Equity Office Repositions, Refurbishes SoCal Portfolio
- Sep 02, 2008
About 18 months after Equity Office Properties Inc. was acquired by The Blackstone Group, the company is still in existence with more than 300 properties totaling more than 50 million square feet. “As Blackstone purchased CarrAmerica (Properties), Trizec (Properties) and Equity Office Properties in 2006 and 2007, each of those portfolios was sold off. What is left is around 55 million square feet and that portfolio is primarily concentrated in New York, Boston, Northern California and Southern California with some in the Midwest, Texas and Denver,” Frank Campbell (pictured), market managing director for Equity Office in Southern California, told CPN. “Those are the submarkets that we had a long term interest in. The supply and demand seem to be very strong in all four of those parts of the country,” he said. “Now we’re in a situation where we’ve rolled those four core markets together taking portions of those three companies all rolled up and operating under the Equity Office brand in Chicago. Each operates locally.” But, like most commercial property owners in the U.S. they face the challenges of a cautious market. “Overall leasing momentum has cooled and because of that, some of the properties have seen price adjustments,” Campbell said. “None are clicking on all cylinders. People are still making decisions to run their businesses and we’re seeing a fair amount of general leasing with that tenant base. I think as we roll into 2009 that we’ll maintain the same kind of temperament as we have today.” In the first two quarters of the year, Equity Office signed more than 357,000 square feet of new and renewal leasing across its about 13 million square feet in the Southern California portfolio. The firm has also devoted about $25 million to renovating its properties, too. Some of the properties in the portfolio were owned by various companies and needed to be repositioned, he said. The capital infusion is designed to lease up the properties. “Obviously we want to make the buildings more competitive and more contemporary from a functional standpoint as we go into the future,” Campbell said. “We’re concentrating on leasing and we have to provide the kind of quality, finishes and flexibility to be more competitive than we had to when the market was in more demand.” Equity’s Southern California portfolio is about 90 percent leased, he said. Located mostly in Class A high-rise and mid-rise office buildings, leasing demand in West Los Angeles has flattened and rents have moderated quite a bit, Campbell said. “That is less about the supply side and more about the demand side,” he explained. “Companies are moving a little more cautiously today in their decisions regarding long term real estate commitments. They’re making shorter term commitments to more of a right-sized look at their business and not as aggressively looking at expansion plans. They’re taking a bit of pause with the state of the economy.” Among the new leasing activity was 20,000 square feet for Omnicom at Howard Hughes Center: 17,975 square feet for Activision lease expansion at Santa Monica Business Park; 11,000 square feet by Pandemic at 1100 Glendon; 56,000 square feet by Fox Interactive Media at the Yahoo! Center in Santa Monica. Completed renovations in Los Angeles include $2 million at 6701 Center Drive (Howard Hughes Tower) Los Angeles; and $2 million at 5670 Wilshire Blvd. Los Angeles. San Diego renovations completed include $2.5 million at 701 B Street. Renovations in progress include $2 million at 233 Wilshire (Searise Office Tower) in Santa Monica; $1 million at Sorrento Towers, 5375 Mira Sorrento Place in San Diego. Equity Office was acquired by Blackstone in 2007 bringing Equity Office’s portfolio together with other Blackstone office asset holdings, primarily from its acquisitions of CarrAmerica Properties and Trizec Properties. Integrating these predominantly Class A properties under one name – Equity Office – Blackstone has created a real estate platform for future office investments. Equity Office is headquartered in Chicago and is an owner and operator of primarily Class A office buildings in multiple markets across the country. The company is owned by an affiliate of The Blackstone Group, a global private equity firm. Equity Office currently includes more than 300 properties and more than 50 million square feet in select markets across the country, with major concentrations in Boston, Los Angeles, Northern California, and Midtown Manhattan.