MGM Move May Be Richest Lease Deal in L.A. History
Entertainment giant Metro-Goldwyn-Mayer Inc. agreed to move its headquarters from Santa Monica to a new high-rise in Century City in what may be the largest office lease in Los Angeles history.
The studio will take 17 floors in a long-planned tower at Constellation Boulevard and Century Park West. The agreement should allow Chicago-based developer JMB Realty Corp. to begin work on the $150-million building known as MGM Tower, formerly known as Constellation Place.
MGM Vice Chairman Chris McGurk wouldn’t disclose financial details of the 15-year, 425,000-square-foot lease, but said the company is pleased with the terms. Other sources close to the transaction valued it at nearly $500 million, which knowledgeable real estate professionals say is probably the largest local office deal on record.
The studio’s logo and famous mascot, Leo the Lion, will grace the top of the 700,000-square-foot, 34-story, skyscraper, a perch McGurk called “incredibly visible.” The luxury building was designed by Johnson Fain Partners, architects of Century City landmark Fox Plaza. It will include such customized features as screening rooms, post-production and editing facilities and a secured separate entrance for VIPs.
MGM in 1993 moved from Culver City, its home of more than a half-century, to the eastern Santa Monica office complex now known as MGM Plaza. The studio, which has been struggling to recover from a financially punishing decade under various ownership and management structures, will move about 820 employees to JMB Realty’s planned high-rise when it’s completed in mid-2003.
“I’m ecstatic that MGM, a world-class company, selected L.A. for its headquarters,” Mayor Richard Riordan said. “This is a significant development for L.A.’s job market.”
The blockbuster deal comes as experts are wondering just how high rents can go on L.A.’s booming--but nearly built-out--Westside, now that the prolonged economic upturn appears to be stalling. JMB Realty, which has been pursuing the project for more than a decade, presumably competed heavily for MGM as a so-called anchor tenant whose long-term rent commitment would help secure construction financing.
Nevertheless, prevailing commercial real estate conditions suggest that the studio would have to pay hefty rental rates wherever it ultimately landed.
Asking rental rates at the relatively sparse pockets of quality offices now available in Century City are in the high $40s and low $50s per square foot annually--often double the lows of the last recession, said Gary Weiss, managing director at DLJ Realty. But rents in the bustling commercial district surrounding MGM’s current home have jumped even higher.
The move to a high-rise rather than a traditional sprawling studio complex also seems to reflect some of the less production-oriented operations driving MGM’s newfound profitability, such as burgeoning global digital-videodisc sales and aggressive licensing activities.
The studio will continue operating without what McGurk called the “burden” of owning and operating separate studio lots and sound stages. And the Century City location should improve travel times to and from such facilities that MGM leases around town, he added.
The MGM-anchored development is the latest of several major investments in the Century City district, such as the recent opening of the five-star St. Regis Hotel and extensive renovations of other properties. Last summer, Irvine Co. paid $350 million for Fox Plaza after namesake tenant Fox Entertainment Group Inc. signed a $250-million lease.
Real estate developer and services firm Trammell Crow Co. and architect Gensler will help owners of the district’s signature Century Plaza Towers/ABC Entertainment Center complex undertake a massive repositioning project as ABC’s lease expires in 2002, said Trammell Crow’s Bob Ruth.
Weiss said the Westside’s office supply and demand trends almost certainly suggest that nearly all of the MGM tower’s office space will be committed before the building is finished.
Chicago’s Urban Shopping Centers will oversee development for the JMB Realty affiliate that owns the building site. The developers also have agreed to contribute $7.5 million toward impact mitigation measures such as traffic improvements.
McCaslin Co., headed by former JMB Realty executive Mark McCaslin, is handling tenant negotiations on behalf of the developers. Mitch Leit of West L.A.’s Corporate Real Estate Services represented MGM in the headquarters search and lease negotiations.
MGM shares closed at $17.25 Thursday, down 31 cents on the New York Stock Exchange.
