Brokers Face Tall Order in Marketing Spacious New Building

Building the first new skyscraper in post-recession L.A. County took a little bit of nerve. Leasing it out is proving to be a lot of hard work.

The new 24-story Glendale Plaza at 655 N. Central Ave. was built as a “speculative” project, without most leasing commitments in advance.

The developers have rented almost 160,000 square feet of space since the building opened March 18. That leaves them another 370,000 square feet--roughly 17 stories--to fill. Commercial brokers estimate it will take them a year to 18 months to complete the job.

“It’s a daunting task,” acknowledged broker Doug Marlow, who leads a CB Richard Ellis team hired by developer PacTen Partners to market the building. There is also an in-house team headed by John Barganski, vice president of marketing and leasing at PacTen.

“An old broker told me once that our job representing a property is to convince someone to do the thing they least want to do--which is to pick up and move their business,” Barganski said.

In this case, however, Barganski and Marlow are faced with arguably the biggest space-filling task in the San Fernando Valley since the 585,000-square-foot Warner Center III skyscraper opened in Woodland Hills in 1991.

How do they do it? By knocking on doors, phoning fellow brokers, mailing out stacks of brochures and leading prospective tenants on daily tours of the gleaming new building at 655 N. Central Ave.

But even those efforts are sometimes not enough. Besides the natural tendency of businesses to stay put unless they have to move, Glendale Plaza also faces competition from older buildings offering cheaper rent, plus a number of smaller new projects in the area.

These include 165,000 square feet each at 400 and 450 N. Brand Blvd. and 225,000 square feet at 2255 Ontario Ave. in Burbank.

In addition, about 30,000 square feet in the Glendale Federal Building at 700 N. Brand Blvd. remains empty as a result of downsizing by Glendale Fed, whose parent company merged with First Nationwide Holdings of San Francisco. Even before the merger, Glendale Fed had vacated 70,000 square feet at 700 N. Brand Blvd., said broker Bill Boyd of Grubb & Ellis.

Still, commercial real estate sources say PacTen’s new building enjoys some distinct advantages.

“For many, many years the brokerage community has been showing its clients nothing but previously occupied space because there was nothing new being built,” said Paul Stockwell, a broker with Julien J. Studley Inc. “This is the first new building of its type, and for someone looking for a large amount of space with a central location, Glendale is a good choice.”

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Marlow and Barganski describe three distinct groups they must reach to fill Glendale Plaza: the existing tenant community in Glendale, the Greater L.A. Basin business community, and the broker community.

Although tenants make the ultimate decision on where they’re going to locate, Barganski pointed out, brokers are extremely influential because “probably 90% of our leases have a broker representing the tenant.”

According to Barganski, there’s much more than meets the eye in convincing brokers that a particular building is the right choice for their clients, especially when that building is asking some of the highest rents in the market.

Rates run about $30 per square foot per year at Glendale Plaza, compared with what Studley says is an average asking rate of just under $27 per square foot per year throughout Glendale.

Brokers are well aware that the building exists, Barganski explained, but the marketing team’s job is to remind them constantly about the myriad details that can make or break a deal. These include how much the landlord is willing to negotiate on rent, whether the landlord will sign a five-year lease or is insisting on 10-year deals, which floors have spaces to accommodate smaller tenants, what future expansion rights within the building can be negotiated in a lease and how much parking is available.

Plus, there are other nuts and bolts issues like the building’s fiber-optic telecommunications system, fire safety system, heating, air conducting and other practical matters.

Barganski said a chief concern of some tenants, for example, is having an office that’s immediately visible to anyone coming out of an elevator.

“A broker might want to know if we’re willing to offer ‘elevator identity’ to a 5,000-square-foot tenant, and how much of a premium we might ask for that location,” he explained.

According to Marlow, one of the chief jobs of the brokers is “to make sure the building sees every deal that’s out there.” In other words, to make sure that any prospective tenant in the L.A. area who might be looking for space is contacted by someone representing Glendale Plaza.

Marlow said the process is a collaborative effort involving advertising, direct mail, personal meetings, building tours, the building’s Web page (www.glendaleplaza.com) and “road shows” where Marlow and Wilson promote the building to groups at brokerage houses.

In turn, those efforts generate what Marlow says are the “four things we do every day: respond to tenant inquiries, generate lease proposals to tenants and brokers who have asked for them, show the building to interested tenants and brokers, and canvass for new tenants.”

Besides Marlow, the CB Richard Ellis team includes fellow broker Nicole Wilson and David Kudrave, whose job Marlow describes as “working the phones and knocking on doors to drum up tenants.”

Marlow explained that Kudrave works with a database that can be searched to find all prospective tenants who fit a specific description--businesses leasing 10,000 square feet or more, for example, with leases expiring within the next three years--and tries to arrange an appointment for them to tour the building.

Other good prospects include growing companies and those in industries known to be expanding, Marlow said.

Contacting the tenants years before their leases expire is essential, Marlow said, because competition among landlords is so fierce that “if you’re not contacting a tenant well ahead of time, someone else will be.” In addition, Marlow said, businesses usually need more time to plan a move than they realize, and negotiating a lease typically takes months even after a tenant has agreed to move.

Competition for the attention of tenants’ brokers and tenants is intense, says broker Stockwell of Julien J. Studley, which specializes in representing tenants.

“People know the other brokers in the industry who tend to work within a market, so there is a lot of back-and-forth among landlords and tenants to convince the broker to tour a building, or at least to make a broker aware of the building,’ Stockwell said. “We need to know as much as we can about what a building offers because our job is to present a lot of options for our clients.”

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Stockwell said the trick for those promoting a new building like Glendale Plaza is to convince tenants and brokers that it’s worth the higher rental rates. On the other hand, he said, the building has the cachet of being brand new and having large blocks of space available.

“A tenant who is only looking for 10,000 square feet can find space in virtually any market--it doesn’t matter what the statistics are. But the choices are a lot narrower for tenants looking for a large block of space,” Stockwell said.

Boyd of Grubb & Ellis, who worked as the original listing broker for many of Glendale’s largest office buildings, said the percentage of space leased at Glendale Plaza, 30%, compares roughly with the percentages at a number of previous buildings when they opened.

The 801 N. Brand Building was 30% leased when it opened in 1987, while Glendale City Center at 101 N. Brand was 40% leased on opening in 1991. A few buildings did significantly better, like 700 N. Brand, which was 100% leased on opening in 1981 and 505 N. Brand, 60% leased on opening in 1987.

The percentage of leased space doesn’t always tell the whole story, however. Boyd said landlords in some past leasing campaigns have given away up to a year of free rent, or dropped rental rates drastically, to fill their buildings. According to Don Hudson, leasing director at Warner Center Plaza III, there’s no hard rule about how much space a building must lease to make a profit.

“Theoretically, a building could be 100% leased and not be making any money if the lease rates are too low or the owner paid too much for it,” said Hudson, who tackled his own daunting leasing task at Warner Center Plaza III in 1997. The building was completed in 1991, but languished with just 10% of the space leased for a number of years, primarily because it was completed just as the recession began, Hudson said.

“When I came here in June of 1997, the building was about 65% leased, but not at very good rates,” Hudson said.

He and his staff launched an intense marketing campaign, helped by the improvement in the leasing market in the west San Fernando Valley, Hudson said.

Today, Warner Center Plaza III has only 12,000 square feet of empty space out of 585,000 square feet.

According to Stockwell and Boyd, Glendale Plaza faces a softer market than at any time in recent years. The Glendale office market finished 1998 with a vacancy rate of 9.8%, one of the lowest in Los Angeles County and a rate considered quite healthy in real estate circles.

Since then, however, new office space has pushed the Glendale vacancy rate to about 16% according to Grubb & Ellis, and more than 17% according to Julien J. Studley Inc. The vacancy rate alone can be misleading, however, especially in a relatively small office market like Glendale, with about 5.5 million square feet, compared with more than 33 million square feet in downtown Los Angeles.

The gain or loss of a few large tenants can make a big difference in the vacancy rate in a smaller market like Glendale, brokers say, so even though Glendale Plaza added 10% to the office space inventory, a couple of large leases from outside the market could easily reduce the vacancy rate by several points.

“The new space is bound to make a market a bit softer, but the dynamics of the market are very bullish,” Marlow says. “New space is part of the natural ebb and flow of the development cycle, but fundamentally we’re still in balance.” Stockwell pointed out that average asking rental rates have actually increased in Glendale despite the higher vacancy rate, up to $26.39 per square foot per year from $24.77 per square foot per year for the first quarter of this year. Eventually, however, Stockwell said, “Rental rates are expected to plateau or decline as the impact of higher vacancy rates becomes more evident.”