Playa Vista Project Revisited

Despite a slowing real estate market and ongoing environmental obstacles, developer Robert F. Maguire III and Equity Office Properties Trust announced Monday the purchase of land at Playa Vista, a key step in its plan to build the first office buildings at the embattled project.

The partnership between Maguire--one of Los Angeles’ most prominent developers--and real estate giant Equity Office could finally signal the beginning of commercial construction at the 1,087-acre project after more than two decades of planning, feuding and false starts.

“It’s a very positive event for [Playa Vista] and for us,” said Maguire, who heads Maguire Partners. “We have been going full speed ahead” with design work.

Chicago-based Equity Office--the nation’s largest owner of office buildings--put up most of the approximately $28 million Maguire needed to purchase a 6.5-acre portion from Playa Capital Corp. In addition to the loan, Equity Office has the option to form a joint venture with Maguire and purchase up to 87.5% of the office complex, tentatively named Water’s Edge. Equity Office will manage the 426,000-square-foot project.

Maguire must still receive building permits and deal with well-organized project opponents who have fought Playa Vista on many fronts despite the blessing of city officials.

Though Water’s Edge is a tiny portion of Playa Vista, Equity Office has kept the door open to developing much more space in other portions of the project with Maguire. The owners of Playa Vista have rights to build a total of 3 million square feet of commercial space. Water’s Edge is on the west end of the property, and the bulk of the office space will be on the east.

Maguire remains in charge of the development of more than 100 acres of space earmarked for office and other commercial uses at Playa Vista.

“Playa Vista is among the limited development sites available in West L.A.,” said Tim Callahan, president and chief executive for Equity Office. “This is consistent with our investment strategy of partnering with local developers.”

Maguire, who owns a small stake in Playa Vista, and Equity Office unveiled their plans five years after entertainment company DreamWorks SKG announced that it would build a new studio and headquarters at Playa Vista. But that deal turned into a long-running battle that cost Maguire his controlling stake in Playa Vista. DreamWorks finally abandoned the project in July 1999.

Playa Capital officials, still smarting over the DreamWorks fiasco, were quick to embrace the Maguire-Equity office partnership.

“This is a solid deal,” said Playa Capital President Peter Denniston. “It’s all cash and it’s got very strong, committed partners. It’s very different than the DreamWorks project.”

Pending city permit reviews and approval, Maguire said work on the first two buildings at Water’s Edge--a cluster of low-rise buildings designed by international architecture firm Gensler --should start later this year and be completed within 18 months. Maguire said the project will be built on a speculative basis without any space leased in advance.

Local real estate brokers said the Maguire-Equity Office project should eventually do well. However, they pointed out that Maguire and Equity will start construction just as the Westside office market has cooled.

In the last 60 days, nearly 2 million square feet of office space across the Westside has become available on a sublease basis as dot-com tenants give up space and other firms become more cautious. The additional space--a nearly one year’s supply--has pushed up vacancy rates and flattened out rents.

‘There will be pockets of opportunities but I don’t see price hikes over the next two years,” said Robert Chavez, president of the Los Angeles office of Staubach & Co.

In addition to facing a weakening market, Maguire and Playa Vista officials must still deal with environmental issues and challenges. For example, Maguire cannot receive a building permit on Water’s Edge until city officials complete a review of the risks posed by a nearby earthquake fault and pockets of potential dangerous methane gas at Playa Vista.

Furthermore, Maguire and his fellow partners in Playa Capital must still settle legal arbitration. Maguire and Playa Capital would not comment on the arbitration.

“A tenant for that project is going to want to see steel coming out of the ground,” said broker Rick Buckley at Insignia/ESG. But, “once people know it’s a real deal, I don’t think they are going to have a problem.”

Buckley and other brokers said the market has a good chance of firming up by the time the buildings are completed in 2002. There are few major projects that will compete against Playa Vista.

‘It’s still a great deal because there is so little new development on the Westside,” said David Thurman, a broker with Grubb & Ellis. “There are so few developable sites in and around the Westside for people who do need large blocks of space.”

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Another Try

Developer Robert F. Maguire III, right, bought land at Playa Vista on Monday to construct office buildings. Water’s Edge, shown below in an architect’s rendering, would be the first commercial development at the controversial project, which has been in the works for more than two decades.

Playa Vista Timeline

* January 1978: Summa Corp. begins working out Playa Vista plans with government officials.

* February 1989: Developer Robert F. Maguire succeeds Summa as general managing partner.

* December 1995: DreamWorks SKG unveils plans to build studio at Playa Vista.

* July 1999: DreamWorks drops plan to build studio at Playa Vista.

* July 1999: Maguire assumes responsibility of developing 114 acres of commercial buildings.

* February 2000: Builders of first 1,600 homes announced.

* March 2000: Maguire sells Santa Monica office park for $360 million; says it will funnel some proceeds to Playa Vista.

* July 2000: City officials announce study of safety risks posed by an earthquake fault and methane gas deposits.

* August 2000: Building and safety commissioners vote to allow construction and grading to continue despite methane gas concerns.

* October 2000: Playa Vista selects developer Rick Caruso to plan and most likely develop a 300,000-square-foot town center.

* December 2000: Maguire and Equity Office announce plans to build first office buildings at Playa Vista.

Source: Times research