (formerly the Metropolitan Plaza), across from Burbank City Hall on Olive Avenue. Plans for that complex, which will include up to nine stories of Class A office space, could come before the Burbank Planning Board as early as April or May.

The ultimate aim, according to Tague, is to appeal to as many segments of the office market as possible.

“In our opinion, we still have the ability to capture a lot of the market,” Tague said. “We think we’ll be able to fill up the space.”

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Valley @ Work runs each Tuesday. Karen Robinson-Jacobs can be reached at Karen.R[email protected].