VENTURA COUNTY BUSINESS
Two Century City high-rises that traded hands less than two years ago are for sale again as their owners look to take advantage of increased values and what may be peak market conditions.
Westside real estate professionals expect that Divco West Properties and Bentall Corp. will make substantial profits as they sell the 20-story 1901 Avenue of the Stars and 21-story 1888 Century Park East towers, respectively.
The sales efforts come amid expectations of a slowdown in Southland office-tenant growth and a downsizing among Westside dot-com tenants. But rents continue to rise at top Westside towers, and capital markets still view well-located Southern California commercial properties as favored investments.
“It’s a good time to take some money off the table,” said John Moe, San Jose-based Divco West’s regional vice president of portfolio management.
Divco West and its New York financial partner, Westbrook Partners, engaged L.A. real estate investment banking firm Secured Capital Corp. to sell one of two high-rises the partners bought in spring 1999 from Shuwa Investments for a total of about $200 million.
At this point, Divco wants to sell just the 1901 tower. Intense leasing activity has seen its rental revenue rise at a faster pace than its sister 28-story property at 1900 Avenue of the Stars, Moe said. The towers, built in the late 1960s, were about 78% leased when Divco West and Westbrook bought them. Today they’re about 97% occupied.
Canadian office-property specialist Bentall engaged investment banking firm Lazard Freres & Co. to sell the 1970-vintage 1888 Century Park East, as well as two Orange County office properties and a pair of Seattle suburban complexes.
Bentall bought 1888 Century Park East from an affiliate of Chicago’s Heitman Capital Management for $111 million in August 1999 and embarked on a $5-million renovation. Major tenants include SCPIE Holdings and Sullivan & Cromwell. Turner Broadcasting will soon leave for Santa Monica.
The prospective sales reflect an effort to “capture the value we have created” and redeploy proceeds into higher-return real estate development ventures, said Bentall Chief Executive Mark Shuparski.
Bentall and Divco face a buyer market composed mostly of institutional investors, along with perhaps certain publicly traded real estate investment trusts, wealthy individuals seeking alternatives to the stock market and some offshore buyers, said Kevin Dretzka, managing director of Eastdil Realty in Century City.
Slowing economic growth and the dot-com retreat notwithstanding, real estate investors are motivated by office rents that continue to rise in the Westside’s prime commercial districts.
CB Richard Ellis reports that rents in greater Westside rose 23.5% last year and now average nearly $38.50 per square foot annually. Another brokerage, Colliers Seeley, says average Century City rents hopped about 16.5% last year to $37.32 as the vacancy rate fell from 7.1% to 4%.
Such numbers appeal to investors and suggest attractive profit prospects for owners looking to cash out. Irvine Co. last year paid Davis Cos. nearly $500 per square foot for Fox Plaza, one of Century City’s newest and highest-rent towers. That ranks among the highest prices ever paid for a large Southern California office property.
Investors over the last few months paid $240 and $250 per square foot for two small Century City office buildings, 1940 Century Park East and 1930 Century Park West. Moe declined to speculate what price 1901 Avenue of the Stars might fetch, other than to predict it will be substantially more than the Divco-Westbrook team’s acquisition price.
Colliers Seeley Senior Vice President Steve Solomon estimated that buyers will probably be willing to pay as much as $300 per foot for the 1901 and 1888 towers. Factoring in all post-acquisition costs, that would amount to perhaps a $50-per-square-foot net profit, or nearly $23 million total, for Divco and Westbrook.
