Sale of Santa Monica Water Garden II Reported Near
The neoclassical Water Garden Phase II office complex in Santa Monica should sell soon for $260 million, according to Westside real estate sources, following bidding on the just-completed project.
An investor advised by New York-based banking giant Lazard Freres & Co. is expected to pay around $430 per square foot for the 600,000-square-foot complex in one of the region’s most popular office markets.
The price suggests a substantial profit for the developers, including J.H. Snyder Co., TransAction Cos. and an opportunistic real estate investment fund advised by Colony Capital. The team earlier projected a development cost of around $150 million for the two six-story buildings near Colorado Avenue and Cloverfield Boulevard.
Representatives of the developers, Lazard Freres and broker Eastdil Realty--which is handling the sale--all declined to comment. But sources who have followed the high-profile transaction say the developers picked the Lazard group over other top bidders, including a J.P. Morgan-managed investment fund, Brentwood-based realty advisor Douglas Emmett & Co. and Irvine Co.
Irvine Co. recently paid nearly $500 per square foot for the elegant Fox Plaza high-rise in Century City. That reportedly ranked among the highest prices ever paid for a Southern California office property.
Commercial property values are based mostly on rental income, along with expectations about future rental rates. The Water Garden is in east Santa Monica’s newly dubbed Professional & Entertainment District, which boasts some of Southern California’s highest office rents.
Santa Monica just overtook nearby Westwood as the region’s highest-rent district, according to CB Richard Ellis. The average asking rent for office space in Santa Monica is nearly $44 per square foot annually. Water Garden II has commanded some of the area’s top rents as a variety of professional, service, media and technology tenants committed to the development before its completion.
Because rents rise and fall with shifting supply and demand, it remains to be seen whether the Lazard-advised group made a favorable deal, said Ian Strano, senior vice president with commercial brokerage First Property Realty Corp. in Century City.
“It’s impossible to say for certain, but rents in Santa Monica could be $60 per foot five or 10 years from now,” he said, adding that the buyer is likely to see an initial annual return of 7% to 8% on its investment.
