Commercial condo trend worries Beverly Hills officials

Beverly Hills has long afforded companies a platinum-plated address with amenities to match -- top-notch restaurants, hotels and boutiques in a walkable environment.

The city has attracted such prestigious businesses as MySpace, Live Nation, Platinum Equity and talent agencies William Morris and the Firm.

But in recent years Beverly Hills has suffered the loss of three high-profile companies: Creative Artists Agency and ICM, talent agencies that migrated to Century City; and Hilton Hotels Corp., which moved to Virginia after being acquired by Blackstone Group.

Conscious of those departures, the city has zeroed in on a new trend in commercial buildings that officials fear could hamper its ability to lure more big companies.


The trend is the move toward converting leased buildings into “office condos” in which square footage would be owned by the commercial entities that occupy it. Building owners who have embraced the concept say the strategy allows companies to build equity, much as residents (in good economic times) benefit from condo ownership.

But city officials fear that these “commercial subdivisions” could cost the city money in lost tax and fee revenue and make it more difficult to consolidate space for big employers.

“We are trying to attract large corporate tenants that would need more floor area,” said Susan Healy Keene, the city’s new community development director. “If we have a number of buildings that subdivide, that could make consolidation of those spaces more challenging.”

With that in mind, the City Council voted this month to begin a public process to determine if office condos are a good strategy for the city or if they afford greater benefits to the property owners at the city’s expense. The first hearing will be before the city’s Planning Commission on July 23.

So far, the city has approved two “common interest subdivisions of commercially zoned property,” Keene said.

The owner of the Flynt building on Wilshire Boulevard won city approval for a conversion but let the option expire without making the switch. Last October, the city approved a commercial subdivision for a medical building on North Robertson Boulevard.

“We anticipate more of these applications, so we’re giving the council and the Planning Commission the opportunity to evaluate the process and options,” said Cheryl Friedling, a city spokeswoman. “It’s a robust opportunity to identify how they want to see the city move forward.”

Cape Horn Group recently floated a plan to convert its building on El Camino Drive, where employees of the recently merged William Morris Endeavor Entertainment are ensconced as they wait for their new headquarters building to be completed at Beverly Drive and Wilshire Boulevard.

Cape Horn, based in Santiago, Chile, paid $143 million for the property and envisions doing there what it has successfully done with buildings it owns in Chicago and Miami. The idea is also catching on in Anaheim and Costa Mesa.

“The concept has proved to be very successful in [cities] where Cape Horn has other properties,” said a representative close to the firm who asked that he not be named. He said Cape Horn was preparing information that would show that the conversion would be a “revenue-enhancing proposal.”

Beverly Hills certainly has not lost its cachet as a business address. The city of about 38,000 residents has a daytime population of nearly 300,000 -- mostly office and retail workers, not ladies who lunch.

But the loss of CAA, ICM and Hilton -- three stellar employers -- was painful.

“We regretted losing all of those headquarters businesses,” said Anita Zusman Eddy, vice president of economic development and government affairs with the Beverly Hills Chamber of Commerce.

Among the high-status companies that remain are MySpace, the social networking company; Live Nation, a top producer and promoter of live entertainment; City National Bank; and Platinum Equity, a leveraged buyout firm that just bought Delphi Corp., General Motors Corp.'s bankrupt auto parts business.

But the city would like to see more like them and is busily promoting its Class A office buildings as landing pads for big, high-end tenants. It’s especially eager to snare ICM, which city officials say regretted leaving Beverly Hills and for a year has been exploring the idea of moving back.

ICM’s return would be especially satisfying, officials say.

“We’re in constant discussion with them,” said Councilman Barry Brucker. “We will try very hard to encourage that decision.”