A Big Shift Southward for Yahoo
Yahoo Inc., making good on its bid to become a force in the entertainment business, has agreed to lease part of a Santa Monica office complex for up to $100 million in one of the largest commercial real estate deals in Los Angeles County in the last year.
The Sunnyvale, Calif.-based Internet company will lease as much as 256,000 square feet in Colorado Center -- soon to be known as Yahoo Center -- for 10 years. The complex is owned by Chicago-based Equity Office Properties.
Yahoo’s headquarters will remain in Northern California, but the vast expansion in Santa Monica will split the company’s center of gravity between Hollywood and Silicon Valley. Yahoo’s newly formed media group, headed by former ABC television network Chairman Lloyd Braun, will be based in Yahoo Center.
That will allow executives to rub elbows with Hollywood deal makers without the hassle of flying in from Northern California, said investment banker Gary Adelson.
“It’s certainly an advantage to be close to these guys,” said Adelson, managing director of media, sports and entertainment at investment bank Houlihan Lokey Howard & Zukin. “At the very least, you’re in the know.”
David Garrity, an analyst with investment bank Caris & Co., said it made “eminent business sense” for Yahoo’s creative people to be as close to their content peers as possible. “The cross-fertilization possibilities are endless.”
A Yahoo spokeswoman declined to discuss details of the lease.
Real estate experts estimate that the company will have enough room for about 1,000 employees at the Santa Monica complex, where tenants include advertising agency Rubin Postaer & Associates, cable broadcaster HBO, Internet security provider Symantec Corp. and the home entertainment division of Metro-Goldwyn-Mayer Inc.
Some Yahoo employees will be relocated from Sunnyvale and New York, and two Yahoo offices on the Westside, on Pennsylvania Avenue and Olympic Boulevard, will be closed by 2006.
Yahoo’s courtship of Hollywood accelerated in 2001 when former Warner Bros. co-Chairman Terry Semel took over as chief executive. At the time, Yahoo was losing money and struggling in the dot-com crash.
Semel turned the company around in part by greenlighting key acquisitions, including the online advertising company Overture Services Inc., and persuading the world’s biggest advertisers to boost their online spending.
Last year Yahoo earned $840 million on sales of $3.6 billion, both records.
With the company in sound financial shape, Yahoo is deepening its ties to the entertainment industry. In November it hired Braun to run the media and entertainment unit. Though some software engineers will stay in Sunnyvale, Yahoo said, many other employees in Yahoo’s movies, finance, sports, news, games, music and health teams will move to Santa Monica.
Yahoo said it planned to fill the space through such consolidation and by the aggressive hiring of media experts in the Los Angeles region.
Entertainment content will become increasingly important as more people access the Internet by high-speed connections, Yahoo said. The goal is to strike more deals with television, music and movie producers, such as the recent collaboration with Mark Burnett Productions to promote “The Apprentice” and “The Contender” on Yahoo. The company also gained exclusive rights to show short political satire films by JibJab Media Inc.
Braun said Yahoo was moving to “put a turbocharger on this area of the company” in a way its executives couldn’t by telephone or occasional visits.
“When you look at the breadth of the content providers in Southern California versus Sunnyvale, we think there’s a lot more opportunity in Southern California,” he said. “I think we will have a competitive advantage by being in that arena and leveraging those relationships.”
Colorado Center, formerly known as MGM Plaza, is a draw for tech and entertainment businesses, said Jerry Porter, who represented Yahoo in the transaction.
“It’s a campus environment you can’t get anywhere else on the Westside,” he said.
Equity Office Properties bought the complex in July for $450 million. The 1.1-million square-foot complex was built in phases beginning in the early 1980s and is now about 97% leased, said Bert Dezzutti, Equity Office Properties’ senior vice president in Southern California.
Yahoo may eventually seek to expand into the entire property, though for now the landlord is glad to have a diverse tenant mix, Dezzutti said.
“We definitely see that Yahoo has big plans, and we would love to accommodate them,” Dezzutti said. “They have a lot of flexibility to grow.”
Yahoo will move into 65,000 square feet at 2401 Colorado Ave. this summer. It has agreed to occupy a total of 229,000 square feet in that building and at 2425 Colorado Ave. by 2008.
The company is expected to take over 26,000 square feet in another building in the complex for executive offices.
In November, Yahoo agreed to expand Overture Services, which inserts advertising into Web search results, in two buildings being erected at the former Lockheed Martin Corp. Skunk Works site in Burbank. Real Estate data provider CoStar Group Inc. said that lease, for 300,300 square feet, was the largest in Los Angeles County last year, followed by SBC’s agreement to take 235,929 square feet in downtown Los Angeles.
