$50-Million Speculative Office Project to Start in El Segundo

An El Segundo-based development partnership will break ground Wednesday on a 237,000-square-foot office building that will serve as a concrete example of how dramatically the Los Angeles economy has improved in the last six years and how thoroughly many South Bay landlords have weaned themselves from the aerospace industry.

The $50-million six-story building at Continental Boulevard and Grand Avenue in El Segundo, to be called Continental Grand Plaza II, will be the first project of a new partnership formed by El Segundo-based Highridge Partners and Mack-Call Realty Corp., a New Jersey-based real estate investment trust. The project is to be completed by June 1999.

It is being developed on a speculative basis--meaning that no tenants have been signed but that developers believe demand for space warrants construction.

Real estate sources said the building is the first speculative premium or “class A” office space to be constructed in El Segundo since Southern California’s recession days of 1992, when Continental Development Corp. completed its 200,000-square-foot Continental Park Terrace, part of the 2.25-million-square-foot Continental Park development on Rosecrans Avenue between Sepulveda and Aviation boulevards.

John Long, managing partner of Highridge Partners and managing general partner of the Highridge-Mack-Call joint venture, said the new building is a response to a dramatically increased demand for office space in El Segundo.

When Highridge acquired the site for the project along with an existing building called Continental Grand Plaza I in 1991, Long said, office vacancies averaged 25% in El Segundo. Today, the vacancy rate is less than 5%, and demand for office space is strong. Long said demand is coming from “the fast-growing companies of Los Angeles’ new economy.” He cited telecommunications, technology, electronics and international trade firms, saying they now occupy much of the space previously leased by aerospace and defense companies. As specific examples, Long listed tenants in the area: Oracle, Mattel, Hughes Electronics/DirecTV, Sun Microsystems and Japan Airlines.

The Highridge-Mack-Call partnership’s new building is the first to break ground among at least four speculative office projects being planned or considered for the El Segundo market.

The others include a building of up to 300,000 square feet planned by Continental Development Corp., 200,000 square feet that Marina del Rey-based Pacifica Capital Group is entitled to build near the Century Freeway and La Cienega Boulevard, and 130,000 square feet of speculative space scheduled to be built on Nash Street between El Segundo Boulevard and Mariposa Street by Kearny Real Estate Co., a subsidiary of Morgan Stanley Real Estate Fund.

According to Bob Inch of Continental Development, conditions could hardly be more different today than they were when Continental completed its 200,000-square-foot speculative project in 1992. The building was planned when demand for space was high, but demand had fallen severely by the time it was completed. At the depth of the recession, 35% of Continental’s 2.25 million square feet was empty, Inch said.