On Road to Rebound
The late A.W. Ross would be pleased with what people are saying about his once-suburban shopping district.
Ross was the developer credited with creating the Miracle Mile in 1921 from what had been a dirt stretch of Wilshire Boulevard serving nearby barley fields and oil wells.
The grandly named blocks on Wilshire, which for a time made up one of Los Angeles’ most fashionable shopping areas, have long since been eclipsed by different kinds of shopping centers. But they survive as an office district that real estate professionals believe will be one of the first to benefit as rents rise in nearby markets.
A 1998 forecast by brokerage Grubb & Ellis Co. calls the Miracle Mile--which stretches roughly from Highland Avenue to San Vicente Boulevard--one of L.A.’s “recently challenged” office markets that is likely to improve during the year.
Nearly 20% of the office space in the Miracle Mile is empty, compared with vacancy rates that are half that or less in such nearby markets as Beverly Hills, Santa Monica and Century City.
Rocketing rents and disappearing space in those other markets are already starting to benefit the Miracle Mile, real estate professionals say.
“With the other Westside markets tightening so much and rents going up so fast, companies are looking for alternative locations as a way to reduce their occupancy costs,” said broker Rosey Miller, a senior vice president with Grubb & Ellis Co.
Miller expects the Miracle Mile to “become a catcher’s mitt for tenants who don’t want to pay the rents in the other Westside markets” or who might otherwise have located farther west.
Miracle Mile has recently shown signs of improvement to its relatively poor occupancy rate, said Miller. Vacancy fell by nearly 3% in the third quarter of 1997, the biggest decrease of any Westside Los Angeles office market in the quarter, he said.
Miracle Mile has been slow to join the real estate recovery because, until recently, so much quality office space was available at bargain rates in other nearby Westside markets, said Vincent Pellerito, a senior broker with Cushman Realty Corp.
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“Most companies wanted to be as far west as they could when the rental rates were lower” in other Westside markets, Pellerito said, but with the rates rising in those other markets, “Miracle Mile becomes a more attractive market.”
Although Miracle Mile is less freeway-close than some other Westside markets, Pellerito said freeway access was not a major factor in its losing tenants during the recession.
Probably a more important factor is the shortage of restaurants within walking distance in the Miracle Mile, in contrast to places like Beverly Hills that have plenty of eateries, Pellerito said. “They pay a lot of money to be able to walk to lunch there.”
Brokers say the Miracle Mile has a number of things going for it, most notably its location, quality office buildings and the presence of some prestigious tenants--an important consideration because businesses generally don’t like to be real estate pioneers. Tenants include a number of high-profile entertainment businesses, among them E! Entertainment Television, the trade newspaper Daily Variety and Aaron Spelling Entertainment.
Among the most recent arrivals is Actors Equity Assn., one of three major Hollywood unions now based in the Museum Square building near the Los Angeles County Museum of Art. Actors Equity moved into Miracle Mile from Hollywood in December, said John Holly, the union’s western regional director.
A primary reason for the union’s move, Holly said, was to be close to two other important Hollywood unions--the Screen Actors Guild and the Assn. of Film, Television and Radio Artists--both also in the Museum Square building.
It helped too, he said, that “the buildings are a little classier and this is a better neighborhood” than the union’s former locale at Sunset and Cahuenga boulevards.
While historians credit Ross with creating the Miracle Mile, brokers working there often credit developer Jerry Snyder with a big role in rejuvenating it. They say the Miracle Mile never really died as an office market, but it had lost much of its luster before Snyder renovated the 1947-era Museum Square building in 1982 and built the Wilshire Courtyard office complex in 1987, both on Wilshire between La Brea and Fairfax avenues. In 1990 he renovated the former California Federal tower at Wilshire and Masselin Avenue that is now home to E! Entertainment.
In many cases Miracle Mile’s gains have been Hollywood’s losses as entertainment companies moved out of Hollywood. Brokers expect to see more of that, along with defections from more expensive Westside buildings.
Developer Snyder, whose company is headquartered in Museum Square, said he has long viewed Miracle Mile as “a good alternative” to the pricier Westside markets. Snyder said the market has also become more appealing because retailers are returning, among them a new Ralphs grocery store, and because the district has been spruced up with attractive landscaping along the Wilshire Boulevard median.
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His asking rents are about $21 per square foot per year, Snyder said, compared with rates approaching $36 per square foot per year in the most expensive Westside buildings. Snyder said his buildings are doing well despite the average 20% vacancy in Miracle Mile.
“I don’t have a square foot vacant in the E! Entertainment building,” he said. Museum Square is about 20% empty but, “We expect to pretty much fill it up [this] year.”
According to Miller, another factor in the Miracle Mile’s favor is that few large blocks of space are available in other nearby markets and those that are available go for premium prices.
For example, Miller conducted a survey of Beverly Hills buildings for a firm looking for about 15,000 square feet of space. He found five buildings that wanted premium rents ($36 per square foot per year and up). Six months ago, Miller said, those spaces would have rented for 50 cents to 65 cents less per square foot.
“A difference like that is substantial,” Miller said. “On a 15,000-square-foot transaction over 10 years, 50 cents a foot is a $900,000 difference.”
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Brokers say the recession of the early 1990s was a big reason Miracle Mile has lagged until recently. The slump drove office rental rates down in even the top Westside markets, making them affordable for a number of companies that moved west from the Miracle Mile. Some of those same companies are finding prices too steep when their leases come due for renewal, so returning to Miracle Mile is a logical choice.
“In general, the buildings in Miracle Mile are good quality buildings that would compete favorably with most of the class A buildings on the Westside,” said Chris Houge, a first vice president with CB Commercial Real Estate Group. Houge added that the promise of an improving market has prompted renewed interest from investors, notably the buyers of a building at 6330 San Vicente Blvd. that is “going through an extensive retrofit.”
How quickly Miracle Mile offices fill up will depend somewhat on how much and how quickly new space is built in other Westside markets, said broker Howard Sadowsky, an executive vice president in the West Los Angeles office of Julien J. Studley Inc.
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Rental Revival
As other Westside markets get tighter and more pricey, the long-suffering Miracle Mile district is picking up office tenants looking for less expensive quarters. Miracle Mile year-end vacancy rate, including sublease space:
Four-quarter 1997*: 20.7%
* Forecast
Source: Grubb & Ellis Research Services Group, West Los Angeles
