Nobody Told Pasadena About Slowdown
Despite the cooling national economy, Pasadena real estate developers and commercial property owners are betting the city’s diverse business base will support what is one of the hottest building booms underway in Southern California.
The historic city seems well-positioned to absorb the completion of new office buildings and a major new retail and entertainment project, the $200-million Paseo Colorado. Developers are pursuing plans for major new office buildings in Pasadena’s historic core and its suburban eastern fringe.
The market “is very strong,” said Eric Duyshart, business development manager for the city of Pasadena. “We really have more demand than supply at the moment.”
Continued demand for new commercial space from financial services, engineering and high-tech firms has offset some setbacks and shifts in strategy among the city’s developers.
Along Lake Avenue, for example, delays and community opposition have hit developer Forest City’s efforts to build a large retail project adjacent to Macy’s department store. A short walk north on Lake, the site of Champion Development Group’s planned luxury hotel remains empty because financing for high-end hospitality projects has become extremely scarce and expensive.
Meanwhile, near Old Town Pasadena, developer Legacy Partners has abandoned plans to build a large office complex on former Ambassador College property after its potential anchor tenant, Internet incubator Idealab, pulled out of early discussions. Instead, Legacy will go ahead with a residential project of about 2,000 condominiums and single-family homes.
“It would have been nice if the ‘new-economy’ companies could have stayed strong,” said Bill Shubin of Legacy Partners. “But in lieu of that, this [residential proposal] is the best plan.”
Despite those setbacks, the commercial real estate market remains quite healthy in Pasadena, a city with nearly 6 million square feet of office space.
During the third quarter of 2000, the office vacancy rate fell to 4.3% from 7.4% in the year-earlier quarter, according to real estate services firm Grubb & Ellis. In fact, during the last year, Pasadena bested rivals Glendale and Burbank in leasing activity in the so-called Tri-Cities market. The market is now even tighter than the popular Westside.
The low vacancy rate and rising rents--up about 10% during the last year to about $28 a square foot annually--are signs of Pasadena’s transformation from a quaint suburb into a respected business address.
“There was a time two or three years ago when Pasadena was the softest and the slowest of the three,” said Grubb & Ellis broker Bill Boyd of the Tri-Cities. “Pasadena has gone through a significant metamorphosis.”
New projects have met with stronger-than-expected demand. For example, Koll Development Co. has leased at least half of its 176,000-square-foot Center Pasadena months before the five-story office building on Colorado Boulevard near Lake Avenue is to be completed.
“I don’t see the market slowing,” said Nico Vilgiate, a broker at Insignia/ESG. “Its tenant base is diversified and well-balanced between traditional users and new tech-related companies. The Pasadena office market is extremely tight.”
The wide mix of tenants should help buffer any blow from an anticipated shakeout among “dot-com” companies.
Although such firms account for less than 5% of the city’s outstanding office space, they were among its fastest-growing companies in the last few years, often paying top dollar for space while injecting a bit of youthful energy into the traditionally straight-laced Pasadena business scene.
Spieker Properties, one of Pasadena’s largest landlords, has several dot-com companies as tenants, including Ticketmaster Online-CitySearch Inc. But those firms make up only a small portion of its 650,000-square-foot Pasadena portfolio, which boasts an occupancy rate of 97%.
“I don’t think that there will be as much [dot-com] sublease space coming onto the market in Pasadena as in other locations,” said Jeff Nichel, who oversees Spieker’s Pasadena holdings.
The lack of available commercial space and Pasadena’s popular retail and entertainment districts have prompted new development in the central and eastern portions of the city.
Although not considered as prestigious as Colorado Boulevard or Lake Avenue, the Foothill Boulevard corridor in east Pasadena has proven popular among fast-growing companies--including many high-tech firms--drawn to the area’s large buildings and lot sizes, lower rents and free parking. One of its largest and most prominent corporate tenants is EarthLink Inc.
The area gained notice last year when the developers of Pasadena Corporate Park at Foothill Boulevard and Halstead Street quickly leased a 141,000-square-foot building in the project’s first phase to IndyMac Bancorp Inc.’s mortgage banking group.
“It’s a robust market now,” said broker Vilgiate of the city’s east end. “There is definitely a need” for more space.
A partnership headed by Orange County developer Jeffrey B. Allen plans to build a 550,000-square-foot office project next to a future Blue Line rail stop at the southeast corner of Foothill and Sierra Madre Villa boulevards. The 9.1-acre Pasadena Science and Technology Campus will target technology firms, biotech companies and traditional office tenants looking for extensive floor space, Allen said.
“There are large-enough parcels [in east Pasadena] that allow for projects of a significant scale that can be built to attract larger users,” said Allen, who is seeking approval from the city as well as the Metropolitan Transportation Authority.
Meanwhile, in central Pasadena, the prominent intersection of Colorado Boulevard and Los Robles Avenue is due for a major make-over. On the southwest corner, developer TrizecHahn Corp. is in the middle of transforming the failed Plaza Pasadena mall into Paseo Colorado, an outdoor complex of shops, restaurants, a 14-screen movie theater and nearly 400 apartments. The first stores and the theater are scheduled to open in the fall.
“Pasadena is just going to attract more people from around the region with all these different options,” said Jennifer Mares of TrizecHahn.
Across the street, on the northwest corner, Los Angeles-based Maguire Partners is going ahead with a 350,000-square-foot expansion of its existing Plaza Las Fuentes office and hotel project.
The proposed seven-story office building will try to establish new highs in Pasadena rents by asking in excess of $30 per square foot annually.
Maguire is seeking city approval and anticipates that the project would not be completed until late 2002, said Tony Morales, the partner in charge of Plaza Las Fuentes. However, the developer is already talking to a professional services company and a high-tech firm interested in leasing nearly half of the building.
“The demand is still big for this marketplace,” Morales said.
