Winter Garden II Office Complex Filling Up Quickly

Amid a space crunch pushing rents to record levels, the biggest new office development that Los Angeles’ bustling Westside has seen in nearly a decade has signed several new tenants as its July opening date nears and has provoked speculation about whether it will soon be sold.

Sapient Corp., Sony Music Entertainment Inc., Regus Business Centre, Carat USA, Greenberg Traurig and Getty Images Inc. are the latest companies to commit to about 300,000 square feet at the 600,000-square-foot Water Garden II complex at Cloverfield Boulevard and Colorado Avenue in Santa Monica.

Combined with earlier commitments from Foothill Group and U.S. Bancorp, the campus-style development is two-thirds leased. Developer Jerry Snyder predicted his marketing team will have commitments for virtually all the space within the next six weeks.

With annual rents at top buildings now approaching (and occasionally exceeding) the $50-per-square-foot mark and little additional development on the way in prime Westside office districts, real estate professionals expect to see Snyder’s group and other owners hang out “for sale” signs along with the “no vacancy” banners.

The biggest complex in eastern Santa Monica, the 1.15-million-square-foot MGM Plaza, just traded hands at more than $360 million. Observers suggest the Water Garden II complex would fetch even more on a per-square-foot basis.

If tenants continue taking space there at those high rents, the property could fetch as much as $240 million, or $400 per square foot, predicted investment property broker Bob Safai of Madison Partners.

“We have not yet made any kind of decision” about a sale, Snyder said. He did note that the developers will hire a consultant to consider options, including refinancing the project as they pay off the $115 million in construction loans.

But as Safai noted, the real estate community has anticipated a sale upon completion ever since opportunistic Century City investment manager Colony Capital became an equity partner in the Water Garden II development team along with Snyder’s J.H. Snyder Co. and developer Bob Bisno’s TransAction Cos.

Property values reflect the supply of and demand for commercial space in the area. And the current supply is dwindling fast--with little more on the way--while tenant demand remains scalding, noted Lisa St. John, Trammell Crow Co. senior vice president, who handles leasing at the Water Garden’s adjacent 665,000-square-foot first phase.

“It’s just an unbelievable area; the location is ground zero, the hottest in L.A.,” St. John said of the so-called professional and entertainment district, generally bounded by 20th and 26th streets, Olympic Boulevard and Broadway.

Another of the Westside’s highest-profile office properties--Century City’s 34-story Fox Plaza, owned by investor Marvin Davis-- also might change hands now that anchor tenant Fox Entertainment Group Inc. has renewed its commitment for another 15 years.

Davis Cos. Executive Vice President Mike Colleran confirmed that Davis Cos. has hired Eastdil Realty to help consider options for Fox Plaza--potentially including a sale or a refinancing. But he stressed that a sale is only one option and by no means a certainty.

The latest deals by the Water Garden II leasing team headed by J.H. Snyder’s Scott Chalmers and Brendan McCracken represent about $175 million in leases.

Sapient, an Internet consulting firm, signed on for 81,231 square feet; office suites operator Regus Business Centre, 48,103 square feet; Sony Music Entertainment, 53,072 square feet; Carat USA, a media buying company, 43,459 square feet; law firm Greenberg Traurig, 28,391 square feet; and Getty Images, 25,193 square feet.

Other new tenants include Partners Specialty Group, an insurance firm, and Inscape Inc., a business furniture supplier.