Pre-Effective Amendment to Registration Statement for Securities of a Real Estate Company — Form S-11
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EXHIBIT 99.4
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OFFICE MARKET STUDY
Los Angeles County
Downtown Los Angeles Central Business District
Tri-Cities Westside Los Angeles
Cerritos
Los Angeles, California
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Prepared For:
Mr. Jeffrey E. Friedman
Principal
MAGUIRE PARTNERS
555 West Fifth Street, Suite 5000
Los Angeles, CA 90013-1010
Prepared By:
James W. Myers, MAI
CUSHMAN & WAKEFIELD OF CALIFORNIA, INC.
Los Angeles Valuation Advisory Services
601 South Figueroa Street, Suite 4700
Los Angeles, California 90017
February 26, 2003
Mr. Jeffrey E. Friedman
Principal
MAGUIRE PARTNERS
555 West Fifth Street, Suite 5000
Los Angeles, CA 90013-1010
RE: OFFICE MARKET ANALYSIS
LOS ANGELES COUNTY
DOWNTOWN LOS ANGELES
TRI-CITIES
WESTSIDE LOS ANGELES
CERRITOS
LOS ANGELES, CALIFORNIA
Dear Mr. Friedman:
At your request Cushman & Wakefield of California, Inc. has completed
the office market study covering Los Angeles County, with focus on the downtown
Los Angeles CBD market, where Maguire Partners assets include four Class A
office buildings, and Maguire Partners is the largest owner/manager of Class A
office buildings in this market terms of total square feet. The study also
includes Tri-City markets, the Westside Los Angeles markets and the Cerritos
markets. We have also provided a market study for the Pasadena hotel markets.
The information and analysis contained in this market study is based on data
available during the period year-end 2002 to first quarter, 2003, and does not
reflect data or changes subsequent to that period.
This information contained in this market study has been gathered from
sources assumed to be reliable, including publicly available records. Because
records of all transactions are not readily available, the information contained
in the market study may not reflect all transactions occurring in the geographic
area discussed in the market study. In addition, transactions that are reported
may not be described accurately or completely in the publicly available records.
Cushman & Wakefield of California, Inc. is not responsible for and does not
warrant the accuracy or completeness of any such information derived from such
publicly available records.
In connection with this market study, Cushman & Wakefield of California,
Inc. made numerous assumptions with respect to industry performance, general
business and economic conditions, and other matters. Any estimates or
approximations contained herein could reasonably be subject to different
interpretations by other parties. Because predictions of future events are
inherently subject to uncertainty, Cushman & Wakefield of California, Inc. or
any other person cannot assume that such predicted rental rates, absorption, or
other events will occur as outlined or predicted in this market study. Reported
asking rental rates of properties
Mr. Jeffrey Friedman
MAGUIRE PARTNERS PAGE 2 February 26, 2003
do not purport to necessarily reflect the rental rates at which properties may
actually be rented. In many instances, asking rents and actual rental rates
differ significantly.
Changes in local, national and international economic conditions will
affect the markets described in this market study. Therefore, Cushman &
Wakefield of California, Inc. can give no assurance that occupancy and
absorption levels and rentals rates as of the date of this market study will
continue or that such occupancy levels and rental rates will be attained at any
time in the future. Forecasts of absorption rates and rental activity are
Cushman & Wakefield of California Inc.'s estimates as of the date of this market
study. Actual future market conditions may differ materially from the forecasts
and projections contained herein.
Cushman & Wakefield of California, Inc. is part of a national network of
affiliated companies providing real estate services. As such, from time to time,
Cushman & Wakefield of California, Inc. and its affiliates have provided and in
the future may provide real estate related services, including appraisal,
brokerage and leasing services, to Maguire Partners.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF CALIFORNIA, INC.
James W. Myers, MAI
Managing Director
Valuation Advisory Services
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TABLE OF CONTENTS
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PAGE
REGIONAL ECONOMIC AND DEMOGRAPHIC ANALYSIS ..............................1
LOS ANGELES COUNTY OFFICE MARKET .......................................20
DOWNTOWN LOS ANGELES MARKET AREA ANALYSIS ..............................35
DOWNTOWN LOS ANGELES OFFICE MARKET .....................................78
TRI-CITIES OFFICE MARKET ANALYSIS .....................................115
LODGING MARKET SUPPLY AND DEMAND ANALYSIS .............................130
WESTSIDE LOS ANGELES OFFICE MARKET ....................................145
CERRITOS/LOS ANGELES SOUTH OFFICE MARKET ANALYSIS .....................176
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The Los Angeles area is one of the most dynamic economic regions in the world.
Los Angeles and the surrounding counties comprising the greater metropolitan
area have fared better than most major cities in the U.S. throughout the recent
downturn in the economy, and is poised for considerable economic expansion over
the next several years. The following discussion of the economic forces and
demographic characteristics of Los Angeles and the outlying areas demonstrates
the maturity the Los Angeles economy has achieved over the past decade through
diversification, expanded infrastructure, and a growing population.
Regional Area Overview
The Los Angeles-Long Beach Primary Metropolitan Statistical Area (PMSA) in
Southern California is the largest of the four PMSAs within the Los Angeles
Consolidated Metropolitan Statistical Area (CMSA), which is also comprised of
the PMSAs of Ventura, Orange County and Riverside-San Bernardino. Los Angeles
County comprises the Los Angeles PMSA and encompasses 4,081 square miles and
more than 88 independent cities, towns, and municipalities. The City of Los
Angeles is the largest incorporated area within the Los Angeles PMSA (Los
Angeles). The Los Angeles PMSA's central Southern California location provides
an extensive transportation network that includes major north-south and
east-west interstate highways, four major airports, including Los Angeles
International (LAX), and the Port of Los Angeles-Long Beach - respectively, the
third busiest airport and the third busiest port in the world.
[LOS ANGELES CMSA AND COMPONENT PMSAS GRAPHIC]
Among the region's four PMSAs, Los Angeles is by far the largest in terms of
gross metro product (GMP), total employment and population. Los Angeles is the
largest metro economy in California and the second largest metro economy in the
nation - trailing only New York. In terms of total employment, Los Angeles ranks
third behind only New York and Chicago. Los Angeles accounts for 3.7 percent of
the U.S. GDP, 3.4 percent of its population and 3.1 percent of its total
employment.
Demographic Profile
Los Angeles' population is young and educated. The metro area's median age is
32.2 years -significantly below the national average of 35.6 years. Los Angeles
also boasts significantly more individuals who are college graduates or who have
advanced degrees (22.1 percent) than
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the national average of 20.8 percent. The high levels of education earned by Los
Angeles residents translates into high earnings potential. The average household
income in Los Angeles County is $71,353 and $50,251 is the current median income
level. The average and median household incomes for Los Angeles are 10.9 percent
and 5.7 percent above the U.S. average, respectively. Los Angeles particularly
diverges from the U.S. averages at the upper end of the income scale with a
significantly greater percentage (18.5 percent) of the population earning over
$100,000 per year in the county than the 15.5 percent on a nation-wide basis.
DEMOGRAPHIC CHARACTERISTICS
LOS ANGELES COUNTY VS. U.S. - 2002
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CHARACTERISTIC LOS ANGELES COUNTY U.S.
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Median Age (years) 32.2 35.6
Average Household Income $71,353/YR $64,338/YR
Median Household Income $50,251/YR $47,532/YR
Households by Income Level:
$500,000 or more 1.0% 0.5%
$250,000-$449,999 1.7% 1.2%
$150,000-$249,999 5.0% 4.6%
$100,000-$149,999 10.8% 9.2%
$75,000-$99,999 12.1% 11.8%
$50,000-$74,999 19.7% 20.2%
$35,000-$49,999 15.3% 15.6%
$25,000-$34,999 11.4% 11.7%
$15,000-$24,999 11.3% 12.1%
Under $15,000 11.9% 13.2%
Education Breakdown:
High School Graduate (or GED) 20.8% 29.8%
Some College, no degree 19.8% 19.1%
Associate Degree 7.4% 6.3%
Bachelor Degree 14.4% 13.5%
Graduate or Professional Degree 7.7% 7.3%
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Source: Claritas, Inc.
Population
Los Angeles County is the most populous of all the counties in California with
an estimated 2002 population of 9,774,284 and it accounts for 28 percent of the
state population and 49.5 percent of the population in Southern California. Los
Angeles County has experienced a moderate population growth rate of 1.22 percent
annually since 1980. Los Angeles County's overall population increase has
surpassed all other counties in the state by a wide margin. The county's
population increase over the period from 1980 to 2002 was an estimated
2,296,777. The second highest population increase was in San Diego County, which
added an estimated 1,029,959 people, less than half the increase for Los Angeles
County. The following table summarizes the demographic profiles for the six
major counties comprising southern California as well as southern California
overall and the state of California.
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DEMOGRAPHIC PROFILE
Southern California 2002
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LOS ANGELES ORANGE RIVERSIDE SAN BDNO. SAN DIEGO VENTURA SOUTHERN STATE OF
COUNTY COUNTY COUNTY COUNTY COUNTY COUNTY CALIFORNIA* CALIFORNIA
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POPULATION
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2007 Projection 10,346,884 3,150,897 1,748,602 1,892,159 3,080,208 817,801 21,036,551 37,286,835
2002 Estimate 9,774,284 2,933,481 1,600,822 1,760,862 2,891,806 771,922 19,733,177 34,876,614
2000 Census 9,519,338 2,846,289 1,545,387 1,709,434 2,813,833 753,197 19,187,478 33,871,648
1990 Census 8,863,164 2,410,556 1,170,413 1,418,380 2,498,016 669,016 17,029,545 29,760,021
1980 Census 7,477,507 1,932,710 663,166 895,016 1,861,847 529,174 13,359,420 23,667,908
Overall Increase 1980-1990 18.5% 24.7% 76.5% 58.5% 34.2% 26.4% 27.5% 25.7%
Overall Increase 1990-2002 10.3% 21.7% 36.8% 24.1% 15.8% 15.4% 15.9% 17.2%
Overall Increase 2002-2007 5.9% 7.4% 9.2% 7.5% 6.5% 5.9% 6.6% 6.9%
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HOUSEHOLDS
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2007 Projection 3,367,298 1,014,650 560,879 569,737 1,083,996 263,439 6,859,999 12,511,538
2002 Estimate 3,207,177 958,216 521,222 540,349 1,021,012 249,058 6,497,034 11,803,522
2000 Census 3,133,744 935,287 506,218 528,594 994,677 243,234 6,341,784 11,502,870
1990 Census 2,989,552 827,066 402,067 464,737 887,403 217,298 5,788,123 10,381,206
1980 Census 2,730,469 686,267 242,937 308,643 670,094 172,781 4,811,191 8,629,861
Overall Increase 1980-1990 9.5% 20.5% 65.5% 50.6% 32.4% 25.8% 20.3% 20.3%
Overall Increase 1990-2002 7.3% 15.9% 29.6% 16.3% 15.1% 14.6% 12.2% 13.7%
Overall Increase 2002-2007 5.0% 5.9% 7.6% 5.4% 6.2% 5.8% 5.6% 6.0%
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AVERAGE HOUSEHOLD SIZE
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2007 Projection 3.07 3.11 3.12 3.32 2.84 3.10 3.07 2.98
2002 Estimate 3.05 3.06 3.07 3.26 2.83 3.10 3.04 2.95
2000 Census 3.04 3.04 3.05 3.23 2.83 3.10 3.03 2.94
1990 Census 2.96 2.91 2.91 3.05 2.81 3.08 2.94 2.87
1980 Census 2.74 2.82 2.73 2.90 2.78 3.06 2.78 2.74
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HOUSEHOLD INCOME
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2002 Average $71,353 $90,490 $60,999 $59,253 $73,377 $84,232 N/A $75,364
2002 Median $50,251 $68,871 $45,802 $46,772 $56,039 $67,299 N/A $55,014
2002 Per Capita Income $23,422 $29,355 $19,962 $18,237 $26,368 $27,463 N/A $25,649
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HOUSEHOLDS BY INCOME
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2002 Estimated Households 3,207,177 958,216 521,222 540,349 1,021,012 249,058 6,497,034 11,803,522
$500,000 or more 1.0% 1.1% 0.5% 0.3% 0.6% 0.7% 0.8% 0.1%
$250,000-$449,999 1.7% 2.4% 1.0% 0.7% 1.4% 1.8% 1.6% 1.8%
$150,000-$249,999 5.0% 8.9% 2.7% 2.5% 6.1% 7.6% 5.4% 6.5%
$100,000-$149,999 10.8% 16.6% 8.0% 8.5% 11.7% 16.7% 11.6% 12.0%
$75,000-$99,999 12.1% 16.0% 11.6% 12.0% 13.8% 16.8% 13.1% 13.0%
$50,000-$74,999 19.7% 20.7% 21.7% 22.5% 21.6% 21.0% 20.6% 20.0%
$35,000-$49,999 15.3% 13.5% 16.5% 16.6% 15.3% 13.3% 15.1% 14.5%
$25,000-$34,999 11.4% 8.3% 12.5% 12.0% 10.9% 8.4% 10.9% 10.6%
$15,000-$24,999 11.3% 6.9% 13.3% 12.7% 9.9% 7.7% 10.6% 10.6%
Under $15,000 11.9% 5.7% 12.4% 12.2% 8.7% 6.2% 10.3% 0.1%
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OCCUPIED UNITS
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Total Occupied Units 3,207,177 958,216 521,222 540,349 1,021,012 249,058 6,497,034 11,803,522
Owner Occupied 47.9% 61.5% 69.0% 64.6% 55.6% 67.6% 54.9% 57.0%
Renter Occupied 52.2% 38.5% 31.0% 35.4% 44.4% 32.4% 45.1% 43.0%
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EDUCATION
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Bachelor Degree Only 14.4% 19.0% 10.3% 10.0% 16.8% 15.2% 14.8% 15.3%
Graduate Degree 7.7% 9.4% 5.0% 5.2% 9.0% 7.9% 7.7% 8.0%
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Source: Claritas, Inc.
*Analysis assumes six major Southern California counties are a representative
cross sampling for the region.
Population growth trends are expected to reverse through 2007, as the Los
Angeles population is expected to grow at a rapid 1.15 percent annually,
compared to the projected California. rate of 1.34 percent per year. This rate
far exceeds the 0.72 percent average population growth rate
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experienced between 1990 and 2000 and is fueled by the strong economic outlook
for the region.
The population for Los Angeles County is projected to increase by 5.9 percent
from 2002 to 2007 as reported by Claritas Inc. Los Angeles County will be
responsible for an estimated 23.9 percent of the projected population growth for
the state from 2002 to 2007, with Southern California accounting for 54.2
percent.
Los Angeles's population is clustered in the southern half of the PMSA south of
the San Gabriel Mountains. The most densely populated regions are located in
close proximity to the major freeways such as the I-10 (Culver City, Hollywood,
Los Angeles), between the I-110 and I-710 north of I-105, and between I-710 and
I-605 south of I-105. The most sparsely populated zip codes are located in the
undeveloped San Gabriel Mountains and along the highly desirable, affluent beach
regions around Malibu north of Santa Monica as well as in the southern coastal
area of Rancho Palos Verdes. In addition, the Santa Monica Mountains between the
ocean and the San Fernando Valley is an area where development is highly
restricted and is sparsely populated. The direction of development is generally
north and east.
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POPULATION DENSITY BY ZIP CODE
LOS ANGELES PMSA
2002
[MAP]
Source: Claritas, Inc., Cushman & Wakefield Analytics
Income
In 2002 Los Angeles's median household income was about $50,300, roughly 5.9
percent higher than the national average of $47,500. Over the past 10 years, Los
Angeles's has experienced a 2.1 percent average annual growth in median
household income. Through 2007, Los Angeles's median household income growth is
expected to grow similarly at a 3.2 percent annual rate.
Within Los Angeles County, the highest median incomes are concentrated in four
areas: 1) the sparsely-populated beach and mountains around Malibu and the hills
to the south of San Fernando Valley, 2) the communities of Brentwood, Bel-Air
and Beverly Hills to the east of
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Interstate 405, 3) Palos Verdes to the south, at the west of the southern
terminus of Interstate 110, and 4) the area around Pasadena above Interstate
210. The lowest median household incomes are in Central and East Los Angeles.
MEDIAN HOUSEHOLD INCOME DISTRIBUTION BY ZIP CODE
LOS ANGELES PMSA
2002
[MAP]
Source: Claritas, Inc., Cushman & Wakefield Analytics
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Regional Economic Overview
REAL GROSS PRODUCT GROWTH BY YEAR
LOS ANGELES PMSA VS. TOP 100 METROS
1990 - 2006
[BAR GRAPH]
Source: Economy.com, Cushman & Wakefield Analytics
Los Angeles's economic growth, like that in many U.S. markets, slowed during the
recent U.S. economic recession. As the entertainment and defense industries
boost gross product, however, the metro area is expected to nominally outpace
the top 100 US metro areas with an average annual growth rate of 3.7 percent in
gross product through the four-year forecast period ending in 2006.
Los Angeles is recognized throughout the world as the global entertainment
capital. The film industry is one of the largest industries in Los Angeles,
employing over 130,000 people. The industry is one of the few nationwide to see
stable demand and some pricing power. After some concern about more filming
taking place outside of Los Angeles, on-location filming within the region is
again back on track. In addition, Nielsen EDI reports nationwide box office
receipts were up by more than 12 percent for 2002.
Foreign trade also plays a large role in the regional economy. Shipments through
the ports of Los Angeles and Long Beach dipped temporarily in October 2002 due
to the work stoppage on the docks. The longer term trend, however, is decidedly
upward from the recent trough during 2000 and early 2001. Given ongoing
modernization and computerization at the docks and warehouses, the pending
rebound will be moderate, but the industry should provide a boost to the local
economy as the U.S. and global economies accelerate in 2003.
Defense-related aerospace stands to benefit from the recently announced increase
in defense spending related to the war on terrorism. This could be a boon to the
Los Angeles metro economy as the local industry includes 250 contractors that
produce components for aircraft and weapons systems.
Longer term, the outlook for the metro area remains positive. Los Angeles will
increasingly strengthen its position as the major point of trade for the Pacific
region, and despite recent challenges, the entertainment industry is expected to
remain a strong economic driver. Defense will also be a positive driver, at
least through the decade, helping to ensure Los Angeles's
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economic stability.
Employment Trends
The current unemployment levels are significantly below the peak levels
experienced during the years from 1992 to 1994. Employment levels since 1994
have substantially improved in the state and the six-county southern California
region as illustrated in the following table.
COUNTY EMPLOYMENT STATISTICS
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NOV-02 DEC-02 PERCENT CHANGE
COUNTY OF LOS ANGELES* DEC-01 OCT-02 REVISED PRELIM. MONTH YEAR
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Civilian Labor Force 4,925.9 4,922.7 4,924.5 4,885.2 -0.8% -0.8%
Civilian Employment 4,634.5 4,616.2 4,630.8 4,604.1 -0.6% -0.7%
Civilian Unemployment 291.4 306.5 293.7 281.1 -4.3% -3.5%
Civ. Unemployment Rate 5.9% 6.2% 6.0% 5.8%
(Cal. Unemployment Rate) 5.8% 6.3% 6.4% 6.3%
(U.S. Unemployment Rate) 5.4% 5.3% 5.7% 5.7%
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Farm 8.1 8.5 8.0 8.2 2.5% 1.2%
Mining 4.2 4.1 4.1 4.1 0.0% -2.4%
Construction 133.7 130.9 129.6 129.7 0.1% -3.0%
Manufacturing 595.0 578.1 577.3 576.5 -0.1% -3.1%
Transportation & Public Util. 248.1 248.5 248.4 249.6 0.5% 0.6%
Wholesale Trade 264.1 263.6 263.8 264.2 0.2% 0.0%
Retail Trade 662.9 639.2 651.7 658.1 1.0% -0.7%
Finance, Insurance & R.E. 234.6 235.1 235.4 235.8 0.2% 0.5%
Services 1,362.9 1,366.4 1,368.0 1,365.2 -0.2% 0.2%
Federal Military Govt. 3.6 3.5 3.5 3.5 0.0% -2.8%
Federal Civilian Govt. 51.2 50.7 52.2 53.6 2.7% 4.7%
State & Local Govt. 555.1 555.1 558.9 556.9 -0.4% 0.3%
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TOTAL 4,123.5 4,083.7 4,100.9 4,105.4 0.1% -0.4%
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*Los Angeles-Long Beach MSA
Labor Force and Industry Employment. March 2001 Benchmark. Data Not Adjusted for
Seasonality. Non-Percentage Data in Thousands
This information is produced by the Labor Market Information Division of the
California State Employment Development Department (EDD).
In terms of its industry sector composition, the economic diversity of Los
Angeles is highly comparable to the top 100 US metro areas. Only services and
trade account for more than 20 percent of the metro area's total employment.
While more heavily weighted in the manufacturing sector than the top 100 as a
whole, Los Angeles employment base is relatively under-weighted in the
construction sector and to a lesser degree in the finance, insurance, and real
estate (FIRE) sector.
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EMPLOYMENT BY SECTOR
LOS ANGELES PMSA VS. TOP 100 METROS
1990 - 2006
[BAR GRAPH]
Source: Economy.com, Cushman & Wakefield Analytics
Services
Included in the services industry are the sectors of personal services, business
services, motion pictures, amusement and recreation, health services, private
educational, engineering, management, and hotels and lodging. In Los Angeles
County, the services industry employed nearly 1.3 million workers as of 2002 and
sectors within the services industry actually increased employment levels over
the year.
According to the 2001 annual average statistics, services is the largest
industry in the County, accounting for 33 percent of total employment.
Industry Employment Projections for 1997-2004 indicate that the services
industry will add another 197,200 jobs, a growth of 15.6 percent over the
forecast period. The business and health services sectors are forecast to remain
the principal components of the services segment of the economy and experience
the largest overall growth.
Trade
Los Angeles County is considered to be a very attractive retail market on a
nationwide basis as it compares favorably to other metropolitan areas in terms
of total population, total effective buying income, and total retail sales. The
retail trade industry currently accounts for 16 percent of all employment, with
a majority of the jobs in the eating and drinking places sector. The retail
trade industry experienced an increase in the number of jobs during the past
year. The county's retail trade sector employment was 658,100 in 2002, showing a
0.2 percent increase from 2001.
One of the primary catalysts for growth within the trade industry has been the
increased volume of international trade. The Los Angeles Customs District is the
largest customs district in the country in terms of the dollar value of annual
two-way trade. Presented below are the freight volumes for the Los Angeles/Long
Beach Ports and Los Angeles International Airport.
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FREIGHT CONTAINER VOLUMES - LOS ANGELES AREA PORTS
(1988-2002)
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LOS ANGELES ONTARIO INTERNATIONAL
PORT OF LOS ANGELES PORT OF LONG BEACH INTERNATIONAL AIRPORT AIRPORT TOTAL
YEAR (TEUS) (TEUS) TOTAL AIRFREIGHT (TONS) AIRFREIGHT (TONS)
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1988 1,652,070 1,539,803 1,058,919 N/A
1989 2,056,980 1,575,117 1,099,974 N/A
1990 2,116,980 1,598,078 1,130,119 N/A
1991 2,038,537 1,767,824 1,095,580 N/A
1992 2,289,223 1,829,457 1,202,317 N/A
1993 2,318,918 2,079,491 1,288,503 N/A
1994 2,518,618 2,573,827 1,516,568 N/A
1995 2,555,344 2,843,502 1,567,248 N/A
1996 2,682,802 3,067,334 1,696,663 N/A
1997 2,959,715 3,504,603 1,852,487 N/A
1998 3,378,217 4,097,689 1,787,400 N/A
1999 3,828,851 4,408,480 1,912,147 N/A
2000 4,879,429 4,600,787 2,249,000 N/A
2001 5,183,520 4,462,967 1,955,665 462,786
2002 6,105,863 4,526,365 1,962,354 547,461
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Container TEU = 20 Foot Equivalent Unit
The port operators' focus on technological advancements such as larger cargo
cranes and dockside rail connections have been significant factors behind the
growth in international trade through the Ports of Los Angeles and Long Beach.
Significant improvements to the Port of Los Angeles include the proposed
expansion of Pier 400. This project will ultimately add 583 acres to the harbor.
Dredging for the first 265 acres is underway. Completion is scheduled for 2020
which will double the capacity for cargo handling in Los Angeles. The completion
of Los Angeles County's Alameda Corridor project in 2002 is another example of
the area's commitment to improving port efficiency. The Alameda Corridor is a
rail service from the ports to downtown Los Angeles with connections to the vast
rail system in Southern California. The project includes four rail lines
connecting the port area with downtown Los Angeles. The purpose of the Alameda
corridor was to increase port efficiency while decreasing truck traffic.
Manufacturing
Manufacturing has historically provided a strong base for the Los Angeles area
economy, maintaining its position as the nation's largest manufacturing center.
Manufacturing makes up 14 percent of the total employment with a concentration
of jobs in the apparel and other textile products sector. Within Los Angeles
County, manufacturing is the second largest industry division behind warehousing
and distribution. As with the economy overall, the manufacturing industry boomed
during the 1980's to reach a employment high of 851,900, but then saw employment
decrease 18.8 percent from 1990 to its lowest level at 629,600 by the end of
January 1995. This was largely due to major cutbacks within the
aerospace/defense industry. Employment has since remained stable, but is
currently demonstrating signs of decline. Currently, manufacturing employment in
Los Angeles County stands at 576,500 as of 2002, representing a 3.0 percent
decrease over the prior year.
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VALUATION ADVISORY SERVICES 10 [CUSHMAN & WAKEFIELD LOGO]
REGIONAL ECONOMIC AND DEMOGRAPHIC ANALYSIS
LOS ANGELES COUNTY MAJOR COMPANIES
Presented below are the top ten private and public companies (listed by
revenues) for Los Angeles County as compiled in the Los Angeles Business
Journal.
LOS ANGELES COUNTY'S TOP 10 PRIVATE COMPANIES
(Ranked by 2000 Revenue)
[Enlarge/Download Table]
NAME LOCATION REVENUES
----------------------------------------------------------------------------------------
Capital Group Cos. Inc. Los Angeles $4,500,000,000
Unified Western Grocers Commerce $3,067,100,000
Consolidated Electrical Distributors Inc. Westlake Village $2,700,000,000
Parsons Corp. Pasadena $2,400,000,000
Cook Inlet Energy Supply Los Angeles $2,100,000,000
J.F. Shea Co. Inc. Walnut $1,862,800,000
California Dairies Inc. Artesia $1,830,000,000
A-Mark Financial Corp. Santa Monica $1,812,000,000
Trader Joe's Co. Monrovia $1,670,000,000
AECOM Technology Corp. Los Angeles $1,403,000,000
Source: Los Angeles Business Journal (The 2002 List)
LOS ANGELES COUNTY'S TOP 10 PUBLIC COMPANIES
(Ranked by 2000 Revenue)
[Enlarge/Download Table]
MARKET VALUE REVENUES
NAME LOCATION (MILLIONS) (MILLIONS)
-----------------------------------------------------------------------------------------------------
The Walt Disney Co. Burbank $58,832 $25,402
Occidental Petroleum Corp. Los Angeles $10,129 $13,574
Edison International Rosemead $ 3,604 $11,717
Computer Sciences Corp. El Segundo $ 5,838 $ 9,371
Wellpoint Health Network Thousand Oaks $ 5,857 $ 9,229
Health Net Inc. 7 Woodland Hills $ 2,153 $ 9,077
Unocal Corp. El Segundo $ 8,241 $ 8,914
Northrop Grumman Corp. Los Angeles $ 6,858 $ 7,618
Hughes Electronics Corp. El Segundo $17,644 $ 7,288
Dole Food Co. Inc. Westlake Village $ 1,053 $ 4,763
Source: Los Angeles Business Journal (The 2002 List)
The Los Angeles region is home to number of the nation's Fortune 500
corporations. The once-huge defense-related industry, while still a prominent
part of the economy has given way to professional services, retailers,
healthcare and software and information technology.
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REGIONAL ECONOMIC AND DEMOGRAPHIC ANALYSIS
TOP NON-GOVERNMENT EMPLOYERS
LOS ANGELES REGION
2002
[Download Table]
NUMBER OF PMSA
EMPLOYER EMPLOYEES
----------------------------------------------------------------
Kaiser Permanente 27,600
The Boeing Company 23,500
Ralph's Grocery 17,200
Bank of America Corporation 11,900
Target 11,000
SBC Pacific Bell 10,700
CPE 10,200
Northrop Grumman Corporation 10,000
University of Southern California 9,300
ABM Industries, Inc. 9,300
Cedars-Sinai Medical Center 8,600
Federated Department Stores 7,300
Kelly Services 7,300
Medical Management Consultants, Inc. 6,400
Washington Mutual, Inc. 6,200
Edison International 5,600
Sempra Energy 5,100
Provident Health System 5,000
Countrywide Credit Industries, Inc. 3,900
Lockheed Martin Corporation 3,800
Source: Los Angeles Business Journal, July 2002, Cushman & Wakefield Analytics
Housing
According to the California Association of REALTORS(R) (C.A.R.), sales of
existing homes and the median home price in California posted strong gains as of
November 2002, as closed escrow sales of existing, single-family detached homes
in California totaled 542,120 and the median home price rose over 9.8 percent
from the previous year to $327,500. The median price represented the thirteenth
double-digit increase in a row.
The statewide annualized and seasonally adjusted sales figure for detached,
existing single-family homes of 542,120 in November 2002, was up 21.2 percent
over November 2001 sales. Jobs are thought to be the key driver in the housing
market. Low mortgage interest rates also continue to play a key role in driving
the market, with thirty-year fixed mortgage interest rates holding steady at
their lowest point in a decade.
With home prices rising and interest rates down only slightly compared to last
year, affordability decline across much of the state. The California Association
of REALTORS(R) (C.A.R.) produces the Housing Affordability Index, which measures
the percentage of households that can afford
VALUATION ADVISORY SERVICES 12 [CUSHMAN & WAKEFIELD LOGO]
REGIONAL ECONOMIC AND DEMOGRAPHIC ANALYSIS
the median price home under prevailing market conditions. In November 2002, 30
percent of all households in California could afford the median price home. This
figure was down five points from November 2001. The High Desert held its
longstanding position as the most affordable region in the state, with a reading
of 65. Affordability was lowest in Monterey County at just 19 percent.
The following table lists the housing affordability indexes and home median
prices for the five major counties within southern California as of first
quarter 2002.
Southern California
HOUSING AFFORDABILITY AND MEDIAN HOME SALES
March 2002
[Enlarge/Download Table]
Region 1998 1999 2000 2001 2002
-------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA
Housing Affordability Index (Jan) -- 42 34 35 32
Median Home Prices (Feb) $183,900 $197,870 $227,160 $241,690 $289,550
Price Activity -- 7.6% 14.8% 6.4% 19.8%
LOS ANGELES COUNTY
Housing Affordability Index (Jan) -- 43 39 38 34
Median Home Prices (Feb) $175,480 $197,060 $206,720 $224,700 $266,940
Price Activity -- 12.3% 4.9% 8.7% 18.8%
ORANGE COUNTY
Housing Affordability Index (Jan) -- 38 31 29 31
Median Home Prices (Feb) $241,440 $272,090 $306,150 $329,150 $369,760
Price Activity -- 12.7% 12.5% 7.5% 12.3%
RIVERSIDE/SAN BERNARDINO
Housing Affordability Index (Jan) -- 57 49 52 48*
Median Home Prices (Feb) $120,760 $118,240 $133,750 $141,720 $165,640
Price Activity -- -2.1% 13.1% 6.0% 16.9%
SAN DIEGO COUNTY
Housing Affordability Index (Jan) -- 36 27 27 25
Median Home Prices (Feb) $185,560 $208,300 $245,910 $285,920 $304,155**
Price Activity -- 12.3% 18.1% 16.3% 6.4%
VENTURA COUNTY
Housing Affordability Index (Jan) -- 45 35 36 36
Median Home Prices (Feb) $229,300 $243,620 $270,720 $289,500 $337,370
Price Activity -- 6.2% 11.1% 6.9% 16.5%
* - Based on Oct-2001 index / ** - Based on Jan-02 sales price data
Source: SiteReports.com o 2002
L.A. Regional Charts (2q02).xls
RETAIL SALES TRENDS
The Los Angeles-Long Beach Metropolitan Statistical area (MSA), consisting of
Los Angeles County, is consistently one of the top ranked retail markets in the
United States according to
VALUATION ADVISORY SERVICES 13 [CUSHMAN & WAKEFIELD LOGO]
REGIONAL ECONOMIC AND DEMOGRAPHIC ANALYSIS
Sales and Marketing Management Magazine. The Los Angeles-Long Beach area's
Buying Power Index was ranked first among the 317 metropolitan areas included in
the survey, and was the only California metropolitan area ranked among the ten
strongest retail markets. The Los Angeles area has been experiencing a gradual
increase in retail sales during recent years. Presented on the following page,
are the taxable retail sales for the Los Angeles County.
Source:
TAXABLE RETAIL SALES
Expressed in Thousands
[Download Table]
COUNTY OF %
YEAR LOS ANGELES CHANGE
---------------------------------------------
1991 $48,332,002 --
1992 $48,450,439 0.2%
1993 $47,337,644 -2.3%
1994 $49,785,805 5.2%
1995 $51,028,543 2.5%
1996 $53,304,460 4.5%
1997 $55,283,389 3.7%
1998 $57,500,490 4.0%
1999 $63,271,079 10.0%
2000 $70,321,379 11.1%
2001 $73,312,087 4.3%
Annual Compound Growth 3.9%
Source: California Retail Survey (c)2002
L.A. Regional Charts (2q02).xls
NON-RESIDENTIAL CONSTRUCTION TRENDS
According to the Construction Industry Research Board (CIRB), non-residential
construction activity for the state of California was estimated at nearly $14.4
billion in 2002. This figure is down 14.1 percent from 2001. The total
non-residential construction activity for Los Angeles County in 2002 was
estimated at just under $2.9 billion, which is decrease of 18.2 percent from
2001.
Presented on the following page is the non-residential permit activity for the
major southern California counties as reported by the CIRB. The permit activity
is from 1991 through 2002. Los Angeles County experienced a strong surge in
activity for 1998 and 1999 before declining in 2000. However, the 2001 volume,
of $3.5 billion, increased by 7.3 percent from 2000 and was well above the five
and ten year average figures. The 2002 figures show a reduction in
non-residential construction, returning to pre-1998 levels. Los Angeles County
accounts for 20.1 percent of the state's total permit volume.
VALUATION ADVISORY SERVICES 14 [CUSHMAN & WAKEFIELD LOGO]
REGIONAL ECONOMIC AND DEMOGRAPHIC ANALYSIS
NON-RESIDENTIAL BUILDING PERMIT VALUATIONS*
New Commercial, Industrial, Other and Non-Residential Alterations & Additions
Annual 1991 - 2002
[Enlarge/Download Table]
COUNTY NAME 1991 1992 1993 1994 1995 1996 1997
================================================================================================================================
LOS ANGELES
Dollar Volume ($1,000s) 2,739,596 2,135,070 2,176,510 2,292,921 1,993,023 2,105,857 2,237,293
% Annual Change -- -22.1% 1.9% 5.3% -13.1% 5.7% 6.2%
ORANGE
Dollar Volume ($1,000s) 797,469 567,121 496,729 560,556 582,712 760,810 1,079,687
% Annual Change -- -28.9% -12.4% 12.8% 4.0% 30.6% 41.9%
RIVERSIDE
Dollar Volume ($1,000s) 456,337 433,448 247,483 243,470 333,725 317,540 516,953
% Annual Change -- -5.0% -42.9% -1.6% 37.1% -4.8% 62.8%
SAN BERNARDINO
Dollar Volume ($1,000s) 560,702 290,450 302,211 368,012 411,131 397,496 527,367
% Annual Change -- -48.2% 4.0% 21.8% 11.7% -3.3% 32.7%
SAN DIEGO
Dollar Volume ($1,000s) 655,066 528,323 536,276 449,608 627,298 738,595 958,229
% Annual Change -- -19.3% 1.5% -16.2% 39.5% 17.7% 29.7%
VENTURA
Dollar Volume ($1,000s) 178,911 154,874 179,138 157,061 187,023 186,330 200,494
% Annual Change -- -13.4% 15.7% -12.3% 19.1% -0.4% 7.6%
SOUTHERN CALIFORNIA
DOLLAR VOLUME ($1,000S) 5,388,080 4,109,287 3,938,347 4,071,629 4,134,911 4,506,628 5,520,023
% ANNUAL CHANGE -- -23.7% -4.2% 3.4% 1.6% 9.0% 22.5%
STATE OF CALIFORNIA
DOLLAR VOLUME ($1,000S) 9,619,998 8,155,843 7,556,889 7,889,629 8,154,751 9,584,161 12,269,818
% ANNUAL CHANGE -- -15.2% -7.3% 4.4% 3.4% 17.5% 28.0%
[Enlarge/Download Table]
5-YEAR 11-YEAR
COUNTY NAME 1998 1999 2000 2001 2002** AVERAGE + AVERAGE ++
===========================================================================================================================
LOS ANGELES
Dollar Volume ($1,000s) 3,125,114 3,649,834 3,295,902 3,537,603 2,895,016 3,169,149 2,676,740
% Annual Change 39.7% 16.8% -9.7% 7.3% -18.2% -- --
ORANGE
Dollar Volume ($1,000s) 1,529,698 1,598,466 1,762,142 1,349,607 1,206,290 1,463,920 1,044,893
% Annual Change 41.7% 4.5% 10.2% -23.4% -10.6% -- --
RIVERSIDE
Dollar Volume ($1,000s) 590,938 606,819 769,911 658,039 716,379 628,532 494,064
% Annual Change 14.3% 2.7% 26.9% -14.5% 8.9% -- --
SAN BERNARDINO
Dollar Volume ($1,000s) 642,910 756,481 766,421 764,167 723,922 691,469 540,961
% Annual Change 21.9% 17.7% 1.3% -0.3% -5.3% -- --
SAN DIEGO
Dollar Volume ($1,000s) 1,211,275 1,336,629 1,391,497 1,189,910 1,150,524 1,217,508 919,833
% Annual Change 26.4% 10.3% 4.1% -14.5% -3.3% -- --
VENTURA
Dollar Volume ($1,000s) 291,425 366,981 282,119 308,813 282,415 289,966 236,061
% Annual Change 45.4% 25.9% -23.1% 9.5% -8.5% -- --
SOUTHERN CALIFORNIA
DOLLAR VOLUME ($1,000S) 7,391,360 8,315,210 8,267,992 7,808,139 6,974,546 7,460,545 5,912,552
% ANNUAL CHANGE 33.9% 12.5% -0.6% -5.6% -10.7% -- --
STATE OF CALIFORNIA
DOLLAR VOLUME ($1,000S) 14,976,019 16,582,292 18,624,958 16,743,404 14,383,000 15,839,298 12,265,524
% ANNUAL CHANGE 22.1% 10.7% 12.3% -10.1% -14.1% -- --
Data are not adjusted for * Building permit valuations approximate
seasonality of inflation construction costs
Source: Construction Industry + - (5-years) Based on 1997 thru 2001
Research Board (CIRB) valuation figures
**Based on preliminary numbers ++ - (10-years) Based on 1992 thru 2001
compiled. valuation figures
VALUATION ADVISORY SERVICES 15 [CUSHMAN & WAKEFIELD LOGO]
REGIONAL ECONOMIC AND DEMOGRAPHIC ANALYSIS
TRANSPORTATION NETWORK
An extensive freeway system, an expanding mass transit system, and several
airport facilities serve the Los Angeles area. The automobile has been the
driving force in the evolution of Los Angeles' transportation infrastructure.
Local communities are connected through a complex system of freeways. The
Southern California freeway network, and specifically the network in the Los
Angeles area, is one of the largest systems in the world. Major north/south
freeways in the county include the San Diego Freeway (Interstate 405), the
Golden State Freeway (Interstate 5), the Long Beach Freeway (Interstate 710),
and the San Gabriel River Freeway (Interstate 605). Major east/west freeways in
Los Angeles County include the Pasadena Freeway (Interstate 210), the Ventura
Freeway (State Highway 101/State Highway 134), the Santa Monica Freeway
(Interstate 10), the Pomona Freeway (State Highway 60), and the Artesia Freeway
(State Highway 91).
The Los Angeles region is also served by an expanding, multi-modal mass transit
system. The Metro System consists of freeway car-pool lanes, buses, light rail
lines, and heavy rail lines. Seven rail lines are in operation, including three
MetroRail commuter lines and four Metrolink commuter lines. The Metrolink system
has commuter rail lines in operation from downtown Los Angeles to: Moorpark in
Ventura County (47 miles); Lancaster/Palmdale in north Los Angeles County (60
miles); San Bernardino (57 miles); Downtown Riverside (58 miles); and San Diego.
An extension of the Metro Rail called the Gold line is currently under
construction which will link downtown's Union Station to Pasadena. Construction
is scheduled for completion in Summer 2003. The Metro Rail lines currently in
operation include the following:
Metro Blue Line, extending for 22 miles from downtown Los Angeles to
Long Beach average weekday ridership 69,858, weekend ridership 46,229.
Metro Red Line, extending for approximately 10.0 miles from downtown Los
Angeles to North Hollywood; average weekday ridership 128,327, weekend
ridership 62,176.
Metro Green Line, extending east for approximately 20 miles from El
Segundo (near Los Angeles International Airport) to Norwalk in central
Los Angeles County; weekday ridership 30,576, weekend ridership 10,953.
Source: Metropolitan Transportation Authority, 2002
Air transportation is available at several airports in the Los Angeles area. The
Los Angeles International Airport, located in the southwestern portion of the
county. Three smaller regional airports also service the Los Angeles area
including: the Burbank-Glendale-Pasadena Airport in the city of Burbank; the
Long Beach Municipal Airport in the city of Long Beach; and the Van Nuys Airport
in the community of Van Nuys in the West San Fernando Valley.
LAX is among the world's busiest airports, having served 51.4 million passengers
and processed 1.8 million tons of air cargo for 2002. These figures represent 90
percent of passenger volume and 100 percent of air cargo processed by LAX
through the same period in 2001. The decline in passenger volume is largely due
to the economic downturn, which has affected tourism and business travel through
LAX.
The combined Port of Los Angeles-Long Beach is the third largest port complex in
the world in terms of tonnage, behind only Hong Kong and Singapore.
Individually, the Port of Los Angeles
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REGIONAL ECONOMIC AND DEMOGRAPHIC ANALYSIS
and the Port of Long Beach rank first and second in the U.S., respectively.
Combined, these terminals annually handle more than 113 million metric revenue
tons of cargo, representing nearly $113 billion in annual trade. With cargo
volume forecasted to dramatically increase through the early 21st century, the
Port embarked on an extensive modernization in 2001. The Port's activity will be
vitally enhanced through the Alameda Corridor project, a multi-modal
transportation route linking the ports to interstate rail and highway networks
which was completed in 2002. The Alameda Corridor is expected to vastly increase
the efficiency of the regional distribution system.
Quality of Life/Amenities
Major Attractions and Amenities
Los Angeles's quality of life has historically been one of its strongest
attributes, offering residents and visitors a variety of outdoor recreational
and cultural amenities. Los Angeles County has 27 miles of public beaches, golf
courses, natural preserves in the San Gabriel Mountains, equestrian trails, and
numerous community and regional parks. The mild, dry climate is ideal for
enjoying outdoor activities year round.
As Southern California's cultural center, not to mention the entertainment
capital of the world, Los Angeles has a tradition rich in the arts. Its wealth
of attractions and cultural amenities has grown and diversified significantly
over the past decade. Some of the most popular venues include the Getty Center,
Huntington Botanical Gardens, Hollywood, Universal Studios, Beverly Hills, Rodeo
Drive, Farmers Market, Olvera Street, Santa Monica, and Venice Boardwalk.
Los Angeles is home to four major professional sports franchises including the
Los Angeles Dodgers (MLB), the Los Angeles Lakers and Clippers (NBA) and the Los
Angeles Kings (NHL). Its collegiate sports offerings include the nationally
ranked USC Trojans and UCLA Bruins. World-class sports facilities like Dodger
Stadium, Staples Center and the Rose Bowl in Pasadena host a number of major
sporting events each year.
Education
With 25 major institutions of higher learning educating 376,775 students, Los
Angeles has one of the largest student populations in the nation. Nationally
recognized programs in engineering, business, and medicine are found throughout
the area's educational system at universities such as the University of
California, Los Angeles (UCLA), University of Southern California (USC) and
California Institute of Technology.
VALUATION ADVISORY SERVICES 17 [CUSHMAN & WAKEFIELD LOGO]
REGIONAL ECONOMIC AND DEMOGRAPHIC ANALYSIS
MAJOR LOS ANGELES COLLEGES/UNIVERSITIES
2002
[Download Table]
FULL/PART TIME
RANK COLLEGE/UNIVERSITY ENROLLMENT
===========================================================================
1 University of California Los Angeles 34,779
2 University of Southern California 28,154
3 California State Univ., Long Beach 25,329
4 Glendale Community College 23,847
5 California State Univ., Northridge 23,135
6 Mt. San Antonio College 22,699
7 Pasadena City College 20,132
8 Santa Monica College 18,846
9 East Los Angeles College 17,055
10 El Camino College 17,384
11 Cerritos College 16,508
12 CA State Polytechnic Univ., Pomona 15,467
13 California State Univ., Los Angeles 14,206
14 De Vry Institute of Technology 13,638
15 Los Angeles Trade-Technical College 11,762
16 Los Angeles Valley College 11,460
17 Los Angeles City College 11,268
18 Citrus College 10,699
19 Antelope Valley College 8,637
20 Loyola Marymount University 6,928
21 Pepperdine University 5,875
22 University of La Verne 5,546
23 Los Angeles Mission College 4,938
24 Azusa Pacific University 4,871
25 Biola University 3,612
TOTAL COLLEGE/UNIVERSITY ENROLLMENT 376,775
Source: Los Angeles Business Journal - The Lists 2003
Medical Facilities
Anchored by the world famous Cedars-Sinai Health System, the Los Angeles metro
area has a comprehensive healthcare network, including 41 general
medical/surgical facilities, five psychiatric hospitals, and hospitals
specializing in tuberculosis/respiratory disease, obstetrics/gynecology,
orthopedics, children's general and children's orthopedic.
Regional Summary
Los Angeles is a mature economy that has been undergoing structural changes
since the mid-1990s. The transition has been from an economy highly dependent on
defense spending and trade through its ports, to an economy increasingly
comprised of smaller and more entrepreneurial firms.
VALUATION ADVISORY SERVICES 18 [CUSHMAN & WAKEFIELD LOGO]
REGIONAL ECONOMIC AND DEMOGRAPHIC ANALYSIS
Some of the County's major industries are anticipating significant growth over
the course of 2003, with a production upswing in the entertainment industry, a
rise in import flows, and increased funds for defense, aerospace and security.
Another factor in the County's longer range economic outlook is the surge in
spending for defense. The manufacturing segment of the aerospace industry, once
a major component of the Los Angeles economy, has disappeared to a large degree;
however, Los Angeles maintained a huge base in research and development. The
expertise covers manned and unmanned flights, satellites and space, and advanced
communications.
Los Angeles is expected to experience strong growth trends in population and
employment as companies are attracted by the region's high quality of life and
relatively low cost of business. With the increase in commuting times to and
from outlying areas, and the scarcity of new land for development, Los Angeles'
urban center is poised for growth. Much of this growth will take the form of
infill development in proximity to established residential centers and the
existing transportation infrastructure that has recently been augmented by the
development and current expansion of the Metro system.
VALUATION ADVISORY SERVICES 19 [CUSHMAN & WAKEFIELD LOGO]
LOS ANGELES COUNTY OFFICE MARKET
--------------------------------------------------------------------------------
Los Angeles County
OFFICE MARKET & SUBMARKET STATISTICS
End of the 4th Quarter of 2002
[Enlarge/Download Table]
DIRECT OVERALL NET DIRECT
NUMBER DIRECT VACANCY OVERALL VACANCY ABSORPTION WTD. AVG.
MARKET / SUBMARKET INVENTORY OF BLDGS AVAILABILITIES RATE AVAILABILITIES RATE YE '02 RENTAL RATE
==================================================================================================================================
CENTRAL LOS ANGELES 56,600,863 261 9,071,287 16.3% 10,608,251 19.1% 87,078 $ 21.87
1 Downtown Los Angeles 38,750,414 107 7,032,928 18.1% 8,197,425 21.2% (159,500) $ 22.65
2 Mid-Wilshire 7,713,556 44 967,450 12.5% 983,750 12.8% 55,357 $ 16.44
3 San Gabriel Valley 9,136,893 110 1,070,909 11.7% 1,427,076 15.6% 191,221 $ 21.59
WEST LOS ANGELES 49,045,539 364 7,693,288 15.7% 9,700,868 19.8% (1,026,772) $ 31.74
4 Park Mile/West 9,484,637 73 1,528,002 16.1% 1,934,150 20.4% 54,464 $ 25.33
Hollywood
5 Beverly Hills/Century 14,818,364 90 1,992,492 13.4% 2,546,203 17.2% (701,033) $ 35.19
City
6 Westwood/West Los 19,190,727 154 2,861,808 14.9% 3,724,395 19.4% (305,972) $ 33.47
Angeles
7 Marina Area/Culver City 5,551,811 47 1,310,986 23.6% 1,496,120 26.9% (74,231) $ 30.19
SOUTH LOS ANGELES 30,178,436 235 5,182,041 17.2% 5,748,817 19.0% (369,148) $ 24.39
8 LAX/El Segundo 13,822,652 84 3,199,045 23.1% 3,575,361 25.9% (284,341) $ 25.25
9 Torrance 7,032,767 78 821,796 11.7% 886,244 12.6% 26,700 $ 23.03
10 Long Beach 9,323,017 73 1,161,200 12.5% 1,287,212 13.8% (111,507) $ 22.96
NORTH LOS ANGELES 47,321,222 544 5,979,775 12.6% 8,234,251 17.4% 676,039 $ 26.36
11 Simi/Conejo Valley 6,925,724 127 1,017,537 14.7% 1,377,767 19.9% 140,683 $ 26.11
12 West Valley 10,237,294 108 1,404,895 13.7% 1,851,382 18.1% 228,087 $ 27.14
13 Central Valley 9,406,384 123 987,949 10.5% 1,149,727 12.2% (122,967) $ 23.32
14 East Valley/ 20,751,820 186 2,569,394 12.4% 3,855,375 18.6% 430,236 $ 27.19
Tri-Cities
TOTAL 182,146,060 1,404 27,926,391 15.3% 34,292,187 18.8% (632,803) $ 26.01
[BAR GRAPH] [BAR GRAPH]
[BAR GRAPH]
VALUATION ADVISORY SERVICES 20 [CUSHMAN & WAKEFIELD LOGO]
LOS ANGELES COUNTY OFFICE MARKET
LOS ANGELES COUNTY OFFICE MARKET OVERVIEW
Supply and Tenant Demand
According to Cushman & Wakefield's year-end 2002 surveys the combined Los
Angeles County office market contained a total inventory of 182,146,060 square
feet. This figure excludes owner user, medical, and government office buildings.
The accompanying exhibit provides a statistical overview of the office inventory
for Los Angeles County as year-end 2002, including a breakdown by market.
The markets included in the sectors used in this report are summarized below.
Sector Markets
Los Angeles Central: Downtown Los Angeles
Mid-Wilshire
San Gabriel Valley
Los Angeles West: Park Mile/West Hollywood
Beverly Hills/Century City
Westwood/West L.A./Burbank
Marina Area/Culver City
Los Angeles South Bay: El Segundo/LAX
Long Beach
Torrance
Los Angeles North: Simi/Conejo Valleys
West San Fernando Valley
Central San Fernando Valley
East San Fernando Valley/Tri-Cities
Each market sector is comprised of a series of submarkets. Although the market
sectors and individual office submarkets compete to varying degrees for the Los
Angeles County tenant base, each market is characterized independently by a
typical targeted tenant or industry type. The table below presents a general
overview of the tenant base for the markets.
VALUATION ADVISORY SERVICES 21 [CUSHMAN & WAKEFIELD LOGO]
LOS ANGELES COUNTY OFFICE MARKET
Sector Tenant Base
Los Angeles Central/Downtown: Financial
Legal
Accounting
Insurance
Telecommunications
Energy
Architecture
Real Estate
Government/Quasi-Government
Los Angeles West: Legal
Accounting
Entertainment
Real Estate
Financial Services
Advertising
High-Tech
Los Angeles South: Corporate
High-Tech
Research & Development
Aerospace
Los Angeles North: Entertainment
Insurance
Legal
Accounting
Engineering
Considerable duplication exists within the office tenant base for the Los
Angeles County office markets. However, the office markets maintain separate
identities in terms of the primary tenancies and relative prestige and
corresponding relative rental rate structures for comparable buildings within
the separate markets. Legal and accounting firms provide considerable tenant
demand within each of the markets, for example, but the type and focus of these
professional firms is directed toward the business base within the sector.
Downtown Los Angeles law and accounting firms consist primarily of larger
national or regional firms oriented toward corporations and government for
example, while westside Los Angeles firms often are smaller and specialize in a
particular field, such as entertainment law.
VACANCY TRENDS
The gradual recovery from the economic recession that impacted Los Angeles
during the first half of the 1990's gave way to a full-fledged economic
expansion from 1995 through 2000. The strong economic environment in Los Angeles
County led to declining vacancy rates and increasing rents for office space
through year-end 2000. The economy softened during 2001 and 2002, however, which
weakened demand for office space on a countywide basis, resulting in a reversal
of the favorable vacancy trend, as shown in the following chart.
VALUATION ADVISORY SERVICES 22 [CUSHMAN & WAKEFIELD LOGO]
LOS ANGELES COUNTY OFFICE MARKET
OFFICE MARKET VACANCY TRENDS
Los Angeles County
[Download Table]
VACANCY RATES
Year Quarter Direct Sublease Overall
--------------------------------------------------------------------------------
1991 4th Qtr 19.0% 3.6% 22.6%
---------------------- --------------------------------------------------------
1992 4th Qtr 19.4% 3.5% 22.9%
---------------------- --------------------------------------------------------
1993 4th Qtr 18.8% 3.7% 22.5%
---------------------- --------------------------------------------------------
1994 4th Qtr 18.7% 3.1% 21.8%
---------------------- --------------------------------------------------------
1995 4th Qtr 18.6% 2.3% 21.0%
---------------------- --------------------------------------------------------
1996 4th Qtr 17.3% 2.3% 19.8%
---------------------- --------------------------------------------------------
1997 4th Qtr 16.2% 2.1% 18.4%
---------------------- --------------------------------------------------------
1998 4th Qtr 15.3% 2.0% 17.3%
---------------------- --------------------------------------------------------
1999 4th Qtr 12.8% 1.6% 14.5%
---------------------- --------------------------------------------------------
2000 4th Qtr 10.6% 2.0% 12.6%
---------------------- --------------------------------------------------------
2001 4th Qtr 13.3% 3.5% 16.8%
---------------------- --------------------------------------------------------
2002 4th Qtr 15.3% 3.5% 18.8%
====================== ========================================================
[GRAPH]
* - Does not include La Palma and Cypress inventory due to C & W's realloction
beginning January 1, 1998
(La Palma and Cypress is now tracked by Orange County office)
VALUATION ADVISORY SERVICES 23 [CUSHMAN & WAKEFIELD LOGO]
LOS ANGELES COUNTY OFFICE MARKET
The overall Los Angeles County market experienced a slow, gradual improvement in
direct and sublease vacancy levels from year-end 1993 through 1995. The
improvement during 1996 through 1998 was more dramatic, with countywide direct
vacancy rates declining annually by from 110 to 130 basis points. The countywide
vacancy decline accelerated during 1999 and 2000, with an impressive 250 basis
point drop (from 15.3 percent to 12.8 percent) in 1999 and 220 basis points in
2000. This trend continued through 2000, with a year-end county vacancy of 10.6
percent. As shown on the exhibit, the market softened during 2001 and 2002 as
negative absorption occurred in a number of markets. The county-wide direct
vacancy rate increased from 10.6 percent to 13.3 percent from year-end 2000 to
2001, while the overall (including sublease) vacancy rate increased from 12.6
percent to 16.8 percent during the same timeframe. Vacancy rates continued to
increase during 2002, to 15.3 percent (direct) and 18.8 percent including
sublease space.
The declining vacancy rate trend through 2000 was a result of increased demand
for office space, which in turn has been fueled by increased employment
throughout the southern California market area. This employment trend
"flattened" during 2001 and 2002, however, coinciding with new office
construction and negative absorption. The chart below summarizes the
relationship between employment growth and the demand for office space in Los
Angeles County over the past 10 years.
[Download Table]
Los Angeles County
EMPLOYMENT TRENDS VS DIRECT OFFICE VACANCY 1993 through 2002
YEAR TOTAL DIRECT
END EMPLOYMENT VACANCY
------------------------------
1993 3,970,748 18.8%
------------------------------
1994 3,957,037 18.7%
------------------------------
1995 4,016,191 18.6%
------------------------------
1996 4,052,561 17.3%
------------------------------
1997 4,189,181 16.2%
------------------------------
1998 4,336,863 15.3%
------------------------------
1999 4,466,300 12.8%
------------------------------
2000 4,575,200 10.6%
------------------------------
2001 4,634,200 13.3%
------------------------------
2002 4,604,100 15.3%
[GRAPH]
The total employment growth of just over 600,000 jobs, or about 15 percent from
1993 through 2000 in Los Angeles County resulted in an office vacancy decline
from 18.8 percent to 10.6 percent for all classes of inventory through 2000. As
the countywide vacancy level continued its push to single-digit levels, the
decline in vacancy accelerated. The most significant vacancy decline occurred
during 1999 despite a more active construction environment and relatively more
modest employment growth in comparison with 1998. Vacancy rates have increased
VALUATION ADVISORY SERVICES 24 [CUSHMAN & WAKEFIELD LOGO]
LOS ANGELES COUNTY OFFICE MARKET
during 2001 and 2002, the employment levels have declined slightly, but "lag"
the office vacancy rate trend. As shown on the chart, the December, 2002 county
employment shows a decline of 0.6 percent from 2001, while direct office vacancy
has increased by 200 basis points.
The Metropolitan Los Angeles office market caters to the region's diverse
economy, and includes a number of submarkets characterized by the dominant
tenant base within each market.
The performance of the individual markets varied considerably in terms of
vacancy, absorption, and rental rate growth. Certain markets, particularly the
downtown Central Business District, experienced strong absorption levels and
declining vacancy rates.
A review of the countywide vacancy data on a detailed submarket basis indicates
there is a significant range in the relative vacancy levels for specific
submarket locations. In general, the most desirable suburban office markets such
as westside Los Angeles and the Tri-Cities have the lowest vacancy levels and
"recover" earlier in the cycle. The chart below compares the vacancy rates as of
year-end 1995 and 2000 for a cross section of Los Angeles County markets, with
the corresponding change during this timeframe. We also included the year-end
2002 vacancy levels, which show the increased vacancy levels in comparison to
2000 for nearly all markets. The increasing vacancy levels during 2001-2002 have
affected virtually all markets.
VALUATION ADVISORY SERVICES 25 [CUSHMAN & WAKEFIELD LOGO]
LOS ANGELES COUNTY OFFICE MARKET
DIRECT VACANCY TRENDS
[Enlarge/Download Table]
CHANGE
YEAR-END YEAR-END (PERCENTAGE YEAR-END CHANGE
OFFICE MARKET 1995 2000 POINTS) 2002 FROM 2000
------------------------------------------------------------------------------------------------------------------------
NORTH LOS ANGELES
-----------------
Tri-Cities/East Valley 11.2% 8.7% (2.0%) 12.4% +3.7%
Encino 16.0% 5.0% (11.0%) 8.2% +3.2%
Sherman Oaks 19.0% 6.5% (12.5%) 11.4% +4.9%
Warner Center 16.7% 5.6% (11.1%) 14.5% +8.9%
------------------------------------------------------------------------------------------------------------------------
CENTRAL LOS ANGELES
-------------------
Los Angeles (CBD) 20.4% 15.9% (4.5%) 16.4% +0.5%
Wilshire Center 31.9% 15.1% (16.8%) 12.5% (2.6%)
------------------------------------------------------------------------------------------------------------------------
WEST LOS ANGELES
----------------
Beverly Hills 20.0% 7.8% (12.2%) 13.7% +5.9%
Century City 14.0% 4.1% (9.9%) 13.2% +9.1%
Santa Monica 18.1% 4.4% (13.7%) 16.1% +11.7%
Marina del Rey 12.9% 4.7% (8.2%) 29.5% +24.8%
Westwood 14.2% 8.2% (6.0%) 13.8% +5.6%
West Los Angeles 21.8% 8.1% (13.7%) 16.1% +8.0%
Miracle Mile 23.4% 13.1% (10.7%) 15.2% +2.1%
Hollywood 19.0% 19.9% +0.90% 21.0% +1.1%
------------------------------------------------------------------------------------------------------------------------
SOUTH LOS ANGELES
-----------------
El Segundo/Manhattan Beach 15.6% 3.0% (12.6%) 23.2% +20.2%
Los Angeles Airport 29.3% 19.7% (9.6%) 23.1% +3.4%
Downtown Long Beach 26.2% 14.7% (11.5%) 14.7% 0.0%
------------------------------------------------------------------------------------------------------------------------
TOTAL LOS ANGELES COUNTY 18.6% 10.6% (8.0%) 15.3% +4.7%
------------------------
The pattern of recovery in the region from 1995 to 2000 generally commenced with
the prime suburban markets situated near the most desirable residential
marketplaces, or in areas which attracted tenant categories with stronger
employment profiles. Submarkets in Los Angeles' westside and Tri-Cities areas
are desirable residential locations and appeal to the entertainment industry,
which expanded during the middle of the 1990's. Other submarkets, particularly
those situated adjacent to the most desirable submarkets (such as Miracle Mile,
Sherman Oaks/Encino, and El Segundo) benefited directly and indirectly from the
increased demand in the westside and Tri-Cities markets, and mirrored the
recovery experienced in the prime markets relatively early in the cycle. The
westside markets and El Segundo have generally been the most volatile in terms
of vacancy levels the past several years, while the tri-cities and central
valley markets, as well as the CBD have been more stable.
VALUATION ADVISORY SERVICES 26 [CUSHMAN & WAKEFIELD LOGO]
LOS ANGELES COUNTY OFFICE MARKET
Several submarkets recovered somewhat later in the cycle, and some more recently
(1998-2001) began to experience meaningful improvement. These markets, which
include the Los Angeles CBD, experienced more significant declines during the
first half of the 1990's due to overbuilding and the loss of major components of
the demand base, such as the aerospace industry in the South Los Angeles market
area and major corporate and financial tenants in the CBD.
ABSORPTION AND CONSTRUCTION
Virtually all Los Angeles County submarkets experienced significant improvement
in vacancy levels from 1995 through 2000, prior to reversing this trend during
2001 and 2002. The declining vacancy rates through 2000 resulted from
substantial increases in net absorption in conjunction with relatively minimal
construction levels, as shown below.
VALUATION ADVISORY SERVICES 27 [CUSHMAN & WAKEFIELD LOGO]
LOS ANGELES COUNTY OFFICE MARKET
NET ABSORPTION TRENDS
Los Angeles County
Office Market
[Download Table]
Year Net Absorption (SF)
-------- ----------------------
1991 2,713,549
-------- ----------------------
1992 (5,207)
-------- ----------------------
1993 (248,158)
-------- ----------------------
1994 (997,235)
-------- ----------------------
1995 275,718
-------- ----------------------
1996 1,533,675
-------- ----------------------
1997 2,137,113
-------- ----------------------
1998 3,048,479
-------- ----------------------
1999 6,859,583
-------- ----------------------
2000 5,606,166
-------- ----------------------
2001 (2,289,216)
-------- ----------------------
2002 (632,803)
[GRAPH]
VALUATION ADVISORY SERVICES 28 [CUSHMAN & WAKEFIELD LOGO]
LOS ANGELES COUNTY OFFICE MARKET
LOS ANGELES COUNTY
Construction History of Office Buildings
1982 through 2002
[Enlarge/Download Table]
Year Central West North** South Total
-----------------------------------------------------------------------------------------------------
82 4,882,683 1,541,242 838,212 3,999,186 11,261,323
83 2,920,192 3,652,672 1,872,082 2,606,238 11,051,184
84 1,810,809 1,333,243 967,610 3,635,363 7,747,025
85 4,412,902 2,402,687 1,278,203 1,922,112 10,015,904
86 2,913,129 2,964,782 2,334,294 2,789,202 11,001,407
87 3,771,021 3,070,016 874,928 3,169,020 10,884,985
88 1,903,160 702,166 1,835,374 2,490,781 6,931,481
89 2,185,292 2,266,345 1,203,053 1,485,792 7,140,482
90 2,451,346 1,638,153 1,150,463 1,450,521 6,690,483
91 4,824,238 1,485,847 865,615 802,029 7,977,729
92 1,703,355 164,450 30,000 0 1,897,805
93 0 0 0 0 0
94 0 0 0 0 0
95 0 135,000 45,700 0 180,700
96 0 0 0 0 0
97 0 0 125,632 0 125,632
98 0 0 544,600 0 544,600
99 297,667 133,660 1,339,123 660,865 2,431,315
00 82,944 1,302,179 1,092,337 197,334 2,674,794
01 186,522 584,000 1,896,796 716,997 3,384,315
02 129,100 775,147 953,429 381,000 2,238,676
-----------------------------------------------------------------------------------------------------
Total 34,474,360 24,151,589 19,247,451 26,306,440 104,179,840
-----------------------------------------------------------------------------------------------------
Annual Avg 1,641,636 1,150,076 916,545 1,252,688
__________________________________________________________
* - Including Park Mile and Miracle Mile
** - Including Tri-Cities and North Hollywood
ANNUAL OFFICE BUILDING CONSTRUCTION TREND LINE
Los Angeles County
[CHART]
VALUATION ADVISORY SERVICES 29 [CUSHMAN & WAKEFIELD LOGO]
LOS ANGELES COUNTY OFFICE MARKET
When compared to new construction activity, the net office absorption exceeded
new supply for the last five years of the 1990's, and this trend continued
through 2000. The negative net absorption of approximately 2.3 million square
feet in 2001 and 630,000 square feet in 2002 is primarily attributable to the
westside markets.
The chart below shows the cumulative "oversupply" of office space, based on the
difference between new construction and net absorption, added to the Los Angeles
County office market since 1990.
[Enlarge/Download Table]
SF
SF SF Oversupply/
Year New Construction Net Absorption (Undersupply)
-------------------------------------------------------------------------------------------
1990 6,690,483 8,258,928 (1,568,445)
-------------------------------------------------------------------------------------------
1991 7,977,729 2,261,311 5,716,418
-------------------------------------------------------------------------------------------
1992 1,897,805 (5,207) 1,903,012
-------------------------------------------------------------------------------------------
1993 0 (248,158) 248,158
-------------------------------------------------------------------------------------------
1994 0 (997,235) 997,235
-------------------------------------------------------------------------------------------
1995 180,700 272,154 (91,454)
-------------------------------------------------------------------------------------------
1996 0 1,533,675 (1,533,675)
-------------------------------------------------------------------------------------------
1997 125,632 2,137,113 (2,011,481)
-------------------------------------------------------------------------------------------
1998 544,600 3,048,479 (2,503,879)
-------------------------------------------------------------------------------------------
1999 2,431,315 6,859,583 (4,428,268)
-------------------------------------------------------------------------------------------
2000 2,674,794 5,606,166 (2,931,372)
-------------------------------------------------------------------------------------------
2001 3,384,315 (2,289,216) 5,673,531
-------------------------------------------------------------------------------------------
2002 2,238,676 (632,803) 2,871,479
===========================================================================================
TOTALS 28,146,049 25,804,390 2,341,289
===========================================================================================
The substantial oversupply of new office development from 1991 through 1994 was
more than offset with six consecutive years of positive absorption in excess of
new development from 1995 through 2000. The combination of construction
completions and negative absorption during 2001-2002 has led to an oversupply,
however. Based on the relationship between new construction and net absorption
levels on a county-wide basis, there was roughly a 2.34 million square-foot
oversupply in new construction over the past 13 years (through 2002).
FUTURE DEVELOPMENT
Approximately 9.7 million square feet of new office development has been
completed in Los Angeles County during the four-year period 1999 through 2002.
The new construction is summarized on the following exhibit, in order of year of
completion. The exhibit also includes a summary of office developments currently
under construction (totaling 1.7 million square feet) and the occupancy level
for each of the developments as of year-end 2002. The chart below summarizes the
year-end figures.
VALUATION ADVISORY SERVICES 30 [CUSHMAN & WAKEFIELD LOGO]
LOS ANGELES COUNTY OFFICE MARKET
NEW OFFICE CONSTRUCTION - LOS ANGELES COUNTY
[Download Table]
Occupancy as of
Completion Year Total SF 2002 Year-end SF Absorption
--------------- -------- ------------- -------------
1999 1,686,278 86.3% 1,455,000
2000 2,683,230 73.0% 1,958,758
2001 2,737,544 52.7% 1,442,685
2002 2,572,713 19.8% 510,000
UNDER CONSTRUCTION - LOS ANGELES COUNTY
[Download Table]
Scheduled Pre-leased as of
Completion Year Total SF 2002 Year-end
--------------- -------- -------------
2003-2004 1,712,624 45.3%
As shown in the previous chart, the new construction completed during 2001-2002
has coincided with softer market conditions and negative absorption, leading to
an oversupply of new office space. The projects under construction and scheduled
for completion during 2003-2004 represent an average annual new supply of about
856,000 square feet, a significant decline from the last four years.
VALUATION ADVISORY SERVICES 31 [CUSHMAN & WAKEFIELD LOGO]
LOS ANGELES COUNTY OFFICE MARKET
PROJECTS RECENTLY COMPLETED OR UNDER CONSTRUCTION
LOS ANGELES COUNTY
[Enlarge/Download Table]
AREA AVAILABLE PERCENT COMPLETION
BUILDING NAME ADDRESS MARKET (SF) (SF) LEASED DATE
1999 COMPLETIONS
Long Beach Airport Center Phase III
(Bldg 8) 3840 Kilroy Airport Way Los Angeles - South 136,026 0 100.0% Jan-99
Westlake Corporate Park Los Angeles - North 88,023 88,023 0.0% Jan-99
Glendale Plaza 655 N. Central Ave Los Angeles - North 531,205 39,603 92.5% Mar-99
Calabasas Commerce Center 7 5220 Las Virgenes Los Angeles - North 85,570 0 100.0% Apr-99
Westlake Gardens Phase II Los Angeles - North 49,639 49,639 0.0% Apr-99
Continental Grand Plaza II 400 Continental Blvd Los Angeles - South 237,000 51,281 78.4% Jul-99
Arboretum Gateway 2220 Colorado Ave Los Angeles - West 200,000 0 100.0% Sep-99
AT & T Wireless Services Los Angeles - South 225,000 0 100.0% Sep-99
Arboretum Courtyard 2120 & 2150 Colorado Ave Los Angeles - West 133,815 2,500 98.1% Oct-99
SUBTOTAL 1999 1,686,278 231,046 86.3%
2000 COMPLETIONS
Westwood Center 1100 Glendon Ave Los Angeles - West 313,000 161,847 48.3% Jan-00
450 North Brand 450 North Brand Los Angeles - North 247,000 16,769 93.2% Feb-00
Grand Avenue Corp. Center 2160 E. Grand Ave Los Angeles - South 156,000 0 100.0% Feb-00
21th Century Plaza 6303 Owensmouth Ave Los Angeles - North 273,000 0 100.0% Mar-00
Calabasas Park Center 24025 Park Sorrento Los Angeles - North 100,000 7,882 92.1% Jun-00
Howard Hughes Center/5060 6060 Center Dr Los Angeles - West 239,000 9,007 96.2% Jun-00
Lantana 2900 W. Olympic Blvd. Los Angeles - West 61,000 0 100.0% Jun-00
West Hills Corp. Village 8511 Fallbrook Ave Los Angeles - North 141,000 60,932 56.8% Jun-00
331 Maple Avenue 331 Maple Avenue Los Angeles - West 80,179 80,179 0.0% Jul-00
Long Beach Airport Center Phase III
(Bldg 7) 3800 Kilroy Airport Center Los Angeles - South 192,476 2,326 98.8% Jul-00
Santa Monica Water Garden II 1601 Cloverfield &
2450 Colorado Los Angeles - West 600,000 150,095 75.0% Sep-00
Westside Media Center 12200 W. Olympic Blve Los Angeles - West 151,018 151,018 0.0% Sep-00
Westlake North Business
Park - Phase II - Bldg 3 30699 Russell Ranch Rd Los Angeles - North 129,557 83,764 35.3% Dec-00
SUBTOTAL 2000 2,683,230 723,819 73.0%
2001 COMPLETIONS
See Beyond Center 181 W. Huntington Dr Los Angeles - Central 106,000 6,200 94.2% 1Q01
Westlake North Business
Park Phase I - Bldg 1 30700 Russell Ranch Rd Los Angeles - North 137,000 0 100.0% 1Q01
Westlake North Business
Park Phase I - Bldg 2 30721 Russell Ranch Rd Los Angeles - North 63,577 63,577 0.0% 1Q01
Media Studios North 2233 Ontario St. Los Angeles - North 95,700 62,200 35.0% 1Q01
Koll Center Pasadena 1055 E. Colorado Blvd Los Angeles - North 176,170 79,310 55.0% 2Q01
12911 183rd Street 12911 183rd St (Cerritos) Los Angeles - South 100,000 0 100.0% 2Q01
La Cienega Center 99 N. La Cienega Blvd Los Angeles - North 84,000 51,700 38.5% 2Q01
Airport Plaza 2950 N. Hollywood Wy Los Angeles - North 155,000 155,000 0.0% 2Q01
Howard Hughes Center - Phase II 6080 Center Dr Los Angeles - West 310,797 100,296 67.7% 2Q01
Trenton Corporate Center 1440 S. Bridge Gate Los Angeles - Centra 129,100 51,081 60.4% 3Q01
Howard Hughes/Univision 6701 Center Dr. West Los Angeles - West 313,833 62,500 80.1% 3Q01
Wateridge Two (Culver City) 5140 W. Goldleaf Cir. Los Angeles - West 125,000 125,000 0.0% 3Q01
Cross Pointe at Pacific Concourse 11855 La Cienega Blvd. Los Angeles - South 170,466 170,466 0.0% 4Q01
LNR Warner Center 21271 Burbank &
21281 Burbank Los Angeles - North 357,480 22,291 93.8% 4Q01
2151 East Grand Avenue 2151 East Grand Ave Los Angeles - South 125,000 56,865 54.5% 4Q01
The Atrium at Continental Park 2301 & 2321 Rosecrans Ave Los Angeles - South 288,421 288,421 0.0% 4Q01
SUBTOTAL 2001 2,737,544 1,294,907 52.7%
VALUATION ADVISORY SERVICES 32 [CUSHMAN & WAKEFIELD LOGO]
LOS ANGELES COUNTY OFFICE MARKET
[Enlarge/Download Table]
2002 COMPLETIONS
Westside Media Center III 12100 W. Olympic Blvd Los Angeles - West 150,000 150,000 0.0% Mar-02
Burbank Empire Center - Allianz Bldg 2350 Empire Ave Los Angeles - North 97,000 15,000 84.5% Mar-02
Burbank Empire Center - Bldg 3 2400 Empire Ave Los Angeles - North 129,500 129,500 0.0% Mar-02
Media Studios North - Phase IV Ontario @ Empire Los Angeles - North 192,137 192,137 0.0% Apr-02
Douglas Technology Centre 445 N. Douglas St Los Angeles - South 216,000 216,000 0.0% Apr-02
Howard Hughes Center Phase 6100 Center Dr Los Angeles - West 284,147 284,147 0.0% May-02
The Pinnacle 3300 W. Olive Ave Los Angeles - North 425,000 155,057 63.5% May-02
1733 Ocean Bldg 1733 Ocean Los Angeles - West 91,000 75,012 17.6% Jun-02
Baja Fresh Plaza 100 Moody Ct Los Angeles - North 25,000 0 100.0% Jun-02
Agoura Hills Gateway Center 28600 Roadside Dr Los Angeles - North 97,446 97,446 0.0% Jul-02
Cerritos Town Center 17777 Center Court Drive Los Angeles - South 165,000 165,000 0.0% Jul-02
Canyon Vista Office Park 26901 Malibu Hills Los Angeles - North 87,000 43,597 49.9% Jul-02
LNR Warner Center Phase II,
Bldg. A 5820 Canoga Ave Los Angeles - North 92,483 19,043 79.4% Aug-02
Water's Edge - Phase I 5570 Lincoln Blvd Los Angeles - West 60,000 60,000 0.0% Oct-02
Water's Edge - Phase I 5510 Lincoln Blvd Los Angeles - West 190,000 190,000 0.0% Oct-02
Long Beach - Signal Hill Business
Center 2900 Redondo Ave Los Angeles - South 100,000 100,000 0.0% Dec-02
Long Beach Airport Business Park 5050 E. Spring St Los Angeles - South 171,000 171,000 0.0% Dec-02
SUBTOTAL 2002 2,572,713 2,062,939 19.8%
1999 - 2002 TOTALS 9,679,765 4,312,711 55.4%
2003-2004 UNDER CONSTRUCTION
The Maple 407 North Maple Dr Los Angeles - West 160,000 160,000 0.0% Feb-03
Rolling Oaks Office Center 425 Rolling Oaks Dr Los Angeles - North 41,113 41,113 0.0% Jan-03
Center Court Plaza 29501 Canwood Los Angeles - North 55,000 55,000 0.0% Jan-03
LNR Warner Center Phase III, Bldg. G 5700 Canoga Ave Los Angeles - North 179,336 179,336 0.0% Apr-03
MGM Tower 10250 Constellation Ave Los Angeles - West 775,000 257,000 66.8% May-03
24400 Calabasas Building 24400 Calabasas Los Angeles - North 71,255 71,255 0.0% Jun-03
LNR Warner Center Phase III, Bldg. H 21301 Burbank Blvd Los Angeles - North 179,336 72,594 59.5% Aug-03
Plaza Las Fuentes Phase II 385 East Colorado Blvd Los Angeles - North 251,584 99,818 60.3% Jan-04
SUBTOTAL 2003-2004 1,712,624 936,116 45.3%
Undrcons_JV.xls
DEVELOPMENT CONSTRAINTS
Excluding downtown Los Angeles, nearly every submarket within the City of Los
Angeles and most adjacent suburban cities with a meaningful office supply has
government-imposed restrictions on new commercial development. These
restrictions are generally tied to political factors, issues of traffic
congestion and other infrastructure concerns. The table below summarizes several
Los Angeles area markets that have adopted political constraints on new
development.
POLITICAL CONSTRAINTS ON NEW DEVELOPMENT
Suburban North
Burbank Specific Plan
San Fernando Valley Specific Plan
Ventura Boulevard Specific Plan/Proposition U
Warner Center Specific Plan
VALUATION ADVISORY SERVICES 33 [CUSHMAN & WAKEFIELD LOGO]
LOS ANGELES COUNTY OFFICE MARKET
Westside
Park Mile Specific Plan
Miracle Mile Interim Control Ordinance
Beverly Hills Restrictive Zoning
Westwood Specific Plan
Brentwood Proposition U/Specific Plan
West Los Angeles Proposition U/Traffic Control Ordinances
Burbank Restrictive Zoning/Specific Plan
Century City Specific Plan
Despite the economic feasibility of new construction, the demand for new office
space exceeded new construction in the surrounding markets through year-end 2000
due to development restrictions. An analysis of the historical trends indicates
the actual new construction levels significantly "lagged" the demonstrated
demand for office space in the county from 1996 through 2000. The economy
weakened during 2001 and 2002, and the level of leasing activity has slowed in
most areas of Los Angeles County, resulting in an oversupply of new space. The
current cycle is not expected to be of the same magnitude as the early 1990's
recession in southern California, however. The employment base in the county is
not dominated by a single industry, and there has been substantially less new
development than during the latter part of the 1980's. The 11.58 million square
feet of new office development in Los Angeles County during the last 10 years
(1993 through 2002) compares with 90.7 million square feet of new office
development during the 10-year period 1982 through 1991.
VALUATION ADVISORY SERVICES 34 [CUSHMAN & WAKEFIELD LOGO]
DOWNTOWN LOS ANGELES MARKET AREA ANALYSIS
Downtown Los Angeles is bordered by an extensive freeway system, which provides
access to and from the greater Los Angeles and Southern California area. The
freeways extending through or adjacent to the downtown market include the Santa
Monica Freeway (I-10) to the south, the Harbor Freeway (I-110) to the west, the
Hollywood Freeway (SF-101) to the north, and the Santa Ana Freeway (I-5) to the
east. These freeways, together with an expanding rail, subway, and bus network,
connect the area to all points within Los Angeles County and southern
California.
The downtown Los Angeles market area is anchored by the Central Business
District (CBD). The larger downtown market area consists of a mosaic of
districts and neighborhoods which together comprise a dynamic cultural and
economic environment effectively surrounding the CBD office market. While the
CBD office market has lagged the performance of the Los Angeles County suburban
markets, the downtown market is experiencing a boom in residential, cultural,
entertainment, and public development, which may represent the initial phases of
creating a "24-hour" environment.
The following discussions provide an overview of the entertainment-oriented
districts, amenities, political climate, transportation infrastructure,
development climate, and residential market in downtown Los Angeles. The
continued creation of the cultural and residential infrastructure downtown Los
Angeles will help attract and retain a more dynamic and diverse tenant base.
CHARACTERIZATION OF DOWNTOWN DISTRICTS
As shown on the accompanying map, downtown Los Angeles is characterized by a
number of districts or neighborhoods that cover a considerable range in
development characteristics, cultural dynamics, and economic characteristics.
The discussion below provides an overview of each of these districts.
CENTRAL BUSINESS DISTRICT
The Central Business District is comprised of the Financial District and the
Bunker Hill submarkets, as described below.
Financial District
Prior to 1967, financial office occupancies were concentrated along the Spring
Street corridor, several blocks east of the current Financial District.
Beginning in 1967, the Financial District began to migrate westward. From 1967
through 1974, approximately 8,700,000 square feet of new office space was
constructed in the areas extending from Olive Street west to the Harbor Freeway,
and from Third Street south of Seventh Street. Subsequent development further
expanded the boundaries of the Financial District to Second Street on the north,
Bixel Street on the west, and Ninth Street on the south. While the location of
the old Financial District was partly a result of the proximity of passenger
rail lines to the east, its new location reflects its superior freeway access.
The Financial District, together with Bunker Hill, contains most of the major
Class A office developments in the Central Business District. The two main
office corridors through this district are Figueroa Street (north/south) and
Wilshire Boulevard (east/west). The Financial District includes a number of the
prime downtown amenities including retail (Macy's Plaza and 7th Fig), the 7th
Street retail corridor, and the Jonathan and California Clubs.
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Bunker Hill
Bunker Hill encompasses approximately 133 acres and comprises the northern
section of the Financial District. Marked by higher topography, Bunker Hill is
located north of Fifth Street and east of Figueroa Street. Redevelopment of this
area began in the early 1960's by clearing land for new office construction,
which started in 1967. Current land uses consist of high-rise office buildings
and mid-rise residential buildings and hotels, the Museum of Contemporary Art
(MOCA), and the Angel's Flight Funicular and Museum (linking Bunker Hill to the
Historic Core). Bunker Hill includes some very high quality projects and
constitutes a primary location in terms of overall desirability.
The Los Angeles Central Library is located south of Bunker Hill along the south
side of Fifth Street and includes a subterranean parking garage, the Cafe Pinot
restaurant, and extensive landscaping. The Bunker Hill steps, located directly
north of the central Library were constructed in conjunction with Library Tower.
The steps connect the heart of the CBD with the Bunker Hill neighborhood, and
there is a signalized pedestrian crossing at Fifth Street between the library
and the Bunker Hill steps. An escalator parallels the west side of these steps.
Central City West
The Central City West submarket of the downtown Los Angeles is concentrated west
of the Harbor Freeway. New commercial and residential development in Center City
West demonstrates the potential this location offers. These projects differ from
the original development proposed under the specific plan for the area, but they
have met with strong market and public acceptance. Two major projects in
particular have had a favorable impact on Central City West and the CBD in
general. The Los Angeles Center Studios was completed in 1999 on the former
"Unocal" site. The entertainment complex includes six sound stages, renovation
of the 14-story former Unocal headquarters, renovation of a 550-seat theater,
and support facilities. The Center Studios project represents the first major
entertainment-industry oriented development in the downtown market and may pave
the way for more entertainment-related development in Central City West.
Phase I of the Medici luxury apartment complex opened in 2000 just west of the
Harbor (110) Freeway between 7th and 8th Streets. The total project includes
approximately 625 one- and two-bedroom units with full-service amenities,
including lighted tennis courts, a state-of-the-art fitness center, a sand
volleyball court, a custom jogging track, men's and women's saunas, a putting
green, a playground and high-speed internet access. The first phase of this
privately-funded, luxury market-rate apartment project is now 100% leased. Phase
II of Medici, with 297 units, opened in the third quarter of 2002.
Civic Center
The Los Angeles Civic Center is Southern California's governmental hub at
Federal, state, county and citywide levels. The Civic Center District is located
north of First Street and extends north to the Hollywood/Santa Ana/San
Bernardino Freeway. Government buildings dominate the Civic Center area and
include the Kenneth Hahn Hall of Administration and County Courthouse, the
County Law Library, the Criminal Court Building, Los Angeles City Hall and City
Hall Annex Buildings, Los Angeles City Police Administrative Headquarters
(Parker Center), Los Angeles Music Center, Los Angeles Department of Water and
Power Headquarters, Los
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Angeles Unified School District Headquarters, the Federal Building, the U.S.
Courthouse, the State Office Building, and the Caltrans Building (proposed for
redevelopment).
South Park
South Park has long been viewed as downtown's most promising area for economic
development and in particular, housing. South Park is defined as the roughly 80
square-block area bounded by 8th Street on the north, Main Street on the east,
the Santa Monica (I-10) Freeway on south and Harbor (I-110) Freeway on the west.
The area is recognized most often as the home of the Los Angeles Convention
Center and Staples Center arena.
In 1995, the Community Redevelopment Agency (CRA) published a redevelopment plan
for South Park that articulated a future vision for South Park as an urban,
mixed-use neighborhood combining residential, cultural and commercial
development. The plan recommended large land areas be positioned for residential
development that would include housing for various income groups and family
sizes. Industrial land in the southeasterly portion of South Park was rezoned to
residential land uses to encourage such development. To date, completed
residential projects include mid-rise developments in the Fashion Square area of
South Park. The Skyline Condominiums, Metropolitan Apartments and Renaissance
Apartments collectively contain approximately 1,600 units.
The southwesterly portion of South Park is committed to the Los Angeles
Convention Center and Staples Center arena and related uses such as parking
structures. The construction and expansion of the Convention Center during the
1990's was the most significant development of the decade in South Park until
the completion of Staples Center in late 1999. Completed in 1999, Staples Center
is a state-of-the-art sports arena. The 22,000-seat arena is home to two NBA
teams, the Lakers and Clippers, as well as an NHL team, the Kings. The
anticipated spinoff development from these two projects, or Phase II, is
currently progressing through permitting phases with the City.
The city has recently circulated an RFP for the development of a mixed-use,
master-planned residential community to be located in the South Park submarket
of the City Center Redevelopment Project in downtown Los Angeles. The RFP
"envisions a neighborhood of some 10,000 mixed-income, mixed-use,
rental/ownership residential units and accompanying amenities. Such amenities
would include a supermarket and other community-serving commercial uses. A goal
of Planned Project is the creation of a vibrant, 24-hour "urban village" in
Downtown Los Angeles."
Historic Core
Los Angeles' original financial and cultural center, now known as the Historic
Core, is situated in the area extending from Hill Street on the east to Main
Street, south of First Street. Running through the Historic Core is Spring
Street, the original financial district of Los Angeles, and Broadway, once the
city's dominant retail street.
The Historic Core of Los Angeles, like many of the oldest financial districts
throughout the county, experienced rapid declines as the circa 1920 structures
were vacated by tenants seeking space in newer, more efficient high-rise
developments in the CBD. Office buildings on Spring Street, originally built to
very high quality standards, were essentially vacant during the 1980's. The
public sector, in response to the threat of losing these architecturally
significant
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buildings, made a commitment to rehabilitate and occupy several of the buildings
along Spring Street. The State of California recently completed retrofitting the
historic Broadway Department Store into the new Junipero Serra Office Building
at Broadway and Fourth Street, complementing the nearby Ronald Reagan State
Office Building at 3rd and Spring Streets. Presently, the City of Los Angeles is
the dominant office tenant in the area.
The Broadway corridor was once the entertainment and retail hub of the city.
With the highest concentration of movie palaces in the world, Broadway (between
3rd and 9th Streets) is the first and largest Historic Theater District listed
in the National Register of Historic Places. Presently, small independent ground
floor retailers occupy Broadway retail space and the majority of upper floor and
theater space is largely abandoned. The Los Angeles Conservancy, a local
historic preservation organization, launched the "Broadway Initiative Action
Plan" in June 1999 that lays the groundwork for a focused, ten-year investment
in reinvigorating Broadway's retail and entertainment environment. The plan also
contains a strong emphasis on converting vacant commercial buildings on Broadway
and on surrounding Historic Core streets into residential space, creating a
24-hour community in the Historic Core.
The City's new Adaptive Reuse Ordinance is already beginning to spur the
conversion of buildings on Spring, Main and Hill Streets to housing. Developer
Tom Gilmore of Gilmore Associates has been leading the way by actively acquiring
buildings in the district for residential conversions and unique live-work
projects. Leasing activity in the Old Bank District project is promising
evidence that the Historic Core is a desirable residential location. The
ultimate success of these residential conversions will have a profound impact in
bringing about the revitalization of the Historic Core.
Fashion District
The fashion or garment industry is one of the dominant industries in downtown
Los Angeles ranging from manufacturing to high fashion design. The Fashion
District is generally concentrated in the blocks from Seventh and Eighth Streets
south to the Santa Monica Freeway (Interstate 10) and from Main Street east to
San Pedro Street. Los Angeles is comparable to New York City as a center for the
garment industry in the United States. The district produces an estimated $8
billion in annual revenues and employs approximately 45,000 people.
The Fashion District is home to all sectors of the industry including
manufacturing, distribution, retailing and wholesaling components. The Los
Angeles Fashion District was established during the early part of the 20th
century and many of the buildings in the area are multi-story industrial
structures built during the 1920's.
The distribution functions of the Fashion District historically centered on the
California Mart, a multi-structure, multi-phase wholesale mart, encompassing the
entire block from Olympic Boulevard north to Ninth Street and from Los Angeles
Street to Main Street. The California Mart complex serves retail clothing store
buyers from throughout the United States, as well as local clothing
manufacturers and importers and distributors from throughout the Pacific Rim. It
provides a central location where buyers for retail stores can inspect clothing
at showrooms maintained by manufacturers and distributors from throughout the
world.
Dallas Market Center ("DMG") recently became an equity partner in the California
Mart development. DMG has been leasing space to gift tenants in an effort to
create a Giftmart. Other significant projects in this market include Mark
Weinstein's renovation of the Gerry
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Building to apparel showrooms, and his planned redevelopment of nine historic
buildings in this neighborhood to 580 residential "lofts".
The Fashion District long contained a retail sales component, consisting
primarily of factory outlet and wholesale/retail stores. These stores were
generally located on Los Angeles Street, between Seventh to Ninth Streets. Since
the late 1970's, in keeping with the nationwide growth in discount
merchandising, the Fashion District's retail component expanded dramatically.
Conversions of ground floor space and entire industrial buildings to retail uses
began to supply the district with the much needed space. New construction in the
past several years, including several major multi-story retail and wholesale
projects have also greatly expanded the retail activity.
The area south of Olympic Boulevard historically had very limited retail uses.
The change here has been particularly dramatic. Retailing is now a dominant
ground floor use along several streets, sometimes in combination with
wholesaling. Retail sales activity south of Olympic Boulevard is centered along
the Santee Alley, a two-block, north-south public alleyway extending from
Olympic Boulevard south to 12th Street between Santee and Maple Streets. Retail
activity here is extremely intense, generating extraordinarily high foot traffic
and rents.
Educational Institutions in the Fashion District include the Fashion Institute
of Design and Merchandising (FIDM), the Los Angeles Trade Tech College and the
Otis Art Institute. These specialized educational facilities benefit
tremendously from their location in and proximity to the garment/fashion
industry. The largest is the Fashion Institute of Design and Merchandising, a
five-story school at the southwest corner of Ninth Street and Grand Avenue, with
an enrollment of over 3,000 students.
Banks and financial institutions are also scattered throughout the Fashion
District that specialize in the fashion industry. Trade groups also occupy
office space in the area as do offices and showrooms from related merchandise
lines as such costume jewelry, watches and accessories.
Little Tokyo
Little Tokyo, located immediately southeast of the Los Angeles Civic Center, is
generally bounded by First Street south to Third Street and from Los Angeles to
Alameda Street. This district is the cultural, religious, social and commercial
center for the Japanese American community in Southern California. Redevelopment
activities over the last three decades have brought about the revitalization of
this century-old community. Little Tokyo is home to the largest ethnic community
center in the nation anchored by the Japanese American National Museum.
Historic preservation activities such as the conversion of the Union Church to a
theater and art center help maintain the historical and cultural identity of
Little Tokyo. New commercial developments including hotels, shopping centers and
office buildings in addition to housing developments, and religious institutions
contribute to the growth and continued interest in the community. Newly
installed public improvements such as malls, plazas and sidewalks link these
various developments making the 7-block Little Tokyo area one of the most
pedestrian friendly environments in Los Angeles.
Unique shops featuring specialty products for the Japanese community makes
Little Tokyo a vibrant retail destination. Many products and services offered
here are generally not available in
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other Los Angeles locations, including food markets and medical services
provided by Japanese-speaking professionals. First Street is the traditional
retail street in Little Tokyo. Over the past 15 years, however, Second Street
has also emerged as a retail corridor, and is developed with modern retail
complexes including the three-story Weller Court complex, Japanese Village
Plaza, Honda Plaza, Tokyo Square, and Brunswig Square.
Tourism is a major contributor to the economy of Little Tokyo, with tourists
from Japan comprising a significant portion of the tourist dollars captured in
the district. There are two luxury hotels in Little Tokyo, the largest of which
is the New Otani featuring 448 guestrooms and several high quality restaurants.
A second hotel, the 174-room Miyako Inn, opened in 1987 on First Street.
Japanese cuisine served in an authentic setting draws locals into Little Tokyo
restaurants. The district's proximity to the Civic Center makes it a popular
lunchtime destination for Civic Center workers.
Although relatively small by downtown Los Angeles standards, Little Tokyo also
has a significant office base. Occupancy rates are relatively good, with a
considerable number of government tenants due to its proximity to the Civic
Center. During the 1980's, a number of high-density office and mixed-use
development sites were assembled in Little Tokyo, often at very high land
prices. The recession of the early and mid- 1990's caused most of these projects
to be abandoned, although, two major mixed-use projects, both with extensive
residential components (Mangrove Estates and First Street South), are still
planned on the east side of Little Tokyo. Neither is expected to begin
construction in the near future.
Chinatown
Chinatown is a significant cultural and commercial center in downtown Los
Angeles. Los Angeles' Chinatown is smaller than its New York and San Francisco
counterparts, however, rivals these other locales in its display of rich culture
and sophisticated architecture. Its commercial core is located generally along
Hill Street, Broadway, and Spring Street, extending south from Bernard Street to
Sunset Boulevard. The heart of Chinatown is between College and Bernard Streets
where the stylish Chinese Gate at the Mandarin Plaza greets visitors.
Chinatown is an active ethnic center, serving as an entry point for Chinese
immigrants, as a shopping and cultural center for the Chinese population from
throughout the Los Angeles area, and as a real estate investment center for
Chinese overseas. During the 1970's and early 1980's all of these functions
expanded rapidly, reflecting changes in immigration law and the attractiveness
of the United States in general, and Los Angeles in particular, for both Asian
immigration and investment. Today some 14,000 people, mostly Asian, live in
Chinatown. The community is currently experiencing the arrival of a new group of
Asian residents as Vietnamese are beginning to establish their residences and
businesses in this area.
The restaurants and grocery stores of Chinatown cater to Chinese clientele from
throughout the greater Los Angeles area. Ethnic Chinese from outlying areas are
also drawn to the cultural center for commerce-related activities including
banking and medical care. Despite considerable economic activity in the
district, there is relatively little office development in Chinatown. Broadway,
and to a lesser degree Hill Street, remain the dominant commercial streets.
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Chinatown attracts many visitors because of its unique cultural landscape
dominated by significant works of Asian-inspired architecture. Tourists are
drawn to the East Gate and its bright neon lights, which is one of the many
famous landmarks in Old Chinatown Plaza. Old Chinatown Plaza located at 930
North Broadway is one of the community's most popular destinations. It is also
one of the oldest plazas in Los Angeles dating back to 1938.
MAJOR RETAILERS
Historically, 7th Street was the retail core of the west side of downtown. The
Robinson's and Broadway department stores anchored the street, and a third
department store - Bullocks - was located at Hill and Broadway. Retail uses are
currently concentrated in four major shopping centers in the CBD as well as
numerous smaller retail and restaurant tenants throughout downtown.
Two high-profile shopping centers, Macy's Plaza and 7th + Fig (formerly Seventh
Marketplace), are located along the 7th Street retail corridor. These centers
contain Downtown's two department stores, Macy's and Robinson's May, as well as
a variety of national retailers including Ann Taylor, Victoria's Secret,
Express, Bally Total Fitness and Gold's Gym.
Downtown retail caters to the daytime employment base as well as to the growing
residential population. Restaurants target office workers for lunch as well as
the theatre crowd in the evening, as well as visitors to the numerous Staples
Center events. Restaurants targeting the noontime crowd dominate retail spending
by downtown office workers. Specialty shopping is concentrated in the Jewelry
District in the 600 block of Hill Street. The most successful retail districts
in downtown Los Angeles are on Broadway and in the Fashion District along the
Santee Alley. Both are major shopping districts east of the downtown Los Angeles
CBD focused on discount merchandising. A study published in February, 2002 by
the Downtown Center Business Improvement District (BID) estimated the total
number of employees within the downtown boundaries at 144,546 persons. Combined
with the projected significant growth in the downtown residential housing market
discussed subsequently, downtown retailers and restauranteurs should benefit
from continuing increased demand over the next decade. The table below
summarizes a cross section of national or major regional retailers in the CBD.
RETAILER
Brooks Brothers
G.B. Harb
Bally Total Fitness
Express
Macy's
Talbot's
Victoria's Secret
Walden Books
Ann Taylor
Gold's Gym
Robinson's May
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DOWNTOWN RESTAURANTS
Downtown has a wide variety of restaurants including some of the city's finest
eateries. Some of the newest venues are opening in unique locations such as
Union Station and the Fashion District.
Arnie Morton's of Chicago, one of the premier steak houses in the country,
recently made its first foray into Downtown with a new restaurant at 7+Fig
(formerly 7th Markeplace). The Palm restaurant -- one of the oldest
family-owned, white tablecloth restaurants expanding across the United States --
opened a second Los Angeles restaurant at 11th and Flower Streets in April 2002.
Upon completion of the Standard Hotel in May 2002, two premier restaurants and a
rooftop "skybar" are scheduled to open at the "trendy" hotel. Two of Los
Angeles' premier chefs, Susan Feniger and Mary Sue Milliken of the TV Food
Network's "Two Hot Tamales", have been very successful with Ciudad, a gourmet
Latin-fusion restaurant at Union Bank Plaza. Ciudad expands on the success of
their critically acclaimed Border Grill Restaurants in Santa Monica and in The
Mandalay Bay Resort in Las Vegas. The owners of Cafe Pinot opened Nick & Stef's,
a gourmet steakhouse at Wells Fargo Plaza on Bunker Hill and recently opened
another Pinot restaurant, Zucca, at 801 Tower. Two restaurants which have been
very successful at the Bonaventure Hotel are L.A. Prime Steakhouse and the
Bonaventure Brewing Company. The Wilshire Grand Hotel opened Point Moorea, an
upscale sports bar with an exotic style restaurant, in the summer of 2000. This
renaissance of fine dining is satisfying the increased demand generated by
Staples Center, and will complement the Disney Concert Hall and new residential
developments in the near future.
DOWNTOWN RESTAURANTS
RESTAURANT
Bonaventure Brewing Company
Cafe Pinot
California Pizza Kitchen
L.A. Prime Steakhouse
McCormick & Schmick's
Nick & Stef's
Ciudad
Tesoro
Bernard's
Checkers
Water Grill
Engine Company No. 28
Arnie Morton's
Cardini
Ciao Trattoria
Cicada
Kyoto
Point Moorea
Zucca
The Palm
410 Boyd Bernards
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HOTEL ACCOMMODATIONS
Downtown Los Angeles contains approximately 5,100 hotel rooms. As the following
table indicates, there are approximately 4,725 luxury guestrooms and 138 hotel
meeting room facilities containing over 250,000 square feet within the Downtown
luxury hotel market. The former Bank of California building, located at the
northeast corner of Flower and 6th Streets, has recently been converted into an
upscale Standard Hotel and is run by the operators as the Chateau Marmont in
Hollywood and The Standard Hotel on the Sunset Strip. Other hotel developers are
proposing to build new hotels including two convention hotels with approximately
1,800 rooms across from Staples Center.
DOWNTOWN LUXURY HOTEL ACCOMMODATIONS
[Download Table]
MEETING MEETING YEAR
HOTEL ROOMS AREA (SF) ROOMS BUILT
Marriott Hotel 469 19,947 24 1983
Omni Hotel 439 19,920 20 1992
Westin Bonaventure Hotel & Suites 1,354 81,985 26 1977
Standard Hotel 207 1,980 2 2002
Regal Biltmore Hotel 683 66,500 16 1929
Wyndham Checkers Hotel 188 2,000 4 1925
Hyatt Regency Los Angeles 485 23,084 17 1973
Wilshire Grand Hotel 900 40,000 29 1955
Total 4,725 255,416 138 --
CULTURAL AND RECREATIONAL AMENITIES
Downtown Los Angeles is the cultural center of the region featuring world-class
venues for cultural and sporting events. Staples Center is home to professional
basketball, hockey, and arena football teams and also hosts a number of
concerts, conventions, and awards ceremonies. Cultural options in downtown range
from symphony and live theater to museums such as the Music Center of Los
Angeles County and MOCA. Also in downtown, the renovated Central Library houses
a collection of 2.5 million books as well as the popular Los Angeles history
archive.
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Downtown Amenities
CULTURAL ATTRACTIONS
VENUE DESCRIPTION
Walt Disney Concert Hall Symphony Hall
Museum of Contemporary Art (MOCA) Museum
The Geffen Contemporary Museum
LA Theatre Center/Tom Bradley Center Live Theater
Ahmanson Theatre Live Theater
Dorothy Chandler Pavilion Symphony Hall
Mark Taper Forum Live Theater
Colburn School of Performing Arts Live Theater
Children's Museum Museum
Latino Museum of History, Art & Culture Museum
African American Museum Museum
California Science Center Museum
Natural History Museum Museum
Japanese American Natural Museum Museum
Significant existing and proposed downtown developments are discussed below:
Staples Center
Completed in the fall of 1999, Staples Center is a state-of-the-art professional
sports arena and entertainment center located adjacent to the convention center
in the south end of Downtown. Staples Center hosts in excess of 250 events a
year, including professional sports and high-profile events. This 20,000-seat
arena serves as the permanent home to the world champion Los Angeles Lakers, Los
Angeles Clippers, WNBA Los Angeles Sparks (basketball), Los Angeles Kings
(hockey) and Los Angeles Avengers (arena football). Other high-profile events
include the Democratic National Convention, the Grammy Awards, the Latin Grammy
Awards, World Championship Boxing, concerts and the National Figure Skating
Championships.
The facility includes multiple concourses, 160 luxury suites, two private arena
clubs, restaurants, retail and office space for the Los Angeles Lakers and Los
Angeles Kings.
A $1 billion proposed expansion of the Staples Center project would further
enhance the convention center and arena facilities and create a destination
entertainment center similar to Universal City Walk. The proposed Los Angeles
Sports Entertainment District (LASED) is envisioned to reflect its Los Angeles
setting, convey an urban open air ambience and provide a vibrant year-round
daytime and nighttime sports and entertainment district complementing its South
Park and Convention Center neighbors as well as Downtown Los Angeles.
"LA Live" is the name of this new entertainment district which will include over
27 acres of strategically located parcels on six blocks adjacent to Staples
Center and the Los Angeles Convention Center. The overall holdings can be
described in two major groupings: Phase II and Phase III. Both Phases received
entitlements in December 2001 from the city council.
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Proposed Phase II will be comprised of approximately 18 acres located on three
blocks north of 11th Street across from Staples Center, currently used as
surface parking lots for Staples Center. This area forms the core development
site ultimately envisioned to include a four-star convention hotel, with nearly
1.1 million square feet of space including 1,200 rooms and substantial meeting
and ballroom space (80,000 to 100,000 square feet). The building will rise 45-50
stories in height, with the main lobby on Olympic Boulevard facing the Central
Business District, making a strong connection to the street, the plaza, parking
and the Convention Center. An adjacent structure will offer 800 parking spaces.
The core development will also include 505,000 square feet of
retail/entertainment shops, a cinema-plex, restaurants, nightclubs, sports bars
and a health club. Approximately 165,000 square feet of office space is planned
with corporate showrooms. A 40,000 square foot central plaza will be capable of
hosting significant special events, community gatherings and performances. This
major, open-air plaza will host a variety of programmed events, celebrations and
festivals and includes non-peak hour closure of 11th Street. Phase II also
includes a 7,000-seat live theater, LA Live, which will be the major mid-sized
musical venue for Los Angeles' residents and visitors. This state-of-the-art
facility will be anchored by major awards shows and will host other events
ranging from concerts, comedy, family shows, community theater, product launches
and large seminars.
Proposed Phase III will be comprised of approximately nine acres located on
three blocks on the eastern side of Figueroa Street across from Staples Center.
It extends the district development, with a mixture of sports, retail and
entertainment venues into the surrounding District. Phase III is planned to
include in-town housing, hotel and office uses (including 800 housing units, a
600-room hotel, 360,000 square feet of retail, entertainment and restaurants and
90,000 square feet of office space).
LOS ANGELES SPORTS & ENTERTAINMENT DISTRICT DEVELOPMENT PROGRAM
STAPLES CENTER PHASE II AND PHASE III
[Download Table]
AMENITY DESCRIPTION SQUARE FOOTAGE
Hotel Convention Hotel (1,200 rooms) 1,060,000
Hotel Business Hotel (600 rooms) 530,000
Retail Anchor Shops 185,000
Retail Small Shops 150,000
Restaurant Destination Restaurants 65,000
Restaurant Other Restaurants 55,000
Entertainment Live Theater 210,000
Entertainment Nightclubs/Sports Bars 50,000
Entertainment Hall of Fame/Museums 70,000
Entertainment Cinema-plex 55,000
Entertainment Multi-function Hall 25,000
Residential 800 Units 870,000
Office Headquarters Office 165,000
Health Club Sports Medicine Center 140,000
Health Club Heath Club 120,000
Convention Center Expansion Convention Center Expansion 250,000
Total 4,000,000
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The Los Angeles Convention Center
The Los Angeles Convention Center is one of the largest and finest convention
and exhibition facilities in the world. A major expansion was recently completed
creating Southern California's largest convention facilities (more than 870,000
square feet of exhibit space, 64 meeting rooms including a 26,300 square foot
special-events hall, spacious lobbies, restaurants and food courts). With the
completion of Staples Center in the fall of 1999, the Los Angeles Convention
Center now accommodates nearly any type of convention with state-of-the-art
facilities. As part of the planned Staples Center Phase II development, the
Convention Center may be expanded an additional 250,000 square feet.
Los Angeles Center Studios
Los Angeles Center Studios is the first film and television studio in Downtown
since the 1920's. The studios were completed in the summer of 1999 on the former
Unocal site adjacent to the Harbor (110) Freeway. The facility includes six
18,000 square foot sound stages and two structures with dressing rooms. The
low-rise wings of the former Unocal Building have been renovated to contain
office space, a 500-seat screening room and a two-story commissary. The existing
high-rise building on the site will remain intact as a film shooting location.
The Los Angeles Center Studios is scheduled to expand to encompass a total of 14
sound stages. The additional eight sound stages will be located on the southerly
portion of the site, an area currently used as surface parking.
Walt Disney Concert Hall
The $280 million, Frank Gehry-designed Walt Disney Concert Hall at First Street
and Grand Avenue is currently under construction to be completed October, 2003.
The 2,380-seat venue will host its first performance during the 2003-04 concert
season and will serve as the new home of the Los Angeles Philharmonic. The new
concert hall will be an indispensable element in addressing the space, audience
development and programming concerns with the existing facilities in the area.
The dramatic architecture reflects the hall's interior forms in a series of
curved sculptural surfaces, which wrap the entire building.
The Standard Hotel
New York-based hotelier Andre Balazs opened his third Los Angeles hotel in May,
2002. The Standard, in the former Bank of California Building at 550 South
Flower Street (NEC 6th and Flower Streets). Balasz, who also owns the Chateau
Marmont in West Hollywood and The Standard Hotel on Sunset Boulevard, planned a
comprehensive renovation project, designed and directed by Santa Monica project
architects Koning Eizenberg. The renovation features a completely new interior
with 207 rooms, two meeting rooms (1,980 square feet each), three restaurants
and two bars, including a rooftop bar/restaurant.
Cathedral of Our Lady of the Angels
The $180 million Cathedral of Our Lady of the Angels, located at Temple Street
and Grand Avenue, is currently under construction and scheduled to open in 2002.
The complex will serve as the headquarters for the Roman Catholic Archdiocese of
Los Angeles and will be a major architectural and spiritual tourist attraction.
There are five main elements to the new landmark Cathedral Project: the new
2,600-seat Cathedral of Our Lady of the Angels, a large, open plaza of some two
and one-half acres, an underground Parking Garage, the Cathedral
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Office/Conference Center and the Rectory. Next to the Cathedral will rise a
campanile that stands some 150 feet high, holding three large tolling bells.
Central Library
The Central Library is the crown jewel of the Los Angeles Public Library system.
Originally designed by Bertram Goodhue and Carleton Winslow, the project was
completed in 1926 and completely renovated and expanded to a state-of-the-art
facility in 1993 after a large fire destroyed most of the building in 1986.
Located along 5th Street between Flower Street and Grand Avenue, the Central
Library features comprehensive book, magazine, audio and videotape collections
as well as an extensive network of informational databases encased by dramatic
art and architecture with its distinctive sphinxes and rooftop pyramid. Other
unique details include the high-tech Bradley Wing, designed by famed architect
Norman Pfeiffer, an eight-story atrium with whimsical chandeliers and the
Maguire Gardens.
The Colburn School for Performing Arts
The $23 million Colburn School for Performing Arts is located next to the Museum
of Contemporary Art (MOCA). The 800-student school with the 420-seat Zipper
Concert Hall further enhances the Grand Avenue Cultural Row. In addition, The
Colburn School of Performing Arts has announced it will build a new musical
conservatory on the lot adjoining MOCA. The new facility will be a tuition-free,
four-year, degree-granting institution built around a core program of general
studies with an emphasis on the performing arts. The addition will house
approximately 120 students. The cost of the new 38,000 square foot facility is
estimated at $150 million.
Metropolitan Water District Headquarters
The $135 million headquarters for the Metropolitan Water District was completed
at the end of 1998. The 527,000 square foot office building is located adjacent
to Union Station and accommodates approximately 1,200 employees.
California Science Center
Situated between the Los Angeles Memorial Coliseum and Exposition Park's
expansive rose gardens, the $125 million California Science Center recently
opened, completing the first phase of a $265 million improvement project in the
area. The California Science Center is a huge success featuring a five-story
kinetic sculpture, a 50-foot robot that lectures on human biology, a walk-in
microscope, a virtual reality space docking simulator and discovery rooms.
Japanese American National Museum
A $45 million expansion of the Japanese American National Museum in Little Tokyo
was recently completed. In addition, MOCA is planning a 1,100 square foot
expansion in the Little Tokyo space adjacent to the Japanese American National
Museum. The Frank Gehry-designed building will contain the MOC@ Digital Center,
a state-of-the-art structure aimed to embrace changing technology.
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ACCESS AND TRANSPORTATION
Multiple modes of transportation have been developed to facilitate access to and
around downtown Los Angeles from throughout the region. Downtown Los Angeles is
the hub of the regional transportation network and is served by an extensive
freeway system, an expanding mass transit system, and offers easy access to
several airports. Downtown is within a one-hour travel time, by either transit
or automobile, from areas as far away as Santa Clarita, Irvine and Ontario.
The Southern California freeway system, particularly in the Los Angeles Basin,
is one of the largest in the world. Major north/south freeways in Los Angeles
County include the San Diego Freeway (I-405), the Golden State Freeway (I-5),
the Long Beach Freeway (I-710), and the San Gabriel River Freeway (I-605). Major
east/west freeways in Los Angeles County include the Pasadena Freeway (I-210),
the Ventura Freeway (SH-101/SH-134), the Santa Monica Freeway (I-10), the Pomona
Freeway (SH-60), and the Artesia Freeway (SH-91). A majority of the Los Angeles
basin's freeways converge in downtown.
Surface street access through downtown Los Angeles is via a series of major
streets generally in a grid pattern. The most significant north/south arterials
are Figueroa Street, Flower Street, Grand Avenue, and Hill Street. Third,
Fourth, Fifth, Sixth, Wilshire, Seventh, and Eighth Streets are the primary
east-west streets.
Despite its historic association as a city of freeways, beginning in the 1990's
Los Angeles broke new ground in improving access and linkages through a focus on
multi-modal transportation called the Metro System. The Metro System is
comprised of freeway carpool lanes, buses, light rail lines, and heavy rail
lines. At the present time seven rail lines are in operation, including three
Metro Rail commuter lines and four Metrolink commuter lines.
Union Station and Transit-Oriented Development
Of particular importance to the city, and particularly the CBD has been the
development of Union Station into the regional transportation hub. Amtrak, Metro
Rail and Metrolink commuter rail and bus lines converge at the renovated Union
Station adjacent to the new headquarters buildings for the Metropolitan Transit
Authority's (MTA) and Metropolitan Water District (MWD). Catellus Development
Corporation, owner of Union Station and 50 acres of adjoining land, is
developing the area around this historic property into a regional multi-modal
transportation hub for Southern California with more than 115 trains and 1,500
buses passing through the station every day. Union Station's historic identity
and central location as well as its access to the regional freeway network and
expanding rail system make it an ideal location for such development.
Metrolink Regional Commuter Rail
A new and thorough network of commuter rail lines also serves the Los Angeles
metropolitan area. These lines serve outlying areas and all converge at Union
Station in downtown Los Angeles. The Metrolink system has commuter rail lines in
operation bringing passengers downtown from Moorpark in Ventura County (47
miles), Lancaster/Palmdale in north Los Angeles County (60 miles), San
Bernardino (57 miles), downtown Riverside (58 miles) and San Diego.
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[MAP]
In all, 489 miles of commuter rail, light rail and subway connect the CBD to
most of Greater Los Angeles, serving approximately 260,000 boarding passengers
each weekday. The commuter rail service consists of two major rail systems,
Metro Rail and Metrolink, both of which connect at Union Station in Downtown Los
Angeles. Metro Rail consists of four inner-city rail lines totaling 73.1 miles.
Metrolink consists of six commuter routes serving six counties, totaling 416
miles. Together, these two rail systems make up the largest (by length) rail
system in the country.
The Los Angeles County Metropolitan Transportation Authority designed, built and
now operates 73.1 miles of Metro Rail service. The Metro Rail system consists of
the Metro Red Line subway system, the Metro Blue Line and the Metro Green Line.
In total, the Metro Rail system serves 52 rail stations stretching from Long
Beach to Downtown Los Angeles to Hollywood, Universal City and North Hollywood
in the San Fernando Valley to Norwalk and El Segundo and all points in between.
Metro Rail ridership has increased 60% in the last two years to its current
average weekday ridership of approximately 225,000.
The Metro Blue Line links the CBD with the city of Long Beach 20 miles south.
The Blue Line is currently expanding the system's capacity by 50%, which will be
completed in the third quarter of 2003. Between Long Beach and Downtown, the
Blue Line intersects with the Metro Green Line, which runs east from Downey,
west to near the airport and south to the beach cities. The Blue Line also
connects to the Metro Red Line at the 7th Street/Metro Center stop. The Metro
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Red Line, a subway starting at Union Station, continuing through Downtown, and
terminating in North Hollywood, opened in 1993 and expanded in 1996, 1999, and
2000. The shuttle offers continuous service to and from Union Station during
peak arrival and departure hours Monday through Friday.
METRO RAIL SYSTEM
[Download Table]
OPENING NUMBER OF LENGTH AVG. WEEKDAY
RAIL LINE DATE STATIONS IN MILES RIDERSHIP*
Red Line 1993-2000 16 17.4 132,654
Blue Line 1990 22 22 64,261
Green Line 1995 14 20 27,587
Gold Line Opens 2003 13 13.7 n/a
Total - 65 73.1 224,502
*As of February 2002
[MAP]
With the success of the Metro Red and Blue Lines, the MTA is currently building
the 13.7-mile Gold Line from Union Station in Downtown Los Angeles to Sierra
Madre Villa Avenue in
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Pasadena. The Gold line is expected to open by July 2003 and run through
Chinatown, Highland Park, Arroyo Seco, South Pasadena and the Old Pasadena Area.
The Metrolink system consists of six routes providing commuter service to
Orange, Ventura, Riverside, San Bernardino, San Diego and north Los Angeles
counties. Five of the routes provide express trains from the outlying suburbs to
Union Station. The system has 50 stations and covers 416 miles. Each day 128
trains have 33,000 boarding passengers. In 2002, one new station was added and
three more are under construction. Amtrak trains also run frequently to and from
San Diego and San Francisco.
Downtown Los Angeles is also the central hub to the Metro Bus Line. According to
a survey in September 2002, the Los Angeles Metro Bus Line averages 1,155,094
boarding passengers each weekday. A new priority bus service, the Metro Rapid
Bus, offers passengers a chance to reach their destination up to 25% faster than
local service. The Metro Rapid service is frequent with buses coming as often as
every three to 10 minutes during peak hours. Stops incurred on the Metro Rapid
Bus are limited in that they are located only at major intersections connecting
with other transit services. Each bus has special sensors that keep traffic
lights green when Metro Rapid is coming. Less waiting time at red lights means
fewer delays. A recent vote to expand the Rapid Bus service to include 23
additional corridors was passed. Downtown employees are offered numerous
transportation options such as those already existing, the increase in Metro Bus
Line and Metro Blue Line capacity and the creation of the Metro Gold Line.
The potential to increase transit use exists, as 9 million people live within a
60-minute transit ride from downtown Los Angeles. Forecasts suggest that the
number of visitors to Union Station will gradually increase from the current
level of 25,000 to almost 250,000 per day over the next 10 years. The
development and expansion of the Metro Rail and Metrolink systems will generate
most of this traffic. The Metro Rail Blue and Red lines converge and become
subways in the downtown area, delivering passengers from outlying areas to the
central core, while daily commuter trains through Metrolink arrive from as far
away as Riverside, Santa Barbara, Lancaster, and San Diego. The establishment of
this rail network converging on Union Station solidifies the CBD as the
transportation hub, not only of the City of Los Angeles, but also of the entire
five-county metropolitan region.
This concentration of transportation systems in downtown Los Angeles reflects
both the historic development pattern of Los Angeles and the political power of
downtown interests. This political clout is continuing to grow as downtown
boosters voice their desires to see revitalization in the CBD. The mayor, City
Council, and political bureaucracy tends to be pro-growth, pro-business, and
pro-development in downtown. Anti-growth pressures in outlying areas have also
contributed to a renewed focus on downtown.
GOVERNMENTAL ISSUES AFFECTING PUBLIC TRANSPORTATION
The public transportation system centered in the downtown market area responds
to the mandates from governmental regulations, and effectively targets downtown
as the future location for tenants with a large number of employees.
The South Coast Air Quality Management District (AQMD) adopted Rule 2202 in
December 1995 that requires major Southern California employers to participate
in a program targeted at reducing mobile source emissions generated from
employee commutes. Rule 2202 was
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adopted pursuant to federal and state Clean Air Act Requirements, Health &
Safety Code Section 45458, and Section 182(d)(1)B) of the federal Clean Air Act.
Effective June 1998, Rule 2202 applies to any employer with 250 or more
employees on a full or part-time basis at a worksite for a six-month consecutive
period. Employers subject to this Rule must implement an emission reduction
program to reduce emissions related to employee commutes and work-related travel
and to meet a worksite specific emission reduction target (ERT). Employers can
use credits earned though one or more of the following emission reduction
options to meet their ERT.
Mobile Source Emission Reductions - Employers can earn credit towards
their ERT through implementing programs to reduce mobile source
emissions including:
Reducing peak-period commuting trips;
Reducing other work relate trips;
Using alternative fuel vehicles for commuting and/or other work related
trips; Reducing vehicle miles traveled (VMT) through relocation or
telecommuting; and/or Participating in a cash-out program that offers
employees a cash allowance equal to employer's cost of providing a
parking space.
Air Quality Investment Program - Employers may pay into a fund whose
monies are used to obtain an emission reduction that is equivalent to
the sum of the ERTs for all participating employers in the Air Quality
Investment Program.
Other Emission Reduction Strategies - Employers may receive credit
toward ERTs for any employer sponsored and administered emissions
reduction strategy that the employer demonstrates will achieve the
goals of Rule 2202.
Large employers are required to comply with the provisions of Rule 2202 and
demonstrate progress in achieving their individual ERTs. Participation in
emissions reduction programs will require employers to attempt to reduce the
number of single-rider commuters in their employ and encourage the use of
alternative forms of commuting including carpooling, public transportation and
telecommuting. The existing and expanding public transportation infrastructure
in the downtown market will provide an increasing competitive advantage for
larger firms who must comply with the AQMD regulations. The westside,
Tri-cities, and other major employment centers of Los Angeles do not have
meaningful public transportation infrastructure in place or planned. These
facilities in the downtown market provide access to a larger, more affordable
labor base and more ease of compliance with existing and future regulations.
DEVELOPMENT RESTRICTIONS IN SURROUNDING MARKETS
Specific Plans
Nearly every submarket within the City of Los Angeles and most adjacent suburban
cities with a meaningful office market has imposed restrictions on new
commercial development. These restrictions are generally tied to political
factors, issues of traffic congestion and other infrastructure concerns. These
restrictions negatively impact the political feasibility of significant amounts
of new office construction despite the current and future economic conditions of
the
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regional office market. The table below summarizes several Los Angeles area
markets that have adopted meaningful political constraints on new development.
[Download Table]
SUBURBAN NORTH
--------------
Burbank Specific Plan
San Fernando Valley Specific Plan
Ventura Boulevard Specific Plan/Proposition U
Warner Center Specific Plan
WESTSIDE
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Park Mile Specific Plan
Miracle Mile Interim Control Ordinance
Beverly Hills Restrictive Zoning
Westwood Specific Plan
Brentwood Proposition U/Specific Plan
West Los Angeles Proposition U/Traffic Control Ordinances
Santa Monica Restrictive Zoning/Specific Plan
Century City Specific Plan
Specific Plans have become growth-control mechanisms generally designed to
reduce the amount of development that could occur under existing zoning codes.
The plans base controlled growth on the ability of infrastructure and public
services to accommodate new development. These Plans also attempt to insure new
projects fund their "fair share" of the cost of additional infrastructure
improvements necessitated by new development. In nearly all instances, Specific
Plans are focused on the protection of residential neighborhoods and minimizing
traffic on local streets. Transportation policies are based on roadway and
intersection levels of service, automobile trip generation, and costs associated
with traffic mitigation measures typically tied to infrastructure.
Homeowner's Associations
The concerns of the surrounding suburban residential communities over the
increasing traffic and the decline in the overall quality of life has led to the
formation of a number of politically influential homeowner's groups that can be
described as actively anti-development. The influence of these various groups
has increased in many Los Angeles communities over the past decade. These
associations have influenced the adoption of restrictive Specific Plans and
often actively support slow- or no-growth policies toward new development.
Development Fees
In addition to typical zoning and planning issues, any new development of
significant size and scope within Specific Plan areas requires developers to pay
substantial entitlement fees prior to project approval. The fees are usually
tied to the anticipated traffic increases generated by a proposed project, and
the costs are assessed based on project square footage and intended use. The
prime westside markets, including Westwood, Century City, Brentwood, and Santa
Monica have substantial fees for new development, as does the Miracle Mile
District, and the Ventura Boulevard corridor of the San Fernando Valley in the
communities of Encino and Woodland Hills.
Proposition U
The most significant political constraint on new competitive office supply in
the City of Los Angeles markets has been Proposition U, which was passed in
1986. Proposition U, also
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known as Ordinance No. 161684 resulted in the "downzoning" of Height District
designations 1 to 4 in the City of Los Angeles and amended the zoning code by
reducing the permissible heights throughout most of the city to that permitted
in Height District 1. Properties within this designation are limited to a
maximum of 3 stories or 45 feet in height. The portions of the City most
directly effected by Proposition U and the Specific Plans summarized above to be
the most affluent, prestigious residential areas, and office buildings in these
locations have typically commanded some of the highest rental rates in the
County. These areas also experienced some of the greatest levels of new
development during the 1980's. The "wave" in new high-rise construction during
the latter portion of the 1980's was in part accelerated by developers and
lenders who hurried high-rise office developments through the planning and
development stages in anticipation of the passage of Proposition U.
Impacts of Regional Development Constraints on the CBD
The political forces that restrict development throughout much of Los Angeles
and the suburban communities do not factor into development in the CBD and in
effect, are de facto policies that encourage high development densities in the
region's center. Downtown Los Angeles was not impacted by Proposition U and as
such, remains one of the few locations in the Los Angeles basin where high rise
development is permissible.
Although there are some political and governmental controls on future
development in the CBD, the number of projects currently entitled for
development or proceeding through the approval process is substantial.
ENCOURAGING GROWTH DOWNTOWN
In 1989, the Los Angeles Mayor and City Council appointed a citizens committee
to "address the current conditions of downtown Los Angeles, and to establish a
vision and a plan of Action which would help guide the City's decisions in
determining the fates of downtown over the next 25 years."
The committee, known as the Downtown Strategic Plan Advisory Committee or
DISPAC, released its plan at the end of 1993. Its recommendations included
measures emphasizing security, land use and economic development. Necessary
funding sources to implement the committee's recommendations were not
identified, and instead, it was the intended that the City Council would adopt
their Downtown Strategic Plan as a guiding vision, direction, and policy
framework for downtown to the year 2020.
The Community Redevelopment Agency
The Community Redevelopment Agency (CRA) in partnership with the City of Los
Angeles, devises and implements geographically based strategies to channel
investment and quality development to revitalize Los Angeles neighborhoods. The
CRA directs public and private investment to projects that further the Agency's
mandate to eliminate blight; revitalize older neighborhoods; build low- and
moderate-income housing; encourage economic development; and create new
employment opportunities while supporting quality urban design, architecture and
the arts. Funds to perform redevelopment activities stem from several federal
and local sources. These include federal Community Development Block Grants,
Economic Development Administration Funds, Urban Development Action Grants,
Title I urban renewal funds, local tax increment financing, proceeds from the
sale of notes and bonds, and land sale proceeds. By offering incentives such as
technical, design and financial assistance, the CRA has also channeled more than
$8 billion in private investment to redevelopment areas.
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Plan Areas delineated by the CRA encompass readily identifiable areas for
targeted policies, programs and investment strategies. Several plan areas are
included in downtown Los Angeles including:
Bunker Hill Urban Renewal Project
Central Business District Redevelopment Project
Chinatown Redevelopment Project
Little Tokyo Redevelopment Project
CRA efforts over the past several decades have contributed to the development of
Bunker Hill, renovation of the Central Public Library, a major expansion of the
Convention Center, and a new $90 million wholesale produce market that retained
5,000 jobs and created 1,000 new positions.
New Redevelopment Zone and CRA Funding
The Los Angeles City Council has preliminarily approved during second quarter,
2002 to a redevelopment plan which is intended to revitalize the downtown
Historic Core. The proposed redevelopment zone covers an 879-acre area, with
incremental tax increases earmarked for a number of public/private redevelopment
and development projects including up to 13,000 new housing units, with
significant commercial and infrastructure developments as well over an extended
timeframe. One potential indirect beneficiary of this new zone may be the
proposed LA Arena Land Company's planned $1 billion Los Angeles Sports and
Entertainment District Project. This development, by the developers of Staples
Center, includes a proposed new football stadium for a new NFL team in the South
Park neighborhood east of Staples Center and the Convention Center. The
potential for this major project enhances the viability of the downtown
marketplace for all types of uses, including residential, commercial, retail,
and office space.
Downtown Center Business Improvement District
Much of the downtown area is now in one of several Business Improvement
Districts (BlD's). These are private assessment districts, created by a majority
vote of property owners, approved by the Los Angeles City Council, and financed
by direct assessments that are collected by the County Tax Collector. They
provide uniformed security (supplementing the police), additional street
cleaning and graffiti removal, advertising and marketing, and some political
advocacy service for their respective subdistricts.
The Los Angeles Downtown Center Business Improvement District (BID) is a
coalition of property owners united in an effort to enhance the quality of
downtown Los Angeles. It aims to help the 65-block CBD achieve its full
potential. Nearly 250 property owners provide funds to the BID through a special
voluntary tax assessment. The district extends from the Harbor Freeway on the
west to Main and Hill Streets on the east and from First Street on the north to
Ninth Street and Olympic Boulevard on the south.
The BID's purpose is to develop the downtown economy by marketing the area as a
premier business location and visitor destination. Its Economic Development Team
promotes economic and business growth downtown through assisting companies
considering expanding and/or relocating their businesses within the CBD by
connecting companies to assistance program
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offered at local, regional and national levels such as special economic zones,
public/private partnerships, and access to capital.
The BID's activities are very visible throughout downtown. The "Purple Patrol" -
a team of maintenance, safety and customer service guides are present throughout
the day offering workers and visitors assistance and keeping the streets safe
and clean. The BID also participates in a multi-agency, community-service
outreach effort to assist the homeless and obtain help for the needy.
Central City Association
The purpose of the Central City Association of Los Angeles (CCA) is to foster
the growth of downtown Los Angeles as a world-class center of commerce,
government and culture. CCA serves as an advocate for the business community
bringing issues before the City Council, the County Board of Supervisors and the
State Legislature. The CCA was instrumental in moving the Adaptive Reuse
Ordinance through the City Council that has opened the way for many new downtown
projects, particularly in the Historic Core, and is currently working toward
business tax reform.
DOWNTOWN DEVELOPMENT
Downtown Los Angeles has been the focus of an estimated $4 billion in both
public and private investment over the past few years, and several significant
projects are planned for future development. The developments have included a
sports arena, cultural, and government projects, as well as a significant number
of multi-family residential developments. The following chart summarizes several
of the major projects.
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[Enlarge/Download Table]
Los Angeles CBD Development Projects
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Projects Recently Completed
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Estimated
Project Description Completed Location Cost
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Medici Apartments, Bixel & 7th St. 325-unit Ph. 1 new construction 11,700 West of 110 150,000,000
Old Bank District, Phases I & II Adapt reuse, 181-unit loft conv. 11,700 Historic Core 120,000,000
Spring Tower, 631-41 S Spring St. Adapt reuse, 36 live-work lofts 2001 Historic Core Not published
Medici Apartments, (Ph. II) 300-unit final phase 2001 West of 110 $100,000,000
Old Bank District Project (Ph. III) Adapt reuse, 56-unit loft conv. 2001 Historic Core $10,000,000
Carrier Center, 600 W. 7th Street Dept. store conv. to telecom 2001 Financial District $50,000,000
Hope Village, 1001 S. Hope Street 56 afford. unites, rec. & day care cr. 2001 South Park $40,000,000
Infomart, Union Station Terminal Annex Adapt reuse, technology center 2001 Union Station $20,000,000
Toy Warehouse Lofts (3rd St./Santa Fe) Adaptive reuse, 20 condos units 2001 Artists District Not published
Cathedral of Our Lady of the Angels 3,000-seat cathedral 2002 Bunker Hill $163,000,000
Embassy Hotel, 851 S Grand @ 9th St. 341-room hotel renovation 2002 South Park $80,000,000
"The Standard" Hotel Conv. of office bldg. to 200 room hotel 2002 Financial District $100,000,000
So. Cal Institute of Architecture Adapt reuse, 180 units afford hsg. 2002 Artists District Not published
Medici Apartments, Ph IV-VI 297 market-rate apartment units 2002 West of 110 $50,000,000
Security Building, 500 S Spring St. 135 mkt lofts 2002 Historic Core $24,000,000
-----------
$707,000,000
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Projects Under Construction - as of First Quarter 2003
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Scheduled Estimated
Project Description Completion Location Cost
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Walt Disney Concert Hall 2,295-east concert hall 2003 Bunker Hill $274,000,000
Clark Hotel, 426 Hill Street Renovation of 341-room hotel N/A Financial Dist. $80,000,000
The Embassy Hotel, 851 S. Grand Ave. Rehab of old theater and 237-room hotel N/A Not determined
The Pegasus, 612 S. Flower St. Adaptive reuse for 322 lofts units 2003 $52,000,000
Orsini Apartments 297 new market-rate units (apartment) 2003 Financial Dist. $55,000,000
Bartlett Bldg. NWC 7th & Spring St. Adaptive reuse, 139 loft units 2003 Historic Core $15,000,000
South Park Lofts, 816 S. Grand Ave. Adaptive reuse, 56 loft units 2003 Historic Core $8,000,000
1300 South Figueroa 100 units complete 2003 Not determined
Higgins Building, 108 West 2nd St. Adaptive reuse, 143 loft units 2003 Historic Core $11,000,000
Little Tokyo Lofts Adaptive reuse, 161 loft-style
apartments 2003 $10,000,000
Flower Street Lofts/Bronson Building,
1140 S. Flower Adaptive reuse, 91 loft-style condo 2003 $25,000,000
The Gas Company Lofts, 810 S. Flower St. Adaptive reuse, 251 loft-style
apartments 2003 Not determined
The Coulter & Mandel Bldgs, SWC Olive &
7th St. 51 Luxury loft-style apartment units 2003 Not determined
5th 7 Broadway, 501 S. Broadway Adaptive reuse, 280 loft-style
apartments 2003 $20,000,000
Orpheum Lofts, 842 S. Broadway 37 live/work units 2003 Not determined
Hope Street Lofts, SWC Hope St. & Olympic 30 market rate apartments 2003 Not determined
Calfrans New Headquarters 600,000 SF office building 2004 Civic Center $162,500,000
------------
$713,000,000
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Planned projects
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Scheduled Estimated
Project Description Completion Location Cost
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Los Angeles Center Studios Phase II 550 seat theatre 2002 West of 110 $40,000,000
Subway Terminal Building (4-phases) 250 apts, 4 theaters, retail 2004 Hill St. @ 4th St. $40,000,000
Rowan Building, 458 S Spring St. 209 mkt lofts, 20% affordable units 2004 Historic Core $39,000,000
Broadway Spring Center, Phase II New office/retail space 180,000 SF N/A Jewelry Dist. Not determined
Citicorp Plaza Phase III, 755 S. Figueros 800,000 SF office building N/A Financial Dist. $160,000,000
Metropolitan Lofts, 11th & Flower St. 230 loft-style market-rate units 2002 South Park $50,000,000
El Dorado Hotel, 41 Spring Street Restore to 132-rm boutique hotel 2002 Historic Core $25,00,000
Pershing Square Center Mixed use development on hold Financial Dist. $400,000,000
Metropolis Project/City Centre
Development Mixed use; 3 ofc bldgs., 500-room hotel on hold Convention Cntr. $500,000,000
Union Station Project (Catellus
Development) 6.5 million SF mixed use development on hold Union Station Not determined
First Street Properties, SWC 1st and Hill Mixed use development on hold Historic Core $500,000,000
San Pedro Lofts, 412 San Pedro Street Adaptive reuse, 161 loft units 2002 Toy District Not determined
Sakura Village New 75-unit condo project N/A Little Tokyo Not determined
Divine Master Convent, NEC Sunset Blvd
& Beaudry Mixed use development N/A $5,500,000
The Met Lofts, NEC 11th & Flower St. Two phase residential project-264 units 2005 $50,000,000
Security Building, 510 S. Spring St. Adaptive reuse, 153 unit loft
style apts 2003 $24,000,000
Pacific Electric Building, 610 S. Main St. Adaptive reuse,314 units loft
style apts 2004 Historic Core $41,000,000
Visconti, NEC of 3rd & Bixel St. 300 new market-rate units 2006 West of 100 $45,000,000
Victor Clothing Bldg., 242 S. Broadway Adaptive reuse, 38 live/work loft units 2003 Fashion Dist. Not determined
Santee Court Lofts Adaptive reuse, industrial to apts 2003 Fashion Dist. $35,000,000
Far East Cafe Building, 347-353 E. 1st St. Adaptive reuse/restoration of 16
studio apts 2003 Little Tokyo $2,800,000
901-909 S Broadway Adaptive reuse, apartments with retail 2004 Not determined
Library Court, 630 W. 6th St. Adaptive reuse, 96 housing units 2004 Not determined
Irvine Byrne Building, 249-259 S. Broadway Adaptive reuse, 40 loft units 2004 Historic Core $12,000,000
Mercantile Arcade Bldg, 540 S. Broadway Adaptive reuse, 143 traditional
apartments 2004 Not determined
Los Angeles Trade-Tech Campus, NWC 4th &
Spring St. Multi-building campus 2003 Not determined
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$2,069,300,000
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Combined Total $3,489,300,000
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Proposed Projects
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Colburn School of Performing Arts, Ph. II Music and arts school N/A Bunker Hill $50,000,000
St. Vibiana's Mixed Use Project Reuse for educ, cultural & housing 2005 Historic Core $38,000,000
Commercial Exchange Bldg. 416 8th St. Adaptive reuse, 60 loft units 2002 Historic Core Not determined
Mobil Oil Building 612 S. Flower Street Adaptive reuse, 310 loft units 2003 Financial Dist. Not determined
801 E. 7th Street Building Adaptive reuse, 85 loft units N/A Historic Core Not determined
The Sassony Building, 626 Spring Street Adaptive reuse, 35 lost units 2005 Historic Core Not determined
Teramachi Senior Condo NWC 3rd & San Pedro New market-rate senior condo N/A Bunker Hill $50,000,000
Grand Promenade Apartment, Ph II Predom. residential, 300-400 units 2005 Bunker Hill $90,000,000
Grand Promenade Apartment, Ph III Predom. residential, 300-400 units 2006 Bunker Hill $100,000,000
Los Angeles Theatre Center Annex Convert space to catering school/rest. N/A Historic Core Not determined
Music Center Renovation Renovation N/A Financial Dist. $53,000,000
Broadway Arcade Building, 541
Spring Street Off/Retail renovation N/A Financial Dist. $200,000,000
Halekulani Hotel New 390-room business hotel N/A Financial Dist. $120,000,000
Marriott Courtyard Hotel Renovation 2003 Financial Dist. $30,000,000
Hall of Justice Rehabilitation N/A Civic Center $144,000,000
Federal Court House Add'l facility replacing portion
of existing 2007 Civic Center $300,000,000
Dorothy Chandler Pavilion, SWC of Temple
& Grand Renovation N/A $50,000,000
LA Memorial Coliseum & Sport Arena Refurbished coliseum to house pro
football N/A $450,000,000
Los Angeles Center Studios, Ph II, NEC 6th
& Bixel 6 additional sound stage N/A $40,000,000
Grand Avenue Promenade Landscaping, lighting, street
trees, etc. N/A $4,000,000
Pacific Telephone Site/Madison Complex,
411 S. Ol Mixed-use, commercial development N/A Not determined
Shane Property, 500 S. Hill St. Office development at Metro rail Portal N/A Not determined
Stock Exchange Building, 618 S. Spring St Adaptive reuse, loft-style apartments 2004 $6,000,000
El Dorado Hotel, 416 S. Spring St Renovate and convert, 66 loft-style
units 2005 $15,000,000
Staples Center Entertainment District
(Ph II & III) Theatres, retail, restaurants etc. 2006 No. of Staples Cr. $1,000,000,000
Sante Fe Loft II Adaptive reuse, 98 loft-style
apartments 2005 $12,000,000
The Market Lofts Mixed-use, supermarket & loft-style
apts 2004 Not determined
The Yards, b/w 3rd St & 4th St 3-phases project 2005 Not determined
Main Mercantile Bldg, 620 S. Main St Adaptive reuse, 42 unit loft-style
apartments 2004 $7,000,000
Cal Pac Bldg. SW Grand Ave & 6th St 94-market rate units 2004 $14,000,000
1st & Alameda, 500 E. 1St 800 residential units 2005 Not determined
------------------------------------------------------------------------------------------------------------------------------------
Sources: Los Angeles Downtown News, Los Angeles Business Journal, Central City
Assoc., Downtown BID and Cushman & Wakefield
"Planned Projects" have entitlements and a plan for construction is underway
"Proposed Projects" are unentitled and are in various stages of pre-entitlement
VALUATION ADVISORY SERVICES 57 [CUSHMAN & WAKEFIELD LOGO]
DOWNTOWN LOS ANGELES MARKET AREA ANALYSIS
RESIDENTIAL DEVELOPMENT
With the completion of Staples Center in 1999, the development of residential
and restaurant uses has been escalating, providing important impetus to the
transformation of downtown Los Angeles into a "24-hour city". The accelerating
trend of multi-family residential development in the downtown market area is a
result of regional forces which have resulted in strong demand for housing
coinciding with the limited availability of sites suitable for significant
multi-family development. The downtown market has been the focus of this demand
because of its central location, proximity to employment centers and public
transportation hubs, and the older buildings surrounding the CBD which are
suitable for conversion or redevelopment to multi-family housing. The success of
the downtown housing projects to date demonstrates the favorable reaction from
the marketplace to the urban living opportunities provided by the new
developments. The following analysis provides an overview of the multi-family
housing market on a county-wide basis, as well as for the downtown market
specifically. The "global" market conditions for the county provide an important
perspective of the housing infrastructure for all of Los Angeles, which creates
additional impetus for the downtown housing market.
REGIONAL APARTMENT MARKET OVERVIEW
Demand continues to outstrip the supply of new apartments, despite a perceived
increase in construction activity. In Los Angeles County, completions are
averaging between 1,100 to 1,500 units per quarter, which is well below the
number needed to satisfy the regions' needs. High land prices, a lack of land
for apartment construction, community resistance to new construction, and a
shortage of subsidies for new affordable rental housing have limited the supply
of new units coming on to the market in the Los Angeles Region. Developers added
3,469 units to the Los Angeles area inventory in 2002, which consisted mainly of
luxury apartment complexes. As most of the demand in Los Angeles County is for
more affordable Class B properties, little relief was found.
MARKET CONDITIONS
The multifamily market in Southern California continues to be influenced by four
variables: 1) a recovering labor market; 2) an increasing population base; 3) a
sustained housing deficit; and 4) a widening affordability gap (in terms of home
acquisitions). Driving residential occupancy dynamics in Southern California is
a large and rapidly growing immigrant population, a stabilizing economy,
gradually decreasing unemployment, and record-low interest rates. Employment
projections for Los Angeles County for 2003 to 2006 reflect a growth rate of
approximately 1.75 percent; and population growth estimates for 2003 to 2006 are
4.37 percent, representing 426,100 new residents.
Additionally, new housing permits are expected to fall short of demand for the
next one to three years, resulting in a corresponding increase in renovation and
redevelopment projects. Further strengthening the multifamily occupancy rates is
the growing affordability gap (the relationship between the average mortgage
payment and the average monthly rent). With single-family home values reaching
their highest level in eleven years, this gap is not expected to substantially
change in the coming year, despite record-low interest rates. These market
forces are expected to sustain current apartment values, and should support
growth in rental rates of roughly four percent during 2003 for many projects.
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DOWNTOWN LOS ANGELES MARKET AREA ANALYSIS
We conducted a market survey for all of Los Angeles County using market data
compiled by RealFacts. The chart below provides an overview/summary of the
market parameters for competitive multi-family products (those having 70 or
greater units) in the regional market.
[Download Table]
Market Characteristics
----------------------
Number of Complexes 475
Total Unit Inventory 109,737
Average Number of Units Per Complex 231
Average Occupancy Rate 95.6%
Smallest Complex 70
Largest Complex 4,253
Earliest Year Built 1917
Latest Year Built 2002
Average Year Built 1977
Source: RealFacts
The total Los Angeles County inventory per the survey is 475 complexes
containing 109,737 total units, indicating an average size of 231 units per
complex. The current aggregate occupancy level is 95.6 percent within the
regional market.
Expectations are for continued strong growth in the multifamily market.
Population growth will continue to support low vacancy rates and apply upward
pressure on rental growth. According to RealFacts (the largest surveyor of
apartments in the region), the average apartment occupancy rate in the county
was 95 percent in the fourth quarter of 2002, which is down slightly from the
95.4 percent recorded at the end of 2001. The fourth quarter average rent of
$1,200 is 6.4 percent higher than one year ago. As shown below, rental rates
have continued to increase.
VALUATION ADVISORY SERVICES 59 [CUSHMAN & WAKEFIELD LOGO]
DOWNTOWN LOS ANGELES MARKET AREA ANALYSIS
LOS ANGELES COUNTY
APARTMENT MARKET TRENDS
Quarterly
[Download Table]
Year/Quarter Average Occupancy Monthly Rent
--------------------------------------------------------------
--------------------------------------------------------------
1998
--------------------------------------------------------------
1st Quarter 95.6% $932
2nd Quarter 95.9% $928
3rd Quarter 96.9% $956
4th Quarter 96.0% $969
--------------------------------------------------------------
1999
--------------------------------------------------------------
1st Quarter 96.3% $970
2nd Quarter 97.4% $982
3rd Quarter 97.7% $1,018
4th Quarter 96.7% $1,031
--------------------------------------------------------------
2000
--------------------------------------------------------------
1st Quarter 96.6% $1,049
2nd Quarter 97.4% $1,095
3rd Quarter 97.9% $1,135
4th Quarter 97.8% $1,171
--------------------------------------------------------------
2001
--------------------------------------------------------------
1st Quarter 97.0% $1,186
2nd Quarter 96.8% $1,200
3rd Quarter 96.3% $1,224
4th Quarter 95.4% $1,221
--------------------------------------------------------------
2002
--------------------------------------------------------------
1st Quarter 95.2% $1,233
2nd Quarter 95.9% $1,253
3rd Quarter 95.6% $1,295
4th Quarter 95.0% $1,299
--------------------------------------------------------------
AVERAGE OCCUPANCY OVER LAST 4 QTRS 95.4%
TOTAL RENT INCREASE OVER LAST 4 QTRS 5.35%
--------------------------------------------------------------
Source: Real Facts
Throughout the Southern California market, a growing disparity between housing
and population growth is occurring. While vacancy has crept up nominally over
the past two years, shortages are still appearing in every product type. The
shortage is observed in average occupancy rates, which are 95.4 percent
throughout the region. It should be noted that during 2002, 3,469 units were
added to the regional inventory, and several were still in the early stages of
absorption. The weighted-average vacancy for these properties was 42%, which
will skew total vacancy figures lower until their stabilization in 2003.
Occupancy
Multi-family market statistics below are based on information from REIS and Real
Facts. The demand/supply imbalance in conjunction with controlled new
construction, lengthy
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permit processes, and lack of available land, has contributed to the area's low
vacancy rates and rental rate growth for residential properties.
The following charts illustrate the trend in annual occupancy rates for Los
Angeles County since 1997. Between 1997 and 2000, occupancy rates in the County
increased from 96.0 percent to 97.7 percent tracking strengthening economic
conditions in the county during this timeframe. High occupancy rates spurred new
construction beginning in 1999/2000, which has been delivered to the market in
phases over the last 24 months. Los Angeles County's current apartment occupancy
rate of 96.6 as of year end 2002 represents the second consecutive year of
declining occupancy for the County due, in large part, to the number of new
construction deliveries.
LOS ANGELES COUNTY AVERAGE ANNUAL OCCUPANCY
[Download Table]
-------------------------------------------------------------
YEAR OCCUPANCY RATE % POINT CHANGE
-------------------------------------------------------------
1997 96.0% --
1998 96.4% +0.4%
1999 97.1% +0.7%
2000 97.7% +0.8%
2001 97.5% -0.2%
2002 96.6% -0.9%
-------------------------------------------------------------
Source: Reis Year-End 2002 SubTrend Futures Report
(LOS ANGELES COUNTY AVERAGE ANNUAL OCCUPANCY (1997-2002) GRAPH)
Based on projections compiled by Reis, occupancy rates in Los Angeles County are
projected to remain above 96.0 percent over the next five years, but show slight
declines on an annual basis. Overall, the historical trends and future
projections demonstrate a very stable multifamily market in terms of occupancy.
Stable, high occupancy levels reported as new construction deliveries continue
to reach the market demonstrate the strength of demand in the regional housing
market, which is projected to continue through 2007.
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LOS ANGELES COUNTY AVERAGE ANNUAL OCCUPANCY
[Download Table]
-----------------------------------------------------
YEAR OCCUPANCY RATE % POINT CHANGE
-----------------------------------------------------
2003p 96.4% --
2004p 96.3% -0.06%
2005p 96.2% -0.06%
2006p 96.1% -0.10%
2007p 96.0% -0.11%
-----------------------------------------------------
Source: Reis Year-End 2002 SubTrend Futures Report
(LOS ANGELES COUNTY AVERAGE ANNUAL OCCUPANCY (PROJECTIONS 2003-2007) GRAPH)
Rental Rates
In contrast to occupancy levels, which have fluctuated since 1997, rental rate
trends have demonstrated consistent gains in Los Angeles County since 1997. The
strongest gains were realized during 1999 and 2000, when the average monthly
rent increased by 8.9 and 12.2 percent, respectively. Rental growth during 2001
showed a more modest 4.5 percent increase, however, the 7.8 percent increase for
2002 suggests a strengthening in achievable rental rates in spite of the nearly
1 percent decline in overall occupancy.
As of year end 2002, monthly rents averaged $1,110 per unit, an increase of
approximately 7.8 percent over year end 2001. The compound average rental rate
growth over the analysis period (1997 through 2002) is 6.2 percent.
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LOS ANGELES COUNTY AVERAGE MONTHLY RENT
(1997-2002)
[Download Table]
----------------------------------------------------
YEAR MONTHLY RENT % INCREASE
----------------------------------------------------
1997 $773 --
1998 $807 4.4%
1999 $879 8.9%
2000 $986 12.2%
2001 $1,030 4.5%
2002 $1,110 7.8%
----------------------------------------------------
Source: Reis Year-End 2002 SubTrend Futures Report
(LOS ANGELES COUNTY AVERAGE MONTHLY RENT (1997-2002) GRAPH)
The projected five-year trends in rental rate growth estimated by Reis show
continued increases albeit at a considerably slower rate than that experienced
since 1997 in the Los Angeles region. As shown on the table below, rental rate
increases are expected to average about 3 percent annually over the next five
years, compared the compound average growth rate of 6.2 percent experienced
during the 1997-2002 timeframe.
LOS ANGELES COUNTY AVERAGE MO. RENT
(2003-2007)
[Download Table]
------------------------------------------------
YEAR MONTHLY RENT % INCREASE
------------------------------------------------
2003p $1,106 --
2004p $1,142 3.3%
2005p $1,177 3.1%
2006p $1,211 2.9%
2007p $1,246 2.9%
------------------------------------------------
Source: Reis Year-End 2002 SubTrend Futures Report
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(LOS ANGELES COUNTY AVERAGE MONTHLY RENT (PROJECTIONS 2003-2007) GRAPH)
Properties of 100 units or greater have experienced generally stronger rental
rate increases over the period 1997-2002. The average monthly rental rate of
$1,299 per unit for properties of 100 units or greater as of year-end 2002 is 17
percent higher than the $1,110 for properties of 20 units or greater. The
compound annual rental rate growth among properties of 100 units or greater
(6.0%), however, has been nearly identical to that of all properties considered
in the Los Angeles County inventory (6.2%).
LOS ANGELES COUNTY AVERAGE MONTHLY RENT
(100 UNITS +)
[Download Table]
-----------------------------------------------
YEAR MONTHLY RENT % INCREASE
-----------------------------------------------
1998 $969 --
1999 $1,031 6.4%
2000 $1,171 13.6%
2001 $1,221 4.3%
2002 $1,299 6.4%
-----------------------------------------------
Source: Real Facts
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(LOS ANGELES COUNTY AVERAGE MONTHLY RENT (PROPERTIES OF 100 UNITS +) GRAPH)
Construction Trends
Between 1990 and 1995, the pace of multifamily housing construction activity in
Los Angeles County was in a continual state of decline as the regional economy
suffered from the far-reaching effects of the national recession that hit
particularly hard in southern California. Since 1996, continual increases in
multifamily housing permits has reflected improved economic conditions in the
region. As shown on the table below, multifamily permit activity was increasing
at a rate exceeding 30.0 percent for three consecutive years (1998 through 2000)
and has continued to see strong gains during 2001 and 2002.
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LOS ANGELES COUNTY
MULTIFAMILY PERMITS (1900-2002)
[Download Table]
---------------------------------------------
Year Permits Issued % Change
---------------------------------------------
1990 16,136 --
1991 8,876 -45.0%
1992 4,911 -44.7%
1993 2,884 -41.3%
1994 3,016 4.6%
1995 3,005 -0.4%
1996 3,237 7.7%
1997 3,636 12.3%
1998 4,805 32.2%
1999 6,525 35.8%
2000 8,654 32.6%
2001 9,926 14.7%
2002 11,081 11.6%
------
TOTAL 86,692
ANN. AVERAGE 6,669
---------------------------------------------
Source: Construction Industry Research Board
Forecast Demand
The chart below compares the projected apartment completions to both population
and job growth expected over the same time period in Los Angeles County through
the year 2007, according to data compiled by Reis.
[Enlarge/Download Table]
LOS ANGELES COUNTY
APARTMENT, POPULATION & GROWTH PROJECTIONS
----------------------------------------------------------------------------------------------------------------------------
YEAR EXISTING APT. POPULATION JOB
INVENTORY GROWTH GROWTH
% UNITS % POPULATION % JOBS
------------------------------- ---------------------------------- --------------------------------
2002 -- 737,266 -- 9,780,730 -- 4,067,490
PROJECTED COMPLETIONS PROJECTED POPULATION GROWTH PROJECTED JOB GROWTH
------------------------------- ---------------------------------- --------------------------------
2003 0.8% Total 743,131 1.1% Total 9,886,130 1.5% Total 4,128,450
Net Incr. 5,865 Net Incr. 105,400 Net Incr. 60,960
2004 1.4% Total 747,476 2.2% Total 9,996,090 4.2% Total 4,243,900
Net Incr. 4,345 Net Incr. 109,960 Net Incr. 115,450
2005 0.5% Total 751,296 1.1% Total 10,104,490 1.7% Total 4,317,220
Net Incr. 3,820 Net Incr. 108,400 Net Incr. 73,320
2006 0.6% Total 755,508 1.0% Total 10,206,670 1.5% Total 4,381,250
Net Incr. 4,212 Net Incr. 102,180 Net Incr. 64,030
2007 0.6% Total 760,026 1.0% Total 10,308,200 1.4% Total 4,441,440
Net Incr. 4,518 Net Incr. 101,530 Net Incr. 60,190
----------------------------------------------------------------------------------------------------------------------------
Source: Reis Year-End 2002 SubTrend Futures Report
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On an annual basis, the addition of new apartment units is expected to be less
than one percent of the existing inventory base for each of the next five years.
As of year end 2002, Los Angeles County's existing apartment inventory reached
approximately 737,000 units. Recent additions have had only a minor impact on
the area's substantial existing base. As shown in the chart, with the exception
of 2004, new multifamily construction deliveries are expected to add less than 1
percent per year to the existing inventory. This contrasts with the forecast
employment and populations gains, which are anticipated to add 1.0 to 2.2
percent more job in any given year, and 1.4 to 4.2 percent to the regional
employment over the next five years. These forecasts do not incorporate the
housing demand that will be met by single family housing; however, multifamily
development continues to represent the major source of new construction in the
county.
CONCLUSION
The Los Angeles region dominates the state in terms of population, with its
pro-rata share remaining relatively constant since 1986. However, the Los
Angeles County region has not been contributing its proportional share of new
housing supply in California. In addition to the labor markets, the distribution
of residential building is shifting into other areas of the state. The
increasingly strong residential building environment is generating higher home
prices in the region as demand continues to exceed supply.
According to the Regional Planing Commission, between 2000 and 2005, housing and
apartment construction in Southern California is expected to hit the highest
level in nearly a decade. Countywide, the number of multifamily housing permits
issued increased from 2,930 to 9,315 units between 1995 and 2002. However,
demand for housing, spurred by a growing population and the recovering economy,
will continue to outpace construction. As a result, rental units are expected to
be difficult to find in some areas, and are becoming unaffordable for a growing
number of county residents.
Increased land costs are one of the major factors underlying the rapid rise in
housing prices and rents. Many communities are essentially built-out with little
or no vacant land available for development. Furthermore, a significant amount
of the vacant land left in the unincorporated county areas is located in
hillside, geologically hazardous, and/or environmentally significant habitat
areas. An active market is emerging for conversion/renovation of commercial
properties to residential use, otherwise known as "adaptive re-use." The lack of
supply of developable land further drives demand, and increases the overall cost
of housing construction. Various types of development impact fees have also
added substantially to the cost of housing. These include school, park, and road
assessments, sewer connection, and development processing fees.
The time and financial cost of land investments during the development permit
process contribute significantly to housing costs. The nearly 96 percent
occupancy rate, combined with the under supply in the Los Angeles County housing
market has been pushing rental rate growth levels to historically unprecedented
levels. Due to the limited amount of vacant land available for development,
population growth and increases in single family home prices, the long-term
multifamily regional outlook is favorable.
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DOWNTOWN RESIDENTIAL DEVELOPMENT
Limited residential development in the County and increasing rents in the most
desirable communities continue to place pressure on new development
alternatives. The tremendous inventory of older, existing buildings in downtown
make it a logical source of future housing development to meet this growing
demand. The preceding "CBD Developments Project" chart summarized 17 proposed
projects totaling nearly 3,700 units in the downtown market. These projects
exclude two major projects currently in preliminary planning stages - the
Fashion District and the CIM/former Shuwa site.
Recent changes in local, downtown building codes have had an immediate,
favorable impact on expanded residential development through adaptive re-use of
older commercial buildings. Two important governmental initiatives were approved
in 1999 that will help facilitate the conversion of existing historic buildings.
A third initiative is still before the state legislature. These are summarized
as follows.
An Adaptive Reuse amendment to the Municipal Code was approved by the City
Council in early summer 1999. It establishes certain minimum guidelines for
loft development, and waives existing density and parking requirements.
The City established an Adaptive Reuse Project Facilitating Team. A team of
key staff from City Planning, Fire, and Building and Safety will guide
projects through their design, permitting and construction processes.
An Urban Initiatives Act is still before the State Legislature. This Act is
designed to "encourage reuse of existing infrastructure, and to provide for
economic growth through reuse of underutilized existing buildings". The Act
will permit local governments to provide tax relief in the areas of
property taxes, construction taxes, business license taxes and payroll
taxes, in designated urban incentive zones. Eligible buildings within
incentive zones will be those built before 1975, that have been, or are
likely to be vacant for a period of six months or longer. "Qualified
adaptive reuse" includes "(1) conversion of a non-residential building to
include at least 25 percent of the floor area as residential units, or 50
percent of the area as live-work units, or (2) a 50 percent increase in
residential or live-work use of floor area of an existing residential or
live-work building."
This legislation has created a favorable political and economic environment for
the conversion of existing, vacant commercial buildings to residential or
mixed-use projects, and the trend in reuse is accelerating.
A 2000 survey commissioned by the Los Angeles Conservancy, a non-profit group
supporting adaptive reuse, examined the residential conversion potential of
approximately 200 buildings in the Historic Core area. This survey is part of
the organization's ongoing effort to attract new investment and rehabilitation
of projects such as the Old Bank District project to downtown. The investigation
included vacant buildings on Broadway, Spring and Main streets between Third and
Ninth streets. Killefer Flammang Purtill Architects, who conducted the study
concluded that about 50 of the 200 buildings were suited for housing conversion
and could generate housing (refer to accompanying exhibit). Each of the 50
buildings could include 100 or more units providing sufficient housing for
10,000 persons assuming an average occupancy of 2 persons per unit. Buildings
that were concluded not suitable for residential conversion typically had large
floor plates which did not allow for adequate lighting and ventilation.
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The Downtown Los Angeles Business Improvement District (BID) and Cushman &
Wakefield surveyed and tracked both existing and proposed residential
developments in the Downtown Los Angeles market. The survey indicates that
approximately 7,254 residential units exist in Downtown. The residential
population is projected to grow significantly, with about 855 units currently
under construction and an estimated 10,100 units planned or proposed.
During the 1960's, shortly after the freeway system culturally changed Los
Angeles, all the buildings on Bunker Hill were razed, in what at the time was
the largest urban redevelopment project in the nation. The Bunker Hill district
was master-planned as an urban center to include nine office buildings (10.3
million square feet), three hotels (2,262 rooms), 11 residential towers (3,991
units) and numerous cultural facilities. Most of Bunker Hill's nine existing
residential towers were developed between 1968 and 1988 as apartments and
condominiums. These high-rise residential buildings are typically full-service
facilities with numerous amenities, including pools, gyms, tennis courts,
doormen and retail components. The Grand Promenade, with 391 units, was
completed in 1989 and Grand Promenade Phase II and III, with 300 units each,
remain available for development.
Between 1991 and 2000, most of the new Downtown residential development was
situated in the South Park District (east of Staples). During this period, eight
residential projects (888 units) were developed.
During the 1990's there were some loft conversions completed in Downtown,
primarily in the Artist Loft District adjoining SCI-Arc. Most of these lofts
were converted industrial buildings. By the year 2000, the Bunker Hill and South
Park areas had a combined 4,988 residential units.
In 1999, Staples Center opened and two important residential developments
started construction and later proved to be a catalyst for a wave of residential
development. The first project is the Medici, market rate luxury apartments, and
the second project is the conversion of three historic buildings in the Old Bank
District.
Phase I of the Medici luxury apartment complex opened in 2000 just west of the
Harbor (110) Freeway between 7th and 8th Streets. The total project includes
approximately 625 one- and two-bedroom units with full-service amenities,
including lighted tennis courts, a state-of-the-art fitness center, a sand
volleyball court, a custom jogging track, men's and women's saunas, a putting
green, a playground and high-speed internet access. The first phase of this
privately-funded, luxury market-rate apartment project is now 100% leased. Phase
II of Medici, with 297 units, is expected to open in the second quarter of 2002.
At a cost of $33 million, developer Tom Gilmore has converted three historic
buildings in the Old Bank District into 230 residential lofts. These buildings,
the San Fernando, the Hellman and the Continental, have been extremely
successful and have achieved rental rates ($800 to $2,500 per month) far beyond
proforma rates. Residential tenants are now occupying the restored San Fernando
Building (which opened in September 2000), the Hellman Building (which opened in
February 2001) and the Continental (which opened in September 2001). The three
buildings together are 88% leased.
Demand is strong for newly developed and re-use housing in Downtown. The recent
developments have enjoyed strong absorption and high occupancy rates. The City
of Los Angeles has a severe shortage of multi-family dwelling units. With over
3.7 million people, the
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City of Los Angeles granted building permits for only 10,118 multi-family
residential units during the last three years (July 1998 to June 2001).
The increased demand for urban residential living is expected to apply upward
pressure on rental rates. The following charts illustrate the historical
occupancy and rental trends for the Downtown Los Angeles multi-family submarket.
DOWNTOWN SUBMARKET AVERAGE ANNUAL OCCUPANCY
[Download Table]
-------------------------------------------------------------
YEAR OCCUPANCY RATE % POINT CHANGE
-------------------------------------------------------------
1997 95.8% --
1998 96.4% +0.4%
1999 97.2% +0.7%
2000 96.8% +0.8%
2001 95.8% -0.2%
2002 95.2% -0.6%
-------------------------------------------------------------
Source: Reis Year-End 2002 SubTrend Futures Report
(DOWNTOWN SUBMARKET AVERAGE ANNUAL OCCUPANCY (1997-2002) GRAPH)
DOWNTOWN SUBMARKET AVERAGE MONTHLY RENT
[Download Table]
---------------------------------------------------
YEAR MONTHLY RENT % INCREASE
---------------------------------------------------
1997 $762 --
1998 $789 3.5%
1999 $837 6.1%
2000 $972 16.1%
2001 $1,063 9.4%
2002 $1,081 1.7%
---------------------------------------------------
Source: Reis Year-End 2002 SubTrend Futures Report
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(DOWNTOWN SUBMARKET AVERAGE MONTHLY RENT (1997-2002) GRAPH)
The success of the report projects has spurred both new and adaptive reuse
projects, with many of the re-use developments involving conversion of
pre-1940's office buildings to residential loft projects. The chart below
summarizes a number of the most significant residential loft projects currently
in progress or planned for the next year in the downtown market.
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VALUATION ADVISORY SERVICES 71 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES MARKET AREA ANALYSIS
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SIGNIFICANT LOFT PROJECTS
DOWNTOWN LOS ANGELES
[Enlarge/Download Table]
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# OF
MARKET
HOUSING TYPE # OF RATE NO. OF COMPLETION
PROJECT NAME DEVELOPMENT TYPE DEVELOPER STORIES BLDG SF UNITS UNITS DATE
-----------------------------------------------------------------------------------------------------------------------------------
UNDER CONSTRUCTION PROJECTS
---------------------------
MOBIL OIL BUILDING (THE PEGSUS) Loft-style Kor Realty Group -- 485,000 322 322 May-03
612 S. Flower St. Apartments & Kennedy Wilson
Los Angeles, CA 90017 Adaptive Reuse
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SOUTH PARK LOFTS Loft-style Martin Building 8 71,978 56 56 December-03
816 South Grand Ave. Apartments Company
Los Angeles, CA 90014 Adaptive Reuse
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FLOWER STREET LOFTS/BRONSON Loft-style Condos CIM Group and 3 111,150 91 91 2nd Qtr. 2003
BUILDING
1140 Flower St. Adaptive Reuse The Lee Group
Los Angeles, CA 90015
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LITTLE TOKYO LOFTS Loft-style Peterson & Tansey 6 208,000 161 161 2nd Qtr. 2003
420 S. San Pedro St. Apartments
Los Angeles, CA 90013 Adaptive Reuse
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THE GAS COMPANY LOFTS Loft-style CIM Group -- 517,111 251 251 4th Qtr. 2003
SEC Los Angeles St. & 7th St. Apartments
Los Angeles, CA 90012 Adaptive Reuse
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THE COULTER & MANDEL BUILDINGS Loft-style Moussa & Mary 4 137,000 51 51 Fall 2003
SWC Olive & 7th St. Apartments Peykar
Los Angeles, CA 90014 Adaptive Reuse
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ORPHEUM LOFTS Loft-style Steve Needleman -- -- 37 37 3rd Qtr - 2003
842 S. Broadway Apartments
Los Angeles, CA 90014 Adaptive Reuse
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5TH & BROADWAY Loft-style Mini LLC -- -- 280 280 Jul-03
501 S. Broadway Apartments
Los Angeles, CA 90013 Adaptive Reuse
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BARTLETT BUILDING Loft-style Mini LLC -- -- 139 139 Jul-03
215 W. 7th St. Apartments
Los Angeles, CA 90014 Adaptive Reuse
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UNDER CONSTRUCTION PROJECTS TOTAL: 1,530,239 1,388 1,388
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VALUATION ADVISORY SERVICES 72 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES MARKET AREA ANALYSIS
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# OF
MARKET
HOUSING TYPE # OF RATE NO. OF COMPLETION
PROJECT NAME DEVELOPMENT TYPE DEVELOPER STORIES BLDG SF UNITS UNITS DATE
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PROPOSED PROJECTS
-----------------
STOCK EXCHANGE BUILDING Loft-style Oxford Street 12 69,844 35 35 2004
618 S. Spring St. Apartments Properties
Los Angeles, CA 90014 Adaptive Reuse
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SANTA FE LOFT II Loft-style Kor Realty Group 6 50,000 98 98 2005
121 E. 6th St. Apartments
Los Angeles, CA 90014 Adaptive Reuse
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THE SASSONY BUILDING Loft-style Dromy Investment Corp. 6 45,396 35 35 2005
626 S. Spring St. Apartments
Los Angeles, CA 90014 New
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THE YARDS Loft-style Condos Dynamic Builders -- -- 400 400 2005
B/W 3rd & 4th St. 7 Traction Ave. New
Los Angeles, CA 90013
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MAIN MERCANTILE BUILDING Loft-style Igdaloff Trust 6 75,060 42 42 2005
620 S. Main St. Apartments Oxford Street
Los Angeles, CA 90014 Adaptive Reuse Properties
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THE MARKET LOFTS Loft-style CIM Group -- -- 500 500 2004
810 S. Flower St. Apartments
Los Angeles, CA 90017 New
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CAL PAC BUILDING Loft-style Heisman Properties 13 135,000 94 94 2004
SWC Grand Ave. & 6th St. Apartments
Los Angeles, CA 90014 Adaptive Reuse
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1ST & ALAMEDA Loft-style Trammell Crow -- -- 300 300 2nd Qtr - 2005
SWC 1st St. & Alameda Apartments
Los Angeles, CA New
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GRAND AVENUE LOFTS Loft-style -- -- -- 125 125 --
NWC 11th St. & Grand Apartments
Los Angeles, CA Adaptive Reuse
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PROPOSED PROJECTS TOTAL: 375,300 1,629 1,629
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PLANNED PROJECTS
----------------
IRVINE BYRNE BUILDING Loft-style Oxford Street 5 57,477 40 40 2004
249-259 S. Broadway Apartments Properties
Los Angeles, CA 90012 Adaptive Reuse
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ROWAN BUILDING LOFTS Loft-style Gilmore Associates -- 252,352 167 167 2004
458 S. Spring St. Apartments
Los Angeles, CA 90013 Adaptive Reuse
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SUBWAY TERMINAL BUILDING Loft-style System Property -- 398,000 277 277 2004
417 S. Hill St. Apartments
Los Angeles, CA 90013 Adaptive Reuse Development Company Inc.
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THE METROPOLITAN LOFTS Loft-style Forest City 7 200,000 264 264 2005
NEC 11th St. & Flower St. Apartments Development
Los Angeles, CA 90015 New
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SECURITY BUILDING Loft-style Urban Pacific 11 214,867 122 122 2004
510 S. Spring St. Apartments
Los Angeles, CA 90013 Adaptive Reuse
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VICTOR CLOTHING BLDG. LOFTS Loft-style Clinton Financial 5 41,180 38 38 2005
242 S. Broadway Apartments Corp.
Los Angeles, CA 90012 Adaptive Reuse
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FAR EAST CAFE BUILDING Loft-style Little Tokyo Service -- -- 0 0 2005
347-353 E. 1st St. Apartments Development Corp.
Los Angeles, CA 90012 Adaptive Reuse Center Community
-----------------------------------------------------------------------------------------------------------------------------------
MERCANTILE ARCADE BUILDING Loft-style Fifth Street Funding -- 220,512 143 143 2004
540 S. Broadway Apartments Inc.
Los Angeles, CA 90013 Adaptive Reuse
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PACIFIC ELECTRIC BUILDING Loft-style Ico Investment Group, -- 509,055 314 314 2005
610 S. Main St. Apartments Inc.
Los Angeles, CA 90014 Adaptive Reuse
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SANTEE COURT - PHASE I Loft-style MJW Investments -- -- 132 132 --
SEC Los Angeles St. & &th Street Apartments
Los Angeles, CA 90014 Adaptive Reuse
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PLANNED PROJECTS TOTAL: 1,893,443 1,497 1,497
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APPROVED PROJECTS
-----------------
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VALUATION ADVISORY SERVICES 73 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES MARKET AREA ANALYSIS
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# OF
MARKET
HOUSING TYPE # OF RATE NO. OF COMPLETION
PROJECT NAME DEVELOPMENT TYPE DEVELOPER STORIES BLDG SF UNITS UNITS DATE
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APPROVED PROJECTS
-----------------
Santee Court - Phase II Loft-style MJW Investments -- -- 239 239 2004
738 & 748 S. Los Angeles St. & 743 Apartments
Santee St Adaptive Reuse
Los Angeles, CA 90012
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SANTEE COURT - PHASE III Loft-style MJW Investments -- -- 91 91 --
824 S. Los Angeles St. & 315 E. 8th Apartments
St. Adaptive Reuse
Los Angeles, CA 90012
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OLYMPIC LOFTS Loft-style Michael & Gaz 6 127,596 78 78 2004
409 W. Olympic Blvd. Apartments Gilardian
Los Angeles, CA 90015 Adaptive Reuse
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APPROVED PROJECTS TOTAL: 127,596 408 408
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The chart below provides an overview of the major multi-family residential
developments in the downtown market, including Class A high-rise buildings and
the recent major adaptive re-use project by Gilmore - the Bank District
apartments.
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VALUATION ADVISORY SERVICES 74 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES MARKET AREA ANALYSIS
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Downtown Los Angeles
Class A
[Enlarge/Download Table]
===============================================================================================
BOND
COMP. NAME/ YEAR TOTAL FINANCED UNIT UNIT SIZE NO.
NO. LOCATION BUILT UNITS UNITS TYPE (SQ. FEET) UNITS
-----------------------------------------------------------------------------------------------
A-1 BUNKER HILL TOWERS 1968 456 None Studio 505 - 588 148
222-234 S. Figueroa St. 1BR/1BA 704 - 794 204
Los Angeles, CA 2BR/2BA 1,116 - 1,116 104
-----------------------------------------------------------------------------------------------
A-2 MUSEUM TOWER 1992 216 None Studio 477 - 620 42
225 S. Olive St. 1BR/1BA 560 - 1,055 140
Los Angeles, CA 2BR/2BA 1,150 - 1,175 30
Penthouse 1,400 - 2,000 4
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A-3 GRAND PROMENADE 1989 391 56 Studio 480 - 560 72
255 S. Grand Ave. 14% 1BR/1BA 840 - 965 211
Los Angeles, CA 1BR/1BA/Den 1,080 - 1,080 51
2BR/2BA 1,285 - 1,335 57
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A-4 THE METROPOLITAN 1989 271 41 Studio 490 - 520 86
950 S. Flower St. 15% 1BR/1BA 630 - 700 71
Los Angeles, CA 2BR/2BA 975 - 1,050 114
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A-5 THE MEDICI, PH I-VI 2000 632 None Studio 481 - 481 58
725 Bixel Street 1BR/1BA 641 - 779 315
Los Angeles, CA 2BR/2BA 920 - 1,313 254
Penthouse 1,682 - 2,340 5
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A-6 OLD BANK DISTRICT 2000 70 None Loft 935 - 1,330 69
SAN FERNANDO BUILDING
400 S. Main St.
Los Angeles, CA
-----------------------------------------------------------------------------------------------
A-7 OLD BANK DISTRICT 2000 56 None Loft 481 - 481 55
CONTINENTAL BUILDING Penthouse 2,750 - 2,750 1
408 S. Main St.
Los Angeles, CA
-----------------------------------------------------------------------------------------------
A-8 OLD BANK DISTRICT 2000 104 None Loft 670 - 2,320 104
HELLMAN BUILDING
411 S. Main St.
Los Angeles, CA
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A-7 RENAISSANCE TOWER 1994 204 31 Studio 488 - 730 56
501 W. Olympic Blvd. 15% 1BR/1BA 568 - 917 116
Los Angeles, CA 2BR/1BA 848 - 1,180 22
2BR/2BA 900 - 1,255 10
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A-8 PROMENADE TOWERS 1986 595 88 Studio 306 - 306 100
123 S. Figueroa St. 15% 1BR/1BA 750 - 750 199
Los Angeles, CA 1BR/1BA/Den 903 - 903 60
2BR/2BA 1,150 - 1,150 236
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TOTALS: 2,995 216
7%
===============================================================================================
=================================================================================
QUOTED MONTHLY RATES
COMP. NAME/ ---------------------
NO. LOCATION PER UNIT PSF OCCP.
---------------------------------------------------------------------------------
A-1 BUNKER HILL TOWERS $1,100 - $1,400 $2.18 - $2.38 93%
222-234 S. Figueroa St. $1,200 - $1,810 $1.70 - $2.28
Los Angeles, CA $1,650 - $2,150 $1.48 - $1.93
---------------------------------------------------------------------------------
A-2 MUSEUM TOWER $850 - $1,150 $1.85 - $1.78 90%
225 S. Olive St. $1,125 - $1,550 $1.47 - $2.01
Los Angeles, CA $1,700 - $2,150 $1.48 - $1.83
$2,300 - $3,200 $1.60 - $1.64
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A-3 GRAND PROMENADE $995 - $1,350 $2.07 - $2.41 95%
255 S. Grand Ave. $1,250 - $1,700 $1.49 - $1.76
Los Angeles, CA $1,500 - $1,900 $1.39 - $1.76
$1,700 - $2,400 $1.32 - $1.80
---------------------------------------------------------------------------------
A-4 THE METROPOLITAN $1,095 - $1,308 $2.23 - $2.52 95%
950 S. Flower St. $1,400 - $1,650 $2.22 - $2.36
Los Angeles, CA $1,766 - $2,020 $1.81 - $1.92
---------------------------------------------------------------------------------
A-5 THE MEDICI, PH I-VI $1,234 - $1,540 $2.57 - $3.20 90%
725 Bixel Street $1,320 - $2,029 $2.06 - $2.60 Ph. I-III
Los Angeles, CA $1,805 - $2,999 $1.96 - $2.28 65%
$6,479 - $8,419 $3.85 - $3.60 Ph. IV-VI
---------------------------------------------------------------------------------
A-6 OLD BANK DISTRICT $1,425 - $2,150 $1.52 - $1.62 100%
SAN FERNANDO BUILDING
400 S. Main St.
Los Angeles, CA
---------------------------------------------------------------------------------
A-7 OLD BANK DISTRICT $1,275 - $1,800 $2.65 - $3.74 99%
CONTINENTAL BUILDING $6,000 - $6,000 $2.18 - $2.18
408 S. Main St.
Los Angeles, CA
---------------------------------------------------------------------------------
A-8 OLD BANK DISTRICT $1,200 - $2,850 $1.79 - $1.23 100%
HELLMAN BUILDING
411 S. Main St.
Los Angeles, CA
---------------------------------------------------------------------------------
A-7 RENAISSANCE TOWER $1,220 - $1,395 $1.91 - $2.50 95%
501 W. Olympic Blvd. $1,345 - $1,795 $1.96 - $2.37
Los Angeles, CA $1,485 - $1,930 $1.64 - $1.75
$1,730 - $2,320 $1.62 - $1.81
---------------------------------------------------------------------------------
A-8 PROMENADE TOWERS $775 - $1,045 $2.53 - $3.42 98%
123 S. Figueroa St. $1,000 - $1,250 $1.33 - $1.67
Los Angeles, CA $1,250 - $1,450 $1.38 - $1.61
$1,350 - $1,900 $1.17 - $1.65
---------------------------------------------------------------------------------
TOTALS: 65-100%
=================================================================================
AMENITIES:
1 = Swimming pool, jacuzzi, & sauna (Bunker Hill has no sauna);
2 = Balconies (all / select units)
3 = Traditional appliances (may or may not include a microwave)
4 = Fitness; 5 = Recreational lounge; 6 = Limited shuttle service
7 = Laundry facility - every floor; 7a = Laundry facility - central location(s);
7b = W/D in each unit
8 = Security / Gated Parking / Control entry & exit
9 = Lighted tennis courts; 10 = Park, bbq; 11 = Golf, jogging track, volleyball
With the successful opening of Staples Center and the favorable market response
to the initial phases of Medici and the Old Bank District, residential
developers have been attracted to the downtown market. As of October 2002, the
Los Angeles Downtown BID survey data concerning residential development in
Downtown Los Angeles showed that the vacancy rate for Downtown multi-family
market rate apartments is four percent. The survey also highlighted the
significant number of residential developments now planned or under
construction, as summarized below.
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VALUATION ADVISORY SERVICES 75 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES MARKET AREA ANALYSIS
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SUMMARY OF DOWNTOWN RESIDENTIAL DEVELOPMENT
[Enlarge/Download Table]
============================================================================================
DEVELOPMENT APARTMENTS
STATUS AND CONDOMINIUMS LOFTS AND CONVERSIONS TOTALS
============================================================================================
Existing 27 Bldgs 3,612 DU 27 Bldgs 1,840 DU 54 Bldgs 5,452 DU
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Under Construction 3 Bldg 407 DU 10 Bldgs 1,531 DU 13 Bldgs 1,938 DU
--------------------------------------------------------------------------------------------
Planned 4 Bldgs 603 DU 9 Bldgs 1,354 DU 13 Bldgs 1,957 DU
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TOTAL 34 BLDGS 4,622 DU 46 BLDGS 4,725 DU 80 BLDGS 9,347 DU
============================================================================================
Many of the planned residential developments may be phased-in during the next
six years. The majority of new loft development is in the Historic Core. The 54
projects planned or under construction are a well-balanced mix of luxury
condominiums, luxury apartments, mid-range and affordable apartments and senior
housing. The following is a description of a few significant proposed
developments.
Forest City announced a $50 million, 230-unit residential loft project to
be built one block east of Staples Center, at 11th and Flower Streets. The
developer gained unanimous City Council support for the 200,000 square foot
project, which will feature seven stories of lofts around a four-level
parking structure and 5,000 square feet of retail space. The units will
vary in size from 670 to 1,400 square feet. The project is scheduled for
completion in 2003.
CIM Group, a leading investor in urban in-fill and mixed-use properties,
has recently acquired a major 7.2-acre property including 517,000 square
feet of buildings, public parking areas and 200,000 square feet of
developable land. The site, bounded by 8th and 9th Streets, Grand Avenue
and Figueroa Street, is within the South Park District. CIM's master plan
for the project includes a mix of residential, retail and commercial uses
and combines renovation of existing buildings with new construction. A
total of 1,300 residential dwelling units are planned. The retail component
is designed to fill the void in community services and includes a
full-service grocery store (60,000 square feet) to accommodate Downtown
residents and employees. The former Southern California Gas Company
headquarters building, located on the 800 block of Flower Street, is
planned for conversion to 290 residential lofts.
The real estate development and investment firm KOR, in joint venture with
Kennedy Wilson, is in the process of converting the former 612 South Flower
office building into 320 market-rate, residential units and 10,000 square
feet of ground floor retail space. This project is located near the center
of the Financial District, on Flower Street extending from Wilshire
Boulevard to 5th Street.
The Subway Terminal project in the historic core is an adaptive reuse for
live/work lofts with a retail and entertainment component. This $40 million
project will ultimately include 450 units and may be a joint venture with
the building owner and Forest City.
G.H. Palmer, the developer of the $100 million Medici Apartments, has
acquired three additional residential sites and plans to develop luxury
style apartment complexes (822 units).
The downtown housing base is positioned for continued expansion for the
foreseeable future. The political and economic factors favor new and re-use
development, from both a regional
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VALUATION ADVISORY SERVICES 76 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES MARKET AREA ANALYSIS
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basis and a submarket-specific perspective. The development of a base of
cultural, retail, and entertainment amenities to support a significant downtown
residential population is in progress. Although downtown Los Angeles has not yet
achieved the critical residential mass for "24-hour city" status with a
successful downtown middle and executive residential class typical of more
dynamic downtown areas such as New York, the recent, current, and planned
residential development in downtown, considered with other major non-residential
projects such as Staples Center, is beginning to cumulatively create a dynamic
environment, which in turn will generate the critical mass of residential uses
to support cultural, retail, and commercial projects.
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VALUATION ADVISORY SERVICES 77 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
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DOWNTOWN LOS ANGELES OFFICE MARKET
Competitive Supply - Overview
The downtown Los Angeles office market is comprised of five distinct submarkets:
1) The Central Business District (CBD), which includes the Financial District,
Bunker Hill and the Wilshire Corridor; 2) South Park; 3) Central City East; 4)
Little Tokyo/Chinatown; and 5) Central City West. These submarkets are
distinguished by location, access, market perception and tenant mix, improvement
quality, and rental rate structure.
As shown on the accompanying statistical exhibit, the overall downtown Los
Angeles market area, Including all five submarkets, contains a total inventory
of 38.75 million square feet in 107 buildings, and has a year-end, 2002 direct
vacancy rate of 18.1 percent. The vacancy rates for the individual downtown
submarkets vary considerably - from 14.7 percent for Little Tokyo/Chinatown to
31.5 percent for the Central City East market.
Downtown Los Angeles
OFFICE MARKET & SUBMARKET STATISTICS
End of the 4th Quarter of 2002
[Enlarge/Download Table]
DIRECT OVERALL NET DIRECT
NUMBER DIRECT VACANCY OVERALL VACANCY ABSORPTION WTD. AVG.
MARKET/SUBMARKET INVENTORY OF BLDGS AVAILABILITIES RATE AVAILABILITIES RATE YE '02 RENTAL RATE
---------------- --------- -------- -------------- ------- -------------- -------- ---------- -----------
DOWNTOWN LOS ANGELES 38,750,414 107 7,032,928 18.1% 8,197,425 21.2% (159,500) $22.65
1 CBD/Financial District 30,161,412 64 4,946,868 16.4% 5,919,819 19.6% (304,003) $24.72
2 South Park 1,917,559 7 553,740 28.9% 557,347 29.1% (77,137) $19.08
3 Central City East 2,555,682 17 805,320 31.5% 838,320 32.8% 249,108 $15.96
4 Little Tokyo/Chinatown 480,818 6 70,724 14.7% 70,724 14.7% (18,590) $13.20
5 Central City West 3,634,943 13 656,276 18.1% 811,215 22.3% (8,878) $19.32
---------- --- --------- ----- --------- ----- --------- ------
TOTAL 38,750,414 107 7,032,928 18.1% 8,197,425 21.2% (159,500) $22.65
========== === ========= ===== ========= ===== ========= ======
The most significant component of the downtown office supply is concentrated in
the CBD. This district is bordered by the Harbor Freeway (Interstate 110) on the
west, Ninth Street on the south, Second Street on the north, and Hill Street to
the east. The CBD comprises nearly 80 percent of the existing inventory in the
downtown market, and represents the greatest concentration of office space
within the greater Los Angeles area. The performance of the CBD sub-market
directly and indirectly impacts the strength of the other downtown markets. The
Central City West submarket offers good access and exposure, but this submarket
has historically "lagged" the CBD in terms of the overall quality of the office
assets, the amenities, and the prestige of the location. This market has an
inventory of 3.6 million square feet and direct and overall (including sublease
space) vacancy rates of 18.1 percent and 22.3 percent, respectively.
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VALUATION ADVISORY SERVICES 78 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
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The South Park market has very limited supply, consisting primarily of the
multiple-building Transamerica headquarters property. This market has a current
inventory of only 1.9 million square feet, with year-end 2002 direct and overall
vacancy rates of 28.9 percent and 29.1 percent.
The Central City East submarket, which was the original downtown Los Angeles
CBD, consists of older, (Circa 1900-1930) non-competitive buildings and
government offices, and the Little Tokyo/Chinatown market areas currently
consist of smaller, specialty office submarkets that offer very minimal
competition for tenants in the rest of the downtown market. The 17 buildings
tracked in this market have a total of 2.55 million square feet, with a
year-end, 2002 vacancy rate of 31.5 percent. Much of this space is functionally
obsolete, and will require substantial capital upgrades in order to suitable for
office tenancy CBD. Many of these buildings are targeted for conversion to
residential uses. An emerging office location in the northeasterly portion of
downtown Los Angeles is Union Station (controlled by Catellus), which competed
successfully for two major build-to-suit office developments with CBD sites
during the past three years.
According to Cushman & Wakefield's year-end (4th quarter) 2002 survey, the CBD
submarket contained a total rentable office area of 30,161,412 square feet in 64
buildings. The fourth quarter, 2002 direct vacancy rate for the CBD was 16.4
percent. Including sublease space, the overall vacancy level was 19.6 percent.
Although there has been no new construction completed in the CBD market since
1992, the 2002 CBD inventory of 30,161,412 rentable square feet represents an
increase of 1,284,416 square feet above the year-end 2001 inventory of
28,876,996 square feet. This 4.5 percent increase is attributable to
re-measurements by downtown landlords to 1996 BOMA standards. The absorption
levels estimated for 2002 (discussed subsequently) are impacted to a degree by
the "adjustments" for building re-measurements. Despite the fact that the
occupied area is actual greater in the CBD than as of year-end 2001, the
absorption is negative due to the calculations following re-measurement.
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VALUATION ADVISORY SERVICES 79 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
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CONSTRUCTION HISTORY CHART
Downtown Los Angeles
Central Business District
CONSTRUCTION HISTORY
[Download Table]
NUMBER
OF BLDGS RENTABLE OFFICE
YEAR COMPLETED AREA (SF)
--------------------------------------------
1907 1 32,000
1922 1 142,000
1923 1 196,073
1924 1 360,000
1926 2 319,908
1928 3 304,082
1931 1 224,000
1935 1 410,940
1955 1 163,000
1956 1 110,394
1958 1 166,000
1960 1 326,000
1963 1 95,000
1966 2 638,393
1967 2 889,293
1968 1 143,000
1969 1 715,463
1970 0 0
1971 0 0
1972 4 2,329,608
1973 4 2,017,305
1974 1 344,707
1975 1 1,324,228
1976 0 0
1977 0 0
1978 0 0
1979 2 617,000
1980 0 0
1981 1 285,493
1982 6 3,493,287
1983 2 1,056,800
1984 0 0
1985 4 2,558,920
1986 2 538,498
1987 3 846,116
1988 2 867,000
1989 1 1,300,000
1990 1 934,000
1991 5 3,723,694
1992 2 1,703,355
1993 0 0
1994 0 0
1995 0 0
1996 0 0
1997 0 0
1998 0 0
1999 0 0
2000 0 0
2001 0 0
2002 0 0
-- ----------
Totals 63 29,175,557
== ==========
Pre-1960 22 5,235,546
1970-1979 12 6,632,848
1980-1989 21 10,946,114
1990-1998 8 6,361,049
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VALUATION ADVISORY SERVICES 80 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
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HISTORICAL OFFICE DEVELOPMENT
The CBD market is quite segmented as the age, size, quality of the building
systems, and floorplate designs define and limit the competitive marketplace of
tenants for the various buildings. Forty percent of the total CBD inventory was
developed prior to 1980.
The accompanying chart summarizes the historical construction history for the
downtown Los Angeles office market (CBD). As noted above the inventory has
changed due to re-measurements during 2002 to 1996 BOMA standards. No new office
development has been completed since 1992. The market has been developed in
cycles. The Central Business District for downtown Los Angeles was originally
concentrated along Spring Street, which is located in the current Central City
East submarket. The current Central Business District has been developed since
1967 during four primary construction cycles:
1) 1966-1970 - 10 buildings totaling approximately 2.4 million square
feet were developed, including the Union Bank Building (445 South
Figueroa Street, 40 stories, 600,000 square feet) and the AT&T Center
(611 W. Sixth Street, 42 stories, 715,000 square feet). No new
development occurred during the next two years;
2) 1972-1975 - 10 new buildings totaling approximately 6.0 million square
feet were completed, including ARCO Plaza (515-555 South Flower
Street, 52 stories, two buildings with a combined rentable area of
approximately 2.0 million square feet), First Interstate Tower (707
Wilshire Boulevard, 62 stories, about 1.0 million square feet), and
Security Pacific Plaza (333 South Hope Street, 55 stories, 1.3 million
square feet). The significant amount of new construction and the
national economic recession during this period resulted in very
limited development (2 buildings totaling 617,000 square feet) from
1976 through 1980;
3) 1981-1985 - 10 new buildings with a combined area of 4.8 million
square feet were completed, including Citicorp Center Phase I (725
South Figueroa Street, 41 stories, 900,000 square feet), Wells Fargo
Center (333-355 South Grand Avenue, 2 buildings totaling 2.2 million
square feet), 444 South Flower Street (previously the Wells Fargo
Building, 48 stories, 900,000 square feet), One California Plaza (300
South Grand Avenue, 42 stories, 900,000 square feet), and 400 South
Hope Street (26 stories, 660,000 square feet). The majority of this
new office supply was developed in the Bunker Hill market area;
4) 1989-1992 - Although several new developments were completed from 1986
through 1988, the most significant construction boom in the downtown
market occurred during the three-year period 1989-1992. Nine new
buildings totaling nearly 7.7 million square feet were completed,
including First Interstate World Center (now Library Tower - 633 West
Fifth Street, 73 stories, 1.3 million square feet), Southern
California Gas Center (555 West Fifth Street, 50 stories, 1.2 million
square feet), Sanwa Bank Plaza (601 South Figueroa Street, 52 stories,
900,000 square feet), Citicorp Center Phase II (777 South Figueroa
Street, 52 stories, 1 million square feet), and California Plaza II
(52 stories, 1.3 million square feet). A number of older buildings
were also renovated during this period.
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Although there are a number of entitled or proposed sites for new office supply,
no new development has occurred in the CBD since 1992. Two significant
build-to-suit office projects were completed in 1996 and 1998 on the Union
Station property northeast of downtown Los Angeles, however. The 1996
development is the MTA headquarters (Metropolitan Transportation Authority), a
600,000 square-foot office tower, and the 1998 development involved a 12-story,
535,000 square-foot headquarters development for MWD (Metropolitan Water
District). These quasi-public agencies have relocated from other downtown
locations, and have selected the Union Station area in part because this site is
the "hub" for all regional public transportation facilities. A new CalTrans
headquarters is scheduled for development in the Civic Center/Historic Core
market.
CENTRAL BUSINESS DISTRICT
Competitive Market Supply
Office development in the CBD is concentrated in two primary areas, or
"micro-markets":
THE FINANCIAL DISTRICT, which consists of the portion of the CBD extending from
Fifth Street on the north to Ninth Street on the south, and from the Harbor
Freeway on the west to Olive Street to the east. The Financial District includes
the Figueroa Street Corridor and other Financial District locations including
primarily the Wilshire Corridor, Flower Street, and Sixth Street.
BUNKER HILL, which is an elevated geographical neighborhood in the northerly
portion of the CBD bordered by Fifth Street (south), Second Street (north),
Grand Avenue (east), and Flower Street (west).
The primary competitive office buildings in downtown Los Angeles are located in
the areas summarized above. The charts and narrative discussion on the following
pages provide an overview of the primary competitive office properties in and
adjacent to the Central Business District.
Bunker Hill
The competitive office buildings in the Bunker Hill neighborhood are summarized
on the chart on the accompanying page. Bunker Hill includes 10 buildings with a
total rentable area of 10.78 million square feet. The existing inventory
includes some of the newest and best quality office product in the downtown
market, including Two California Plaza (1.3 million square feet) which was
completed in 1992, and the Gas Company Tower (1.3 million square feet) which was
completed in 1991. The 71-story Library Tower is the tallest building in the
western United States, and was developed by Maguire Thomas Partners as part of
the Library Square Project (which also includes the Gas Company tower).
Bunker Hill consists primarily of high quality Class A buildings, and this
submarket has a direct occupancy level of 92.0 percent and an overall occupancy
rate of 86.2 percent, including sublease space. The higher overall vacancy level
is attributed in large part to subleasing activity by energy firms: Arco, has
offered portions of its premises in 333 South Hope (Arco Center) and 444 South
Flower Street for sublease; Pacific Enterprises (parent of the Southern
California Gas Company), has subleased portions of its premises in Library
Tower. Arco, following its merger with BP, has downsized its downtown Los
Angeles premises in three buildings - 333 South Hope, 444 South Flower, and Arco
Plaza (505 South Flower Street). Major tenants within this submarket include
major financial institutions, accounting firms, and law firms. The following
tenants have leases for more than 150,000 square feet of space within
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VALUATION ADVISORY SERVICES 82 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
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this submarket: 1) Southern California Gas Company; 2) Jones, Day, Reavis &
Pogue (law firm); 3) Deloitte & Touche (accounting), 4) PriceWaterhouse Coopers
(accounting - two premises - 400 South Hope and California Plaza II), 5) KPMG
(accounting), the Capital Group (finance), 6) Los Angeles Unified School
District (public sector), 7) Wells Fargo (banking/finance), 8) Pacific
Enterprises (energy), 9) Latham & Watkins (law), 10) Aames financial and 11)
Gibson, Dunn, Crutcher (law). ARCO signed a 15-year lease for about 200,000
square feet (and building signage) in 333 South Hope Street during 1996, and
relocated this space requirement from its prior location at 1055 W. Seventh
Street, just west of the CBD across the Harbor Freeway. Arthur Andersen had a
long-term lease for 160,000 square feet in Library Tower, but vacated in 2002.
The landlord is in the "Letter of Intent" stage of negotiations with US Bank to
lease the Arthur Andersen premises for a 12-year term. Latham & Watkins is also
negotiating to lease about 73,000 square feet of space in Gas Tower for a
10-year term. This "back office" requirement is currently in the Class "B"
Biltmore Tower office building across Fifth Street south of Gas Tower.
The LAUSD negotiated an extension of a significant portion of its premises
(215,000 square feet) in KPMG Tower following the expiration of their 300,000
square-foot lease in March, 2003.
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VALUATION ADVISORY SERVICES 83 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
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COMPETITIVE DOWNTOWN LOS ANGELES OFFICE BUILDINGS
Rental and Occupancy Survey as of 4th Qtr 2002
[Enlarge/Download Table]
BUILDING INFORMATION
-------------------------------------- AVAILABLE SPACE (SF) OVERALL
ITEM BUILDING NAME/ NO. OF AREA AVG. FLR YEAR ------------------------------ AVAILABILITY
NO. LOCATION STORIES (SF) AREA (SF) BUILT FLOOR(S) DIRECT SUBLEASE (SF)
----------------------------------------------------------------------------------------------------------------------------
BUNKER HILL OFFICE BUILDINGS
----------------------------------------------------------------------------------------------------------------------------
B-1 THE GAS COMPANY TOWER 52 1,367,995 26,308 1991 5 - 48 0 59,951
555 West 5th Street 1 - 50 169,202 0 Total
169,202 59,951 229,153
----------------------------------------------------------------------------------------------------------------------------
B-2 ONE BUNKER HILL 13 225,077 17,314 1931 Grnd 0 0
601 West 5th Street 3 & 8 4,687 0 Total
4,687 0 4,687
----------------------------------------------------------------------------------------------------------------------------
B-3 LIBRARY TOWER 73 1,432,607 19,625 1989 22 - 68 0 80,287
633 West 5th Street 14 - 62 162,756 0 Total
162,756 80,287 243,043
----------------------------------------------------------------------------------------------------------------------------
B-4 CITIBANK CENTER 48 893,979 18,625 1982 5 - 46 0 132,951
444 South Flower Street 21 - 44 52,410 0 Total
52,410 132,951 185,361
----------------------------------------------------------------------------------------------------------------------------
B-5 ONE CALIFORNIA PLAZA 42 953,367 22,699 1985 1 - 26 76,314
300 South Grand Avenue 3 - 20 61,705 0 Total
61,705 76,314 138,019
----------------------------------------------------------------------------------------------------------------------------
B-6 WELLS FARGO 54 1,345,189 24,911 1982 Grnd 0 0
CENTER - NORTH TOWER 4 - 42 202,905 0 Total
333 South Grand Avenue 202,905 0 202,905
----------------------------------------------------------------------------------------------------------------------------
B-7 TWO CALIFORNIA PLAZA 52 1,277,801 24,573 1992 16 - 38 0 81,396
350 South Grand Avenue 15 - 35 34,071 0 Total
34,071 81,396 115,467
----------------------------------------------------------------------------------------------------------------------------
B-8 WELLS FARGO 45 1,159,015 25,756 1983 24 - 25 0 50,000
CENTER- ST (KPMG) 27 - 42 28,814 0 Total
355 South Grand Avenue 28,814 50,000 78,814
----------------------------------------------------------------------------------------------------------------------------
B-9 BP PLAZA 55 1,421,711 25,849 1974 12 - 36 0 120,473
333 South Hope Street BSMT - 40 141,648 0 Total
141,648 120,473 262,121
----------------------------------------------------------------------------------------------------------------------------
B-10 MELLON BANK PLAZA 26 661,756 25,452 1982 9 0 26,306
400 South Hope Street 0 0 0 Total
0 26,306 26,306
----------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 460 10,738,497 23,345 858,198 627,678 1,485,876
----------------------------------------------------------------------------------------------------------------------------
QUOTED
ANNUAL RENT DIRECT OVERALL
ITEM BUILDING NAME/ ------------------ LEASE OCCUPANCY OCCUPANCY
NO. LOCATION PSF PSF TYPE RATIO RATIO
-------------------------------------------------------------------------------------
BUNKER HILL OFFICE BUILDINGS
-------------------------------------------------------------------------------------
B-1 THE GAS COMPANY TOWER $18.96 - $36.00 FSG 87.6% 83.2%
555 West 5th Street $19.92 - $20.04 NNN
-------------------------------------------------------------------------------------
B-2 ONE BUNKER HILL -- - -- -- 97.9% 97.9%
601 West 5th Street $24.00 - $24.00 FSG
-------------------------------------------------------------------------------------
B-3 LIBRARY TOWER $15.96 - $25.56 NNN/FSG 88.6% 83.0%
633 West 5th Street $25.00 - $25.00 NNN
-------------------------------------------------------------------------------------
B-4 CITIBANK CENTER $18.96 - $21.96 FSG 94.1% 79.3%
444 South Flower Street $24.00 - $24.00 FSG
-------------------------------------------------------------------------------------
B-5 ONE CALIFORNIA PLAZA $12.96 - $20.04 NNN/FSG 93.5% 85.5%
300 South Grand Avenue $18.00 - $18.00 NNN
-------------------------------------------------------------------------------------
B-6 WELLS FARGO -- - -- -- 84.9% 84.9%
CENTER - NORTH TOWER $19.92 - $19.92 NNN
333 South Grand Avenue
-------------------------------------------------------------------------------------
B-7 TWO CALIFORNIA PLAZA $18.96 - $21.00 NNN/FSG 97.3% 91.0%
350 South Grand Avenue $21.48 - $21.48 NNN
-------------------------------------------------------------------------------------
B-8 WELLS FARGO $17.76 - $17.76 FSG 97.5% 93.2%
CENTER- ST (KPMG) $20.04 - $20.04 NNN
355 South Grand Avenue
-------------------------------------------------------------------------------------
B-9 BP PLAZA $18.96 - $25.20 FSG 90.0% 81.6%
333 South Hope Street $18.96 - $19.80 NNN
-------------------------------------------------------------------------------------
B-10 MELLON BANK PLAZA $22.92 - $22.92 FSG 100.0% 96.0%
400 South Hope Street -- - -- --
-------------------------------------------------------------------------------------
MARKET TOTALS 92.0% 86.2%
-------------------------------------------------------------------------------------
(OFFICE BUILDING ACTIVITY CHART)
Other major tenants in this submarket include Mellon Bank for approximately
60,000 square feet in 400 South Hope Street, Morgan Lewis et al for about 75,000
square feet in Cal Plaza I. Mellon Bank subsequently expanded by 44,000 square
feet. Oaktree Capital signed a 75,000 square-foot lease in 1998 to relocate to
Wells Fargo Center on Bunker Hill from its previous premises in 550 South Hope
Street. The tenant expanded from a prior premises of about 15,000 square feet.
The Insurance Corporation - Hanover signed a new 25,000 square-foot lease for a
full floor in 333 South Hope Street during 1999. The tenant relocated from
mid-Wilshire. Several mid-sized law firms also have located in Bunker Hill
buildings over the past several years including Coudert Brothers (25,000 square
feet), Hill, Farrer & Burrill (30,000 square feet in Cal Plaza I), McKinsey &
Company (25,000 square feet in 400 South Hope Street), Baker Hostetler, a law
firm in the Wilshire Grand building (600 Wilshire Boulevard) signed a 35,000
square-foot lease to relocate to KPMG Tower in late 2000, and Dewey Ballentine
signed a 45,000 square-foot lease in Wells Fargo Center. McCutchen, Doyle signed
a lease for 75,000 square feet in the same project during second quarter, 2001.
Dewey
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VALUATION ADVISORY SERVICES 84 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
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Ballentine leased about 50,000 square feet in Wells Fargo Center during 2001,
and Winston &Wtrawn leased about 50,000 square feet in the same project during
2002
The Los Angeles Unified School District (25,000 square-foot expansion in KPMG
Tower). Citicorp committed to a new lease for about 70,000 square feet of space
in 444 South Flower Street following the expiration of their current lease in
2000 at 725 South Figueroa Street. The Capital Group expanded by about 26,000
square feet in 333 South Hope Street. CB/Richard Ellis (real estate firm)
relocated to approximately 45,000 square feet in KPMG Tower. Although the Bunker
Hill buildings have a high current direct occupancy level, there are a number of
sublease availabilities which total about 630,000 square feet. Notably, however,
this figure was 755,000 square feet at the beginning of 2001. Jones Day, a law
firm is offering about 50,000 square feet for sublease in Gas Company Tower. BP
has recently offered its 200,000 square-foot plus premises in 333 South Hope
Street (BP Plaza) for sublease, as consolidations continue in the oil industry.
ARCO/BP recently decided to remain in 50,000 square feet of the premises,
however.
Despite fluctuations in sublease availabilities, the direct vacancy rate for
Bunker Hill office buildings has declined by about 13 full percentage points
since 1995, and the overall vacancy levels including sub-lease space) has
continued to decline, including by more than 10 full percentage points since
year-end 1996. The vacancy trends for the past eight years are summarized in the
following chart.
Bunker Hill Vacancy Trends
[Download Table]
Timeframe Direct Vacancy Sublease Vacancy Overall Vacancy
--------- -------------- ---------------- ---------------
1995-4th QTR 18.3% 6.2% 24.5%
1996-4th QTR 13.1% 6.1% 19.3%
1997-4th QTR 11.7% 3.7% 15.4%
1998-4th QTR 11.2% 5.0% 16.2%
1999-4th QTR 8.1% 7.5% 15.6%
2000-4th QTR 7.9% 5.7% 13.6%
2001-4th QTR 4.8% 3.4% 8.2%
2002-4th QTR 8.0% 5.8% 13.8%
The relatively significant sublease availabilities in the Bunker Hill market
during the middle of the last decade have been attributable primarily to
downsizing of major corporate tenants and financial institutions. The chart
below summarizes the five most significant tenant losses which led to sublease
supply in the Bunker Hill market over the past (approximate) decade.
[Download Table]
Tenant Industry Premises Comments
------ -------- -------- --------
Security Pacific Banking/Finance 700,000 SF Merger/BofA
333 S. Hope
IBM Technology 600,000 SF Downsize
Wells Fargo-South
Gas Company Utilities - Corporate 550,000 SF 3 floors - downsized
Gas Tower has been subleased
Pacific Enterprises Utilities - Corporate 225,000 SF Merger-Enova
Library Tower
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VALUATION ADVISORY SERVICES 85 (CUSHMAN & WAKEFIELD LOGO)
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[Download Table]
Tenant Industry Premises Comments
------ -------- -------- --------
Arco/BP Oil 200,000 SF Merger -BP
333 S. Hope BP will remain in
50,000 SF
Arco/BP Oil 160,000 SF Merger -BP
444 S. Flower
1st Interstate Banking/Finance 160,000 SF Merger-Wells Fargo
Library Tower
Arthur Andersen Accounting 160,000 SF Accounting Scandals
Library Tower
TOTAL: 2,755,000 SF
The tenants above represent approximately 25 percent of the total Bunker Hill
supply. The Bunker Hill market has absorbed (on a sub-lease or subsequent direct
lease basis) the IBM, Security Pacific, and the 1st Interstate premises as well
as all or portions of the Gas Company, Arco, and Pacific Enterprises space. In
light of the loss of 25 percent of the tenant base over the past several years
through the mergers and downsizings listed above in recent years, the favorable
vacancy trend summarized previously demonstrates exceptional demand for Bunker
Hill office properties. The table below quantifies the total net new absorption
to the Bunker Hill submarket since 4th quarter, 1995, including the loss of the
major tenants listed above.
[Enlarge/Download Table]
TOTAL AVAILABILITIES
PERIOD INCLUDING SUBLEASE
------ --------------------
4th Qtr 1995 2,465,526 SF
4th Qtr 2002 1,485,876 SF (at remeasured area)
---------
Net Change Occupied SF 979,650 SF
Net Major Tenant Losses 2,755,000 SF
Total Absorption Including Major Tenant Losses: 3,734,650 SF
Figueroa Corridor
The competitive office buildings within the Figueroa Corridor area are
summarized on the chart on the accompanying page. Figueroa Corridor includes 15
buildings with a combined rentable area of approximately 7.1 million square
feet. This submarket encompasses a relatively large geographic area and includes
properties at both the northern and southern boundaries of the downtown office
market. With the exception of 777 Tower and Sanwa Bank, the buildings in this
submarket generally contain less than one million square feet of rentable area.
Figueroa Corridor experienced significant new development over the first two
years of this decade, with nearly 3.4 million square feet of rentable area
delivered to this submarket from 1990 to 1992, or approximately 50 percent of
the current inventory of office space. The most recently completed building is
801 South Figueroa, which was completed in mid 1992.
Figueroa Corridor buildings have a combined occupancy rate of 84.7 percent,
including sublease availabilities. On a landlord direct basis the buildings have
an occupancy level of 89.4 percent. Major tenants within this submarket include
domestic and foreign financial institutions, law firms, and investment banking
firms. Several insurance firms have also located to new buildings in this
corridor during the past few years. The larger tenants within the Figueroa
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VALUATION ADVISORY SERVICES 86 (CUSHMAN & WAKEFIELD LOGO)
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Corridor include: 1) Union Bank of California; 2) Washington Mutual; 3) Sanwa
Bank; 4) Aon (insurance); 5) Trust Company of the West (investment services); 6)
Manufacturer's Bank; 7) Pillsbury, Madison and Sutro (law firm); 8) Graham &
James (law firm); 9) AIG (insurance); 10) Ernst & Young (accounting); and 11)
Marsh McLennan (insurance).
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VALUATION ADVISORY SERVICES 87 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
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COMPETITIVE DOWNTOWN LOS ANGELES OFFICE BUILDINGS
Rental and Occupancy Survey as of 4th Qtr 2002
[Enlarge/Download Table]
BUILDING INFORMATION
-------------------------------------- AVAILABLE SPACE (SF) OVERALL
ITEM BUILDING NAME/ NO. OF AREA AVG. FLR YEAR ------------------------------ AVAILABILITY
NO. LOCATION STORIES (SF) AREA (SF) BUILT FLOOR(S) DIRECT SUBLEASE (SF)
----------------------------------------------------------------------------------------------------------------------------
FIGUEROA STREET CORRIDOR
----------------------------------------------------------------------------------------------------------------------------
F-1 FIGUEROA PLAZA 16 314,512 20,161 1986 5 0 1,470
SOUTH TOWER
201 North Figueroa 2 6,972 0 Total
Street
6,972 1,470 8,442
----------------------------------------------------------------------------------------------------------------------------
F-2 FIGUEROA PLAZA 16 307,556 19,715 1991 Ground 0 0
NORTH TOWER
221 North Figueroa 1 14,240 0 Total
Street
14,240 0 14,240
----------------------------------------------------------------------------------------------------------------------------
F-3 FIGUEROA COURTYARD 3 243,000 81,000 1979 1 & 3 0 18,824
201-281 South 2 & 4 10,211 0 Total
Figueroa Street
10,211 18,824 29,035
----------------------------------------------------------------------------------------------------------------------------
F-4 MARRIOT OFFICE BUILDING 4 44,800 11,200 1983 Ground 0 0
345 South Figueroa 1 - 4 12,695 0 Total
Street
12,695 0 12,695
----------------------------------------------------------------------------------------------------------------------------
F-5 LOS ANGELES WORLD 10 349,600 34,960 1974 1 & 2 0 18,441
TRADE CTR
350 South Figueroa 1 - 10 67,906 0 Total
Street
67,906 18,441 86,347
----------------------------------------------------------------------------------------------------------------------------
F-6 UNION BANK PLAZA 40 607,822 15,196 1967 36 0 16,419
445 South Figueroa 22 - 38 41,195 0 Total
Street
41,195 16,419 57,614
----------------------------------------------------------------------------------------------------------------------------
F-7 MANULIFE PLAZA 21 392,626 18,696 1982 3 & 14 0 3,268
515 South Figueroa 9 & 10 8,270 0 Total
Street
8,270 3,268 11,538
----------------------------------------------------------------------------------------------------------------------------
F-8 SANWA BANK PLAZA 52 1,038,971 19,980 1990 4 - 43 0 173,552
601 South Figueroa 1 - 46 125,238 0 Total
Street
125,238 173,552 298,790
----------------------------------------------------------------------------------------------------------------------------
F-9 FIGUEROA TOWER 24 259,549 10,815 1988 10 & 11 0 6,096
660 South Figueroa 8 - 18 35,733 0 Total
Street
35,733 6,096 41,829
----------------------------------------------------------------------------------------------------------------------------
F-10 ERNST & YOUNG PLAZA 41 902,500 22,012 1985 21 - 40 0 54,082
725 South Figueroa 4 - 41 57,526 0 Total
Street
57,526 54,082 111,608
----------------------------------------------------------------------------------------------------------------------------
F-11 777 TOWER 52 1,004,000 19,308 1990 42 - 47 0 40,997
777 South Figueroa 3 - 46 113,475 0 Total
Street
113,475 40,997 154,472
----------------------------------------------------------------------------------------------------------------------------
F-12 FIGUEROA TOWER 12 122,002 10,167 1982 Grnd 0 0
800 South Figueroa 6 - 12 72,892 0 Total
Street
72,892 0 72,892
----------------------------------------------------------------------------------------------------------------------------
F-13 801 TOWER 24 435,832 18,160 1992 Ground 0 0
801 South Figueroa 3 - 16 26,953 0 Total
Street
26,953 0 26,953
----------------------------------------------------------------------------------------------------------------------------
F-14 TCW BUILDING 35 674,132 19,261 1991 23 & 32 0 4,134
865 South Figueroa 13 & 23 4,060 0 Total
Street
4,060 4,134 8,194
----------------------------------------------------------------------------------------------------------------------------
F-15 888 INTERNATIONAL TOWER 21 412,000 19,619 1985 Ground 0 0
888 South Figueroa LL - 21 154,453 0 Total
Street
154,453 0 154,453
----------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 370 7,108,902 19,203 751,819 337,283 1,089,102
----------------------------------------------------------------------------------------------------------------------------
QUOTED
ANNUAL RENT DIRECT OVERALL
ITEM BUILDING NAME/ ----------- LEASE OCCUPANCY OCCUPANCY
NO. LOCATION PSF PSF TYPE RATIO RATIO
--------------------------------------------------------------------------------------
FIGUEROA STREET CORRIDOR
---------------------------------------------------------------------------------------
F-1 FIGUEROA PLAZA $22.80 - $22.80 FSG 97.8% 97.3%
SOUTH TOWER
201 North Figueroa $24.00 - $24.00 FSG
Street
---------------------------------------------------------------------------------------
F-2 FIGUEROA PLAZA -- - -- -- 95.4% 95.4%
NORTH TOWER
221 North Figueroa $24.00 - $24.00 FSG
Street
---------------------------------------------------------------------------------------
F-3 FIGUEROA COURTYARD $12.00 - $24.00 FSG 95.8% 88.1%
201-281 South $24.00 - $24.00 FSG
Figueroa Street
---------------------------------------------------------------------------------------
F-4 MARRIOT OFFICE BUILDING -- - -- -- 71.7% 71.7%
345 South Figueroa $17.04 - $17.04 FSG
Street
---------------------------------------------------------------------------------------
F-5 LOS ANGELES WORLD $15.00 - $15.00 FSG 80.6% 75.3%
TRADE CTR
350 South Figueroa $18.00 - $19.96 FSG
Street
---------------------------------------------------------------------------------------
F-6 UNION BANK PLAZA $15.96 - $18.00 FSG 93.2% 90.5%
445 South Figueroa $24.00 - $24.00 FSG
Street
---------------------------------------------------------------------------------------
F-7 MANULIFE PLAZA $19.80 - $19.80 FSG 97.9% 97.1%
515 South Figueroa $26.04 - $26.04 FSG
Street
---------------------------------------------------------------------------------------
F-8 SANWA BANK PLAZA $15.96 - $18.96 FSG 87.9% 71.2%
601 South Figueroa $21.96 - $27.00 NNN
Street
---------------------------------------------------------------------------------------
F-9 FIGUEROA TOWER $20.04 - $23.00 FSG 86.2% 83.9%
660 South Figueroa $24.00 - $24.00 FSG
Street
---------------------------------------------------------------------------------------
F-10 ERNST & YOUNG PLAZA $17.04 - $21.00 FSG 93.6% 87.6%
725 South Figueroa $20.04 - $20.04 NNN
Street
---------------------------------------------------------------------------------------
F-11 777 TOWER $17.88 - $23.52 NNN/FSG 88.7% 84.6%
777 South Figueroa $17.88 - $17.88 NNN
Street
---------------------------------------------------------------------------------------
F-12 FIGUEROA TOWER -- - -- -- 40.3% 40.3%
800 South Figueroa $17.40 - $18.60 FSG
Street
---------------------------------------------------------------------------------------
F-13 801 TOWER -- - -- -- 93.8% 93.8%
801 South Figueroa $30.00 - $33.00 FSG
Street
---------------------------------------------------------------------------------------
F-14 TCW BUILDING $19.20 - $19.20 FSG 99.4% 98.8%
865 South Figueroa $15.96 - $17.04 NNN
Street
---------------------------------------------------------------------------------------
F-15 888 INTERNATIONAL TOWER -- - -- -- 62.5% 62.5%
888 South Figueroa $12.00 - $24.00 NNN/FSG
Street
---------------------------------------------------------------------------------------
MARKET TOTALS 89.4% 84.7%
---------------------------------------------------------------------------------------
(OFFICE BUILDING ACTIVITY CHART)
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VALUATION ADVISORY SERVICES 88 (CUSHMAN & WAKEFIELD LOGO)
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Union Bank of California recently (2000) renewed its 320,000 square-foot lease
in 445 South Figueroa for a 10-year term. Citicorp previously leased about
180,000 square feet in 725 South Figueroa Street (Citicorp Phase I), and its
lease expired in October, 2000. The tenant negotiated a new lease and relocated
prior to the end of the current term to a downsized premises (about 70,000
square feet) in 444 South Flower Street (refer to Bunker Hill submarket). The
444 building has been renamed after the bank. Ernst & Young consolidated its
downtown offices to about 120,000 square feet of the Citicorp space in 725 South
Figueroa on a sub-lease/direct basis. The building has been re-named after
tenant. Pillsbury, Madison renewed its lease in 725 South Figueroa Street during
2000, downsizing to 72,000 square feet.
This property (725 S. Figueroa Street) sold during 1997. In addition to the
Citicorp premises, two other major tenants in this building had lease
expirations during 2000: KPMG Peat Marwick (160,000 square feet) and Pillsbury
Madison Sutro (120,000 square feet). Two of the three major tenants have
subsequently (following 1997) relocated. As noted previously, Pillsbury Madison
renewed and downsized its premises (to 72,000 square feet) in first quarter,
2000, but KPMG and Citicorp have vacated. KPMG was involved in a pending merger
with Ernst & Young during the latter portion of 1997, but the merger was not
completed. KPMG signed a new lease and relocated to the former IBM space on
Bunker Hill during late 1999, and the building has been re-named for this
tenant. Each of these accounting firms were negotiating for new premises prior
to the merger, but the negotiations were delayed. Lockton Insurance and
LeBoef/Lamb have leased portions of the space vacated by the major tenants
during 2000 and the Secret Service (GSA) committed during 4th quarter 2001 to
lease +/-125,000 square feet, bringing the occupancy level back to over 90
percent.
Citicorp Phase II (777 South Figueroa) is currently 89 percent leased on a
direct basis, due in part to the expansion of its existing tenant base. Johnson
& Higgins merged with Marsh McLennan, the major tenant in 777 Figueroa. The
tenant relocated its Century City premises (former Johnson & Higgins space) to
the downtown market, expanding by 75,000 square feet in 777 Figueroa. Paine
Webber signed a lease for the top two floors of this building during 1997,
relocating from the adjacent 725 Figueroa tower. Paine Webber expanded its lease
by an additional 17,000 square feet in 1999. This building is essentially fully
occupied, and recent leasing activity has included several early renewals and/or
expansions of existing tenants. Arnold & Porter expanded and (early) renewed its
existing lease to about 80,000 square feet in second quarter, 2000. Kirkland &
Ellis and Paine Webber also expanded during the past year. The law firm Kelley,
Drye & Warren is expected to relocate from 777 Tower to two floors at 444 South
Flower Street. AIG is expected to sign a long-term renewal for about 100,000
square feet during first quarter, 2003.
The insurance industry has provided several significant new tenants in recent
years to the downtown market. Chubb Insurance is a major tenant in 801 Tower,
and Alexander & Alexander (now Aon) relocated to this building from Pasadena in
1996 following a merger. Other tenant demand for buildings in this corridor
during the past year included Arter & Hadden (60,000 square feet in 725
Figueroa) and American Custom (40,000 square feet in 801 Tower). The City of Los
Angeles leased more than 300,000 square feet in Figueroa Plaza, a two-building
development located in the northerly end of the downtown market (items F-1 and
F-2) during 1997. This property is a Class A development but is in a secondary
location near the Civic Center.
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VALUATION ADVISORY SERVICES 89 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
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Other Major Downtown Buildings
The "Other Major Downtown Buildings" are summarized on the chart on the
accompanying page. These 15 buildings range in size from 95,000 to 1,180,000
square feet, and include some of the earliest major class A office developments
in the downtown Los Angeles office market. The ARCO Plaza North and South
Towers, represent one of the first major high-rise office developments in Los
Angeles. The project contains over 2 million square feet of rentable office area
and approximately 225,000 square feet of subterranean retail space. The north
tower previously served as the corporate headquarters for Atlantic Richfield
Company (ARCO), and the south tower is the regional headquarters location for
Bank of America. ARCO merged with BP and announced significant layoffs, and
exercised early termination options for two floors in ARCO Plaza. ARCO has
subleased its remaining space in the building. Future space requirements for
Bank of America are uncertain in light of the merger with NationsBank, who has
leased space in 444 South Flower Street. Bank of America recently placed new
building signage on the building and put out an "RFP" for this and other
downtown premises, proposing to consolidate to less than 200,000 square feet.
ARCO and Bank of America have current premises totaling about 700,000 square
feet in ARCO Plaza and portions of the ARCO premises have been subleased. The
prior ownership (Shuwa) negotiated a significant lease with DMJM, a 120,000
square-foot architecture from who relocated from Mid-Wilshire, and renewed Paul
Hastings, a 200,000 square-foot law firm tenant. The notes secured by the
property have been acquired by an investor who retained a broker to market the
asset for sale. A buyer was selected in January, 2003.
These 15 buildings total approximately 6.5 million square feet and have a
combined occupancy rate of 63 percent, including sublease availabilities. Major
tenants include diversified holding companies, financial institutions, and
telecommunication companies. The larger tenants in these buildings include: 1)
BP/Atlantic Richfield Company (ARCO); 2) Bank of America; 3) City National Bank;
4) Brobeck, Phleger, & Harrison (law firm); 5) MCI Communications; and 6) Paul
Hastings (law). Paul Hastings recently negotiated a major lease extension in
Arco Plaza. The most recently completed building among this subgroup is the 550
South Hope Street property, which was acquired by Equity Office in 1997. Shuwa
marketed its U.S. portfolio of assets for sale during 1998 (including ARCO
Plaza). Many of the other assets have been sold, and has recently committed
significant capital to lease and upgrade this project. The notes securing this
property have recently been acquired through an option by a US investor who is
negotiating with the ownership to acquire fee title. Arco Plaza was originally
one of the premier Class A projects in the CBD due to its location in the center
of the Financial District, the quality of the construction and the tenancy. The
property is in need of capital investment for deferred maintenance and leasing
costs, however, and is currently only about 50 percent leased. A new,
well-capitalized ownership could potentially re-position the property to compete
more effectively with other good-quality Class A assets in the downtown market.
The vacancy level for this group of buildings recently increased due to the
first quarter, 2000 buy-out by AT&T of its lease in AT&T Center (611 West 6th
Street - refer to item O-2). The AT&T premises was 132,000 square feet, with a
scheduled expiration in 2004. The landlord planned to release much of this space
to telecommunications tenants, but this market has deteriorated.
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VALUATION ADVISORY SERVICES 90 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
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COMPETITIVE DOWNTOWN LOS ANGELES OFFICE BUILDINGS
Rental and Occupancy Survey as of 4th Qtr 2002
[Enlarge/Download Table]
----------------------------------------------------------------------------------------------------------------------------
BUILDING INFORMATION OVERALL
ITEM BUILDING NAME/ NO. OF AREA AVG. FLR. YEAR AVAILABLE SPACE (SF) AVAILABILITY
NO. LOCATION STORIES (SF) AREA (SF) BUILT FLOOR(S) DIRECT SUBLEASE (SF)
----------------------------------------------------------------------------------------------------------------------------
OTHER MAJOR DOWNTOWN LOS ANGELES OFFICE BUILDINGS
Along 6th, 7th, Hope, Olive Streets and Grand Avenue
----------------------------------------------------------------------------------------------------------------------------
O-1 THE PACIFIC CENTER 12 398,000 33,167 1927 10 0 5,000
523 West 6th Street Grnd - 12 87,209 0 Total
87,209 5,000 92,209
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O-2 611 PLACE 42 715,463 17,035 1968 16 0 13,000
611 West 6th Street GRnd - PENT 273,933 0 Total
273,933 13,000 286,933
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O-3 PACIFIC FINANCIAL CENTER 18 213,079 11,838 1973 10 0 8,014
800 West 6th Street 8 - 16 27,120 0 Total
27,120 8,014 35,134
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O-4 NORTHWESTERN MUTUAL LIFE 14 95,490 6,821 1972 Ground 0 0
888 West 6th Street 12 5,969 0 Total
5,969 0 5,969
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O-5 617 W. 7TH STREET 12 218,016 18,168 1928 Ground 17,247 0
BUILDING Bsmt - 13 152,202 0 Total
617 West 7th Street 169,449 169,449
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O-6 FINE ARTS BUILDING 12 106,402 8,867 1926 0 0 0
811 West 7th Street 2 - 11 11,962 0 Total
11,962 0 11,962
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O-7 818 BUILDING 12 372,194 31,016 1924 Ground 0 0
818 West 7th Street 2 & 9 23,378 0 Total
23,378 0 23,378
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O-8 550 S. HOPE STREET 28 538,006 19,215 1991 6 & 8 0 0
BUILDING 4 - 28 34,012 0 Total
550 South Hope Street 34,012 28,339 62,351
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O-9 HOPE STREET SOUTH 17 95,000 5,588 1963 Ground 0 0
BUILDING LL - 17 66,885 0 Total
655 South Hope Street 66,885 0 66,885
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O-10 PAUL HASTINGS TOWER 52 1,180,789 22,707 1971 10 0 11,186
515 South Flower Street 5 - 51 348,295 0 Total
348,295 11,186 359,481
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0-11 BANK OF AMERICA TOWER 52 1,180,789 22,707 1971 46 0 2,271
555 South Flower Street 16 - 48 730,333 0 Total
730,333 2,271 732,604
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O-12 MCI-WORLDCOM CENTER 32 678,500 21,203 1973 25 & 32 0 22,973
700 South Flower Street 4 - 31 154,319 0 Total
154,319 22,973 177,292
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O-13 BILTMORE PLACE/ 24 136,798 5,700 1987 Ground 0 0
BILTMORE TOWER 11 2,223 0 Total
500 South Grand Avenue 2,223 0 2,223
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O-14 BILTMORE PLACE/ 12 257,318 21,443 1987 0 0
BILTMORE COURT 3 - 11 62,174 0 Total
520 South Grand Avenue 62,174 0 62,174
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O-15 CITY NATIONAL BANK 25 286,971 11,479 1967 Ground 0 0
BUILDING 1 - 21 15,963 0 Total
606 South Olive Street 15,963 0 15,963
----------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 364 6,472,815 17,782 2,013,224 76,614 2,104,007
----------------------------------------------------------------------------------------------------------------------------
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QUOTED DIRECT OVERALL
ITEM BUILDING NAME/ ANNUAL RENT LEASE OCCUPANCY OCCUPANCY
NO. LOCATION PSF PSF TYPE RATIO RATIO
-------------------------------------------------------------------------------------
OTHER MAJOR DOWNTOWN LOS ANGELES OFFICE BUILDINGS
Along 6th, 7th, Hope, Olive Streets and Grand Avenue
-------------------------------------------------------------------------------------
O-1 THE PACIFIC CENTER $14.04 - $14.04 FSG 78.1% 76.8%
523 West 6th Street $21.00 - $21.00 FSG
-------------------------------------------------------------------------------------
O-2 611 PLACE $18.00 - $18.00 FSG 61.7% 59.9%
611 West 6th Street $24.00 - $24.00 FSG
-------------------------------------------------------------------------------------
O-3 PACIFIC FINANCIAL CENTER $17.04 - $17.04 FSG 87.3% 83.5%
800 West 6th Street $21.00 - $21.00 FSG
-------------------------------------------------------------------------------------
O-4 NORTHWESTERN MUTUAL LIFE -- - -- -- 93.7% 93.7%
888 West 6th Street $18.00 - $20.04 FSG
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O-5 617 W. 7TH STREET $14.40 - $14.40 FSG 22.3% 22.3%
BUILDING
617 West 7th Street $24.00 - $24.00 FSG
-------------------------------------------------------------------------------------
O-6 FINE ARTS BUILDING -- - -- -- $0.89 88.8%
811 West 7th Street $21.00 - $23.04 FSG
-------------------------------------------------------------------------------------
O-7 818 BUILDING -- - -- -- 93.7% 93.7%
818 West 7th Street $24.00 - $27.96 FSG
-------------------------------------------------------------------------------------
O-8 550 S. HOPE STREET $15.96 - $20.04 FSG 93.7% 88.4%
BUILDING $18.00 - $18.00 NNN
550 South Hope Street
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O-9 HOPE STREET SOUTH -- - -- -- 29.6% 29.6%
BUILDING $18.00 - $19.20 FSG
655 South Hope Street
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O-10 PAUL HASTINGS TOWER $18.00 - $18.00 FSG 70.5% 69.6%
515 South Flower Street $21.96 - $30.00 FSG
-------------------------------------------------------------------------------------
0-11 BANK OF AMERICA TOWER $20.04 - $20.04 FSG 38.1% 38.0%
555 South Flower Street $21.96 - $27.00 FSG
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O-12 MCI-WORLDCOM CENTER $14.04 - $21.96 FSG 77.3% 73.9%
700 South Flower Street $24.00 - $24.96 FSG
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O-13 BILTMORE PLACE/ -- - -- -- 98.4% 98.4%
BILTMORE TOWER $20.04 - $20.04 FSG
500 South Grand Avenue
-------------------------------------------------------------------------------------
O-14 BILTMORE PLACE/ -- - -- -- 75.8% 75.8%
BILTMORE COURT $20.04 - $20.04 FSG
520 South Grand Avenue
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O-15 CITY NATIONAL BANK -- - -- -- 94.4% 94.4%
BUILDING $18.00 - $18.00 FSG
606 South Olive Street
-------------------------------------------------------------------------------------
MARKET TOTALS 68.9% 67.5%
-------------------------------------------------------------------------------------
(OFFICE BUILDING ACTIVITY CHART)
A significant component of the total vacancy for this subgroup of buildings is
concentrated in ARCO Plaza (O-10 and O-11). The office space in the project is
currently 54 percent leased on
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VALUATION ADVISORY SERVICES 91 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
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a direct basis. Excluding this project these buildings have an aggregate direct
occupancy level of 77 percent.
Wilshire Corridor
The competitive buildings along the Wilshire Corridor area (including adjacent
streets) are summarized on the chart on the accompanying page. This sub-group
consists of 12 buildings with a combined rentable area of approximately 4.25
million square feet. The buildings along the Wilshire Corridor are generally
smaller and older than the competitive office product situated in the Bunker
Hill, Figueroa Corridor, and adjacent areas. The Wilshire Corridor buildings
have an average rentable area of about 350,000 square feet and an average age of
approximately 25 years. With the exception of 707 Wilshire Boulevard, none of
the buildings along this corridor has a rentable area in excess of 600,000
square feet.
The 12 buildings total about 4.27 million square feet, and have a combined
occupancy rate of 69 percent, including sublease availabilities. On a direct
basis, the occupancy level is 71 percent. The buildings within this subgroup
include both Class A and B properties, and the lower quality properties have
experienced downward pressures on rents over the past few years. Major tenants
within this submarket include domestic and foreign financial institutions,
diversified holding companies, communication companies, and accounting firms.
The larger tenants within this submarket include: 1) Wells Fargo Bank; 2) Bank
of America (formerly Security Pacific National Bank); and 3) Aon Insurance; 4)
Loeb & Loeb; and 5) Los Angeles Community College District.
The older Wilshire Corridor buildings suffered a significant loss of their
former tenant base during the latter portion of the 1980's to the newer office
buildings in the downtown area. Several of the former major tenants of the older
Wilshire Corridor buildings, including Dai-Ichi Kangyo Bank, Tokai Bank, Sanwa
Bank, The Industrial Bank of Japan, and First Interstate Bank, have been
acquired or have relocated all or a major portion of their operation to new
office facilities in the Bunker Hill area or along the Figueroa Corridor. The
Wells Fargo buyout of 1st Interstate had a more recent, delayed negative impact
on occupancy levels. First Interstate/Wells Fargo leased 420,000 square feet in
707 Wilshire Boulevard (1st Interstate Tower) for a term expiring February,
1999. 1st Interstate/Wells was also a 50 percent owner of this building and
exercised its option to acquire the remaining 50 percent from its partner,
Equitable in 2001. Aon is a major tenant in this building and recently expanded
by 90,000 square feet, including building top signage. Wells Fargo downsized its
requirement and returned about 120,000 square feet to the landlord for direct
lease. Other recent occupancy losses occurred due to two major tenants in 1000
Wilshire: Loeb & Loeb placed its premises (expires in 2007) on the sublease
market following a decision to consolidate to Century City; and Deloitte &
Touche (145,000 square feet in this building) relocated during 2000 to
California Plaza II, although its lease in this building extended to 2002.
Wedbush Morgan expanded to 60,000 square feet and renewed for a 10-year term
during 2001. Several owners of buildings in this submarket have undertaken
renovation programs to enhance the marketability of the space in their
respective properties. The owners of the 811 Wilshire Building completed an
extensive renovation program in 1991, which included the installation of a new
fire safety/sprinkler system, a voice command center, and a more modern building
facade. The offshore ownership has not exhibited a willingness to aggressively
market the space for lease, however, and the building is currently on the
market. The 770 Wilshire Building was renovated with the installation of
improved building systems, new fire/life safety systems, and a remodeled lobby,
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VALUATION ADVISORY SERVICES 92 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
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COMPETITIVE DOWNTOWN LOS ANGELES OFFICE BUILDINGS
Rental and Occupancy Survey as of 4th Qtr 2002
[Enlarge/Download Table]
----------------------------------------------------------------------------------------------------------------------------
BUILDING INFORMATION OVERALL
ITEM BUILDING NAME/ NO. OF AREA AVG. FLR YEAR AVAILABLE SPACE (SF) AVAILABILITY
NO. LOCATION STORIES (SF) AREA (SF) BUILT FLOOR(S) DIRECT SUBLEASE (SF)
----------------------------------------------------------------------------------------------------------------------------
WILSHIRE BOULEVARD CORRIDOR
----------------------------------------------------------------------------------------------------------------------------
W-1 ONE WILSHIRE BUILDING 30 569,439 18,981 1966 1 & 28 0 12,123
624 South Grand Avenue 9 - 30 53,686 0 Total
53,686 12,123 65,809
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W-2 CHASE PLAZA 22 447,218 20,328 1986 0 0 0
801 South Grand Avenue 11 220,221 0 Total
220,221 0 220,221
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W-3 WILSHIRE-GRAND BUILDING 16 285,496 17,844 1981 1 - 12 0 2,141
600 Wilshire Boulevard 6 - 16 135,035 0 Total
135,035 2,141 137,176
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W-4 611 WILSHIRE BLVD 13 155,000 11,923 1958 Ground 0 0
BUILDING 3 - 12 45,630 0 Total
611 Wilshire Boulevard 45,630 0 45,630
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W-5 WILSHIRE TECHNOLOGY 11 142,415 12,947 1966 1 0 6,412
CENTER 4 - 11 59,740 0 Total
626 Wilshire Boulevard 59,740 6,412 66,152
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W-6 AON CENTER 62 1,028,000 17,147 1974 43 - 47 0 20,374
707 Wilshire Boulevard 4 - 54 227,001 0 Total
227,001 20,374 247,375
----------------------------------------------------------------------------------------------------------------------------
W-7 DAI-ICHI KANGYO BANK 9 100,174 11,130 1973 0 0 0
BUILDING 0 0 0 Total
770 Wilshire Boulevard 0 0 0
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W-8 800 WILSHIRE BLVD. 15.6 215,060 13,786 1972 6 & 15 0 11,090
BUILDING GRnd - 15 29,506 0 Total
800 Wilshire Boulevard 29,506 11,090 40,596
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W-9 811 WILSHIRE BLVD. 20 326,000 16,300 1960 Ground 0 0
BUILDING 2 - 21 231,013 0 Total
811 Wilshire Boulevard 231,013 0 231,013
----------------------------------------------------------------------------------------------------------------------------
W-10 WILSHIRE GRAND HOTEL 15 162,000 10,800 1955 8 0 885
& OFFICE CTR 4 - 15 17,347 0 Total
900 Wilshire Boulevard 17,347 885 18,232
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W-11 911 WILSHIRE BUILDING 22 374,000 17,000 1979 0 0 0
911 Wilshire Boulevard 1 - 22 105,546 0 Total
105,546 0 105,546
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W-12 1000 WILSHIRE BUILDING 21 452,000 21,524 1987 6 & 18 0 27,004
1000 Wilshire Boulevard 2 - 22 114,617 0 Total
114,617 27,004 141,621
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MARKET TOTALS 257 4,256,802 16,589 1,239,342 80,029 1,319,371
----------------------------------------------------------------------------------------------------------------------------
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QUOTED DIRECT OVERALL
ITEM BUILDING NAME/ ANNUAL RENT LEASE OCCUPANCY OCCUPANCY
NO. LOCATION PSF PSF TYPE RATIO RATIO
-------------------------------------------------------------------------------------
WILSHIRE BOULEVARD CORRIDOR
-------------------------------------------------------------------------------------
W-1 ONE WILSHIRE BUILDING $16.20 - $21.60 FSG 90.6% 88.4%
624 South Grand Avenue $21.60 - $21.60 FSG
-------------------------------------------------------------------------------------
W-2 CHASE PLAZA -- - -- -- 50.8% 50.8%
801 South Grand Avenue $18.00 - $19.20 FSG
-------------------------------------------------------------------------------------
W-3 WILSHIRE-GRAND BUILDING $36.00 - $36.00 FSG 52.7% 52.0%
600 Wilshire Boulevard $21.96 - $24.00 FSG
-------------------------------------------------------------------------------------
W-4 611 WILSHIRE BLVD -- - -- -- 70.6% 70.6%
BUILDING $18.00 - $18.00 FSG
611 Wilshire Boulevard
-------------------------------------------------------------------------------------
W-5 WILSHIRE TECHNOLOGY $18.00 - $18.00 FSG 58.1% 53.5%
CENTER $21.00 - $23.04 FSG
626 Wilshire Boulevard
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W-6 AON CENTER $13.44 - $20.04 FSG 77.9% 75.9%
707 Wilshire Boulevard $18.00 - $24.00 FSG
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W-7 DAI-ICHI KANGYO BANK -- - -- -- 100.0% 100.0%
BUILDING -- - -- --
770 Wilshire Boulevard
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W-8 800 WILSHIRE BLVD. $15.00 - $17.04 FSG 86.3% 81.1%
BUILDING $23.04 - $24.96 FSG
800 Wilshire Boulevard
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W-9 811 WILSHIRE BLVD. $15.00 - $15.00 FSG 29.1% 29.1%
BUILDING $18.96 - $18.96 FSG
811 Wilshire Boulevard
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W-10 WILSHIRE GRAND HOTEL $18.60 - $18.60 FSG 89.3% 88.7%
& OFFICE CTR $20.04 - $20.04 FSG
900 Wilshire Boulevard
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W-11 911 WILSHIRE BUILDING -- - -- -- 71.8% 71.8%
911 Wilshire Boulevard $21.96 - $24.00 FSG
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W-12 1000 WILSHIRE BUILDING $12.00 - $21.00 FSG 74.6% 68.7%
1000 Wilshire Boulevard $25.92 - $27.96 FSG
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MARKET TOTALS 70.9% 69.0%
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(OFFICE BUILDING ACTIVITY CHART)
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VALUATION ADVISORY SERVICES 93 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
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and is master leased to LA Community College. The One Wilshire Building has
become a communications tenant property, with tenancy dominated switching
stations and fiber-optic companies. This building has become the "hub" of an
expanding market for telecommunications tenants in the CBD, and commands
substantially higher rents than other buildings of similar vintage.
Other nearby Class "B" buildings have been marketing space for lease to
telecommunications tenants due to the overflow demand from One Wilshire, the
nearby cabling infrastructure, and the higher rental rates for this category of
tenant. The recent "collapse" of the telecommunications market has slowed this
trend significantly, however.
Several acquisitions by Goodwin Gaw/Kennedy Wilson of long-vacant buildings
along or adjacent to this corridor will result in a new "renovated" supply in
the CBD. This firm had previously acquired 818 West 7th Street in 1996, and
leased significant portions of the (formerly) largely vacant building to office
and telecom tenants, with ground-floor retail uses. Goodwin Gaw/Kennedy Wilson
acquired the 400,000 square-foot 612 South Flower Street property in 1997 from
the lender, Bank of Nova Scotia. The building remained vacant for a decade, and
requires substantial capital investment prior to occupancy. The building was
recently positioned and undergoing a complete renovation and conversion to
residential use by KOR, in a joint venture with Kennedy Wilson, who will develop
320 market-rate residential units and 10,000 square feet of ground floor retail
space. This property is situated near the center of the CBD, which will enhance
the desirability of the overall neighborhood. Goodwin Gaw also acquired the
vacant 700 Wilshire Boulevard building during 1998, and converted the former
office building to telecommunications use. This buyer has successfully converted
another older, largely vacant building in this neighborhood (611 Wilshire
Boulevard, item W-4) to use for (predominately) telecommunications tenants.
Two additional buildings, Wilshire Grand and 626 Wilshire Boulevard (refer to
items W-3 and W-5) were acquired in 2000 from Toyo Real Estate by a Menlo
Equities Fund, who planned to convert all or significant portions of the vacant
space in the buildings to telecom use, effectively creating "hybrid"
professional office and telecom buildings. The strategy was apparently
unsuccessful, however, as Menlo is no longer involved in the project, and the
controlling ownership (AEW) plans to lease most of the space as professional
office.
Central City West - Buildings located West of the Harbor (I-110) Freeway
The five competitive buildings located west of the Harbor (I-110) Freeway are
summarized on the chart on the accompanying page. This submarket consists of
five buildings with a combined rentable area of approximately 2.2 million square
feet. With the exception of the former ARCO Center (now the 1055 West Seventh
Building), the buildings located west of the Harbor Freeway are generally of
lesser quality than the newer Class A office properties in the other downtown
submarkets. The buildings in this submarket are considered to be locationally
inferior to the competitive Class A office buildings in the core CBD downtown
area, and compete primarily on a cost basis with otherwise similar CBD office
buildings.
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VALUATION ADVISORY SERVICES 94 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
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COMPETITIVE DOWNTOWN LOS ANGELES OFFICE BUILDINGS
Rental and Occupancy Survey as of 4th Qtr 2002
[Enlarge/Download Table]
-----------------------------------------------------------------------------------------------------------------------------
BUILDING INFORMATION OVERALL
ITEM BUILDING NAME/ NO. OF AREA AVG. FLR YEAR AVAILABLE SPACE (SF) AVAILABILITY
NO. LOCATION STORIES (SF) AREA (SF) BUILT FLOOR(S) DIRECT SUBLEASE (SF)
-----------------------------------------------------------------------------------------------------------------------------
HARBOR (INTERSTATE-110) FREEWAY
Major Office Buildings Located West of the I-110 FWY
-----------------------------------------------------------------------------------------------------------------------------
H-1 1055 WEST 7TH 33 625,000 18,939 1988 2 0 5,000
STREET BUILDING 1 - 33 280,015 0 Total
1055 West 7th Street 280,015 5,000 285,015
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H-2 EXCHANGE PLACE 13 126,178 9,706 1986 Ground 0 0
(BEAUDRY II) 11 - PENT 126,178 0 Total
233 South Beaudry 126,178 0 126,178
Avenue
-----------------------------------------------------------------------------------------------------------------------------
H-3 BEAUDRY CENTER I 29 868,530 29,949 1981 0 0 0
333 South Beaudry 0 0 0 Total
Avenue 0 0 0
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H-4 WILSHIRE BIXEL 19 278,187 14,489 1986 0 0 0
1055 Wilshire 8 - 19 46,174 0 Total
Boulevard 46,174 0 46,174
-----------------------------------------------------------------------------------------------------------------------------
H-5 1100 WILSHIRE 37 275,700 7,451 1992 0 0 0
1100 Wilshire 17 - 37 295,800 0 Total
Boulevard 295,800 0 295,800
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MARKET TOTALS 131 2,173,595 16,567 748,167 5,000 753,167
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QUOTED DIRECT OVERALL
ITEM BUILDING NAME/ ANNUAL RENT LEASE OCCUPANCY OCCUPANCY
NO. LOCATION PSF PSF TYPE RATIO RATIO
-------------------------------------------------------------------------------------
HARBOR (INTERSTATE-110) FREEWAY
Major Office Buildings Located West of the I-110 FWY
-------------------------------------------------------------------------------------
H-1 1055 WEST 7TH $18.00 - $18.00 FSG 55.2% 54.4%
STREET BUILDING $21.00 - $21.00 FSG
1055 West 7th Street
-------------------------------------------------------------------------------------
H-2 EXCHANGE PLACE -- - -- -- 0.0% 0.0%
(BEAUDRY II) $21.00 - $24.00 FSG
233 South Beaudry
Avenue
-------------------------------------------------------------------------------------
H-3 BEAUDRY CENTER I -- - -- -- 100.0% 100.0%
333 South Beaudry -- - -- --
Avenue
-------------------------------------------------------------------------------------
H-4 WILSHIRE BIXEL -- - -- -- 83.4% 83.4%
1055 Wilshire $21.00 - $21.00 FSG
Boulevard
-------------------------------------------------------------------------------------
H-5 1100 WILSHIRE -- - -- -- -7.3% -7.3%
1100 Wilshire $18.00 - $18.00 FSG
Boulevard
-------------------------------------------------------------------------------------
MARKET TOTALS 65.6% 65.3%
-------------------------------------------------------------------------------------
(OFFICE BUILDING ACTIVITY CHART)
The buildings located west of the Harbor Freeway have a current combined direct
occupancy rate of 66 percent. The occupancy level includes the master leased
Beaudry Center I (H-3) which is currently undergoing renovation. The Los Angeles
Unified School District (LAUSD) acquired Beaudry I for its own occupancy subject
to a master lease to Bank of America expiring. The largest direct Class A
availability in the overall downtown market is within the 1055 West 7th Street
property, including the former ARCO premises of more than 200,000 square feet.
As noted previously ARCO relocated to Bunker Hill from this building during
1998, and the direct lease in 1055 West 7th Street expired at the end of
January, 1999. Another large tenant in this building, the law firm Coudert
Brothers recently leased a floor in 333 South Hope Street (ARCO Center) on
Bunker Hill. Another large block of space in this market, former 1st
Interstate/Wells Fargo space in the Wilshire Bixel building (H-4), became
available in third quarter, 1999. The landlord subsequently leased a significant
portion of this premises to City of Hope and other tenants, however.
The buildings within this subgroup include Class A and B space, although the
properties generally have excellent visibility from the freeway. Major tenants
in this market previously included Bank of America, Pacific Stock Exchange, and
ARCO. Bank of America underutilized its master lease premises in Beaudry I, and
is vacating in phases as LAUSD takes occupancy over the period to 2006, when the
master lease expires. The Pacific Stock Exchange was
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headquartered in Beaudry II, but vacated and this building is now essentially
vacant. As noted previously, ARCO signed a lease and relocated to 333 South
Hope, and vacated its 265,000 square-foot premises in ARCO Center, which expired
in 1999. Wells Fargo/1st Interstate vacated its operations headquarters located
on West 7th Street and has subleased the property for Prudential healthcare
offices, telecom space, and Bank of America subleased about 90,000 square feet
of this back-office space. This property (not included on the summary) contains
380,000 square feet of rentable area in nine above ground floors, and an
additional 340,000 square feet in three below-grade levels. Of roughly 700,000
square feet of space available for sublease in this building as of 1996, less
than 100,000 square feet (approximately) remains. This property (known as the
Garland Building) has also been leased to several telecommunications tenants at
substantially higher rates than more typical professional office space.
The former ARCO Center at 1055 West 7th Street is considered to be the highest
quality of the existing office properties located west of the freeway. The 1100
Wilshire Building (H-5) transferred ownership in November, 1993 and remains
vacant. The triangular-shaped office tower is situated on top of a 15-level
parking structure, which provides for excellent visibility from the freeway. The
ownership is perceived in the market as not responsive or realistic, however,
and the building has been vacant for about a decade. Beaudry I a Class "B"
29-story high rise located in the Central City West submarket. This property
(H-3) is master leased to Security Pacific (now Bank of America) for a 25-year
term and it is categorized as an "owner user" building. Bank of America, which
assumed control of Beaudry Center I following the merger with Security Pacific
National Bank, has consolidated portions of the bank's regional back office and
computer-related space requirements at this location. As noted previously,
however, LAUSD acquired this building for its own use.
VACANCY OVERVIEW
According to information compiled by Cushman & Wakefield, the Los Angeles CBD
submarket contained a total rentable office area (all building classes) of
30,161,412 square feet in 64 buildings as of 4th quarter, 2002. The direct
vacancy rate was 16.4 percent, and the overall vacancy rate was 19.6 percent
based on 4,946,868 square feet of landlord-direct available office space and an
additional 972,951 square feet of sublease availabilities. These figures
compares with the CBD vacancy levels since 1996, as summarized below.
VACANCY TRENDS - CBD
[Download Table]
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YEAR-END DIRECT VACANCY OVERALL VACANCY
-----------------------------------------------------------------
1996 20.5% 23.9%
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1997 18.9% 22.9%
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1998 17.4% 20.6%
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1999 15.6% 18.9%
-----------------------------------------------------------------
2000 15.9% 20.9%
-----------------------------------------------------------------
2001 12.9% 16.9%
-----------------------------------------------------------------
2002 16.4% 19.6%
-----------------------------------------------------------------
--------------------------------------------------------------------------------
VALUATION ADVISORY SERVICES 96 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
--------------------------------------------------------------------------------
(LOS ANGELES CBD DIRECT VACANCY TREND 1994 - 2002 GRAPH)
The 2002 figures show an increase in vacancy due to negative absorption and, to
an unquantifiable degree, changes in the inventory due to building
remeasurements. The Los Angeles CBD has experienced positive absorption levels
over the past five years, which, in conjunction with the lack of new
construction over the past decade, led to declining vacancy rates for the
market. The year-end 2001 direct vacancy of 12.9 percent was 7.6 percentage
points below the year-end 1996 figure of 20.5 percent, but year-end 2002 vacancy
increased to 16.4 percent.
Vacancy Segmentation by Building Class
The 4th quarter, 2002 breakdown of inventory by the quality of supply (Classes
A, B, and C) in the CBD is summarized below.
[Enlarge/Download Table]
-------------------------------------------------------------------------------------
ANNUAL
BUILDING VACANCY PSF/WTD
QUALITY/ NO. OF INVENTORY RATE AVG. -
CLASS BUILDINGS (SF) DIRECT ASKING RENT
-------------------------------------------------------------------------------------
Class A 38 25,257,712 15.9% $25.56
-------------------------------------------------------------------------------------
Class B 20 4,192,398 21.1% $21.36
-------------------------------------------------------------------------------------
Class C 6 711,302 7.3% $24.96
-------------------------------------------------------------------------------------
Totals 64 30,161,412 16.4% $24.72
-------------------------------------------------------------------------------------
Excluding the Shuwa-owned ARCO Plaza from the statistics results in a direct
vacancy rate of 11.5 percent for Class A CBD buildings. The Arco Plaza ownership
has only recently "focused" on leasing this major asset, and the property
recently sold by the noteholder (who in turn acquired the debt through Japanese
lenders) to a pension fund advisor (Thomas Properties).
--------------------------------------------------------------------------------
VALUATION ADVISORY SERVICES 97 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
--------------------------------------------------------------------------------
The weighted average asking rental rate for available Class A space is 20
percent and 2 percent, respectively, above the rates for Class B and Class C
space. The Class C rental rate is impacted by a preponderance of telecom space
offered for lease at higher rates.
Vacancy is further segmented by specific location within the CBD, as well as by
the age, quality and condition of the asset. Bunker Hill, which consists
exclusively of 10.74 million square feet of Class A space, had a direct vacancy
level of 8.0 percent, while the 15 buildings located along the Figueroa Street
corridor through the Financial District had an 10.6 percent vacancy level on an
inventory of 7.1 million square feet.
OFFICE BUILDING VACANCY SURVEY
CENTRAL BUSINESS DISTRICT OF DOWNTOWN LOS ANGELES
Rental and Occupancy Survey as of 4th Qtr 2002
[Enlarge/Download Table]
-------------------------------------------------------------------------------------------------------------------------
NO. OF INVENTORY AVAILABLE (SF) VACANCY RATIOS
SUBMARKET BUILDINGS SQUARE FEET DIRECT SUBLEASE OVERALL DIRECT SUBLEASE OVERALL
-------------------------------------------------------------------------------------------------------------------------
(B) Bunker Hill 10 10,738,497 858,198 627,678 1,485,876 8.0% 5.8% 13.8%
-------------------------------------------------------------------------------------------------------------------------
(O) Other Buildings 15 6,472,815 2,013,224 90,783 2,104,007 31.1% 1.4% 32.5%
-------------------------------------------------------------------------------------------------------------------------
(F) Figueroa Corridor 15 7,108,902 751,819 337,283 1,089,102 10.6% 4.7% 15.3%
-------------------------------------------------------------------------------------------------------------------------
(W) Wilshire Corridor 12 4,256,802 1,239,342 80,029 1,319,371 29.1% 1.9% 31.0%
-------------------------------------------------------------------------------------------------------------------------
(H) West of Harbor Fwy 5 2,173,595 748,167 5,000 753,167 34.4% 0.2% 34.7%
-------------------------------------------------------------------------------------------------------------------------
TOTAL 57 30,750,611 5,610,750 1,140,773 6,751,523 18.2% 3.7% 22.0%
-------------------------------------------------------------------------------------------------------------------------
(OFFICE BUILDING CHART)
(VACANCY RATIO CHART)
There are 25 major Class A buildings with a combined 22 million square feet and
a 15.3 percent aggregate direct vacancy rate. The CBD Class A vacancy is further
segmented based on the age (or year of completion) and quality of the assets, as
shown below, with additional detail on the accompanying pages.
--------------------------------------------------------------------------------
VALUATION ADVISORY SERVICES 98 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
--------------------------------------------------------------------------------
OFFICE BUILDING VACANCY SURVEY
LOS ANGELES DOWNTOWN OFFICE MARKET
Rental and Occupancy Survey as of 4th Qtr 2002
[Enlarge/Download Table]
-------------------------------------------------------------------------------------------------------------------------
NO. OF INVENTORY AVAILABLE (SF) VACANCY RATIOS
BUILDING CLASSES BUILDINGS SQUARE FEET DIRECT SUBLEASE OVERALL DIRECT SUBLEASE OVERALL
-------------------------------------------------------------------------------------------------------------------------
(A) Class "A" Buildings
Completed 1989-1992 8 7,769,344 669,767 468,656 1,138,423 8.6% 6.0% 14.7%
-------------------------------------------------------------------------------------------------------------------------
(B) Class "A" Buildings
Completed 1982-1987* 10 8,441,692 703,628 496,494 1,200,122 8.3% 5.9% 14.2%
-------------------------------------------------------------------------------------------------------------------------
(C) Class "A" Buildings
Completed 1971-1976 7 5,838,581 1,995,297 86,223 2,081,520 34.2% 1.5% 35.7%
-------------------------------------------------------------------------------------------------------------------------
TOTALS 25 22,049,617 3,368,692 1,051,373 4,420,065 15.3% 4.8% 20.0%
-------------------------------------------------------------------------------------------------------------------------
*Includes BP Plaza; 1974-built
(OFFICE BUILDING CHART)
(VACANCY RATIO CHART)
The 25 major Class A buildings in the CBD have aggregate fourth quarter 2002
direct and overall vacancy rates of 15.3 percent and 20.0 percent. Excluding the
seven oldest Class A buildings, the 18 major Class A buildings completed since
1982 (but including BP Plaza, a well-maintained trophy-caliber older building)
have a combined rentable area of 16.21 million square feet and a fourth quarter,
2002 direct vacancy rate of only 8.5 percent. Including sublease space, the 18
best-quality major Class A assets have an overall vacancy rate of 14.4 percent.
--------------------------------------------------------------------------------
VALUATION ADVISORY SERVICES 99 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
--------------------------------------------------------------------------------
Class "A" Buildings Completed 1989-1992 As of 4th Quarter 2002
[Enlarge/Download Table]
-------------------------------------------------------------------------------------------------------------
BUILDING INFORMATION
ITEM BUILDING NAME / NO. OF AREA AVG. FLR. YEAR AVAILABLE SPACE (SF)
NO. LOCATION STORIES (SF) AREA (SF) BUILT FLOOR(S) DIRECT SUBLEASE
-------------------------------------------------------------------------------------------------------------
F-1 LIBRARY TOWER 71 1,432,607 20,178 1989 22 - 68 0 80,287
633 West 5th Street 14 - 62 162,756 0
162,756 80,287
-------------------------------------------------------------------------------------------------------------
F-2 TWO CALIFORNIA PLAZA 52 1,277,801 24,573 1992 16 - 38 0 81,396
350 South Grand Avenue 15 - 35 34,071 0
34,071 81,396
-------------------------------------------------------------------------------------------------------------
F-3 THE GAS COMPANY TOWER 50 1,367,995 27,360 1991 5 - 48 0 59,951
555 West 5th Street 1 - 50 169,202 0
169,202 59,951
-------------------------------------------------------------------------------------------------------------
F-4 777 TOWER 52 1,004,000 19,308 1990 42 - 47 0 40,997
777 South Figueroa Street 3 - 46 113,475 0
113,475 40,997
-------------------------------------------------------------------------------------------------------------
F-5 SANWA BANK PLAZA 52 1,038,971 19,980 1990 4 - 43 0 173,552
601 South Figueroa Street 1 - 46 125,238 0
125,238 173,552
-------------------------------------------------------------------------------------------------------------
F-6 TCW BUILDING 35 674,132 19,261 1991 23 & 32 0 4,134
865 South Figueroa Street 13 & 23 4,060 0
4,060 4,134
-------------------------------------------------------------------------------------------------------------
F-7 550 S. HOPE STREET BUILDING 28 538,006 19,215 1991 6 & 8 0 28,339
550 South Hope Street 4 - 28 34,012 0
34,012 28,339
-------------------------------------------------------------------------------------------------------------
F-8 801 TOWER 24 435,832 18,160 1992 Ground 0 0
801 South Figueroa Street 3 - 16 26,953 0
26,953 0
-------------------------------------------------------------------------------------------------------------
TOTALS 364 7,769,344 21,344 669,767 468,656
1,138,423
Total SF
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
OVERALL QUOTED
ITEM BUILDING NAME / AVAILABILITY ANNUAL RENT LEASE OCCUPANCY RATIO
NO. LOCATION (SF) PSF PSF TYPE DIRECT OVERALL
-------------------------------------------------------------------------------------------------
F-1 LIBRARY TOWER $15.96 - $25.56 NNN/FSG 88.6% 83.0%
633 West 5th Street Total $25.00 - $25.00 NNN
243,043
-------------------------------------------------------------------------------------------------
F-2 TWO CALIFORNIA PLAZA $18.96 - $21.00 NNN/FSG 97.3% 91.0%
350 South Grand Avenue Total $21.48 - $21.48 NNN
115,467
-------------------------------------------------------------------------------------------------
F-3 THE GAS COMPANY TOWER $18.96 - $36.00 FSG 87.6% 83.2%
555 West 5th Street Total $19.92 - $20.04 NNN
229,153
-------------------------------------------------------------------------------------------------
F-4 777 TOWER $17.88 - $23.52 NNN/FSG 88.7% 84.6%
777 South Figueroa Street Total $17.88 - $17.88 NNN
154,472
-------------------------------------------------------------------------------------------------
F-5 SANWA BANK PLAZA $15.96 - $18.96 FSG 87.9% 71.2%
601 South Figueroa Street Total $21.96 - $27.00 NNN
298,790
-------------------------------------------------------------------------------------------------
F-6 TCW BUILDING $19.20 - $19.20 FSG 99.4% 98.8%
865 South Figueroa Street Total $15.96 - $17.04 NNN
8,194
-------------------------------------------------------------------------------------------------
F-7 550 S. HOPE STREET BUILDING $15.96 - $20.04 FSG 93.7% 88.4%
550 South Hope Street Total $18.00 - $18.00 NNN
62,351
-------------------------------------------------------------------------------------------------
F-8 801 TOWER ---- - ---- ---- 93.8% 93.8%
801 South Figueroa Street Total $30.00 - $33.00 FSG
26,953
-------------------------------------------------------------------------------------------------
TOTALS Vacant 91.4% 85.3%
DIRECT OVERALL
OCCUPANCY RATIO
-------------------------------------------------------------------------------------------------
Class "A" Buildings Completed 1982-1987 As of 4th Quarter 2002
[Enlarge/Download Table]
--------------------------------------------------------------------------------------------------------------------------
BUILDING INFORMATION
ITEM BUILDING NAME / NO. OF AREA AVG. FLR. YEAR AVAILABLE SPACE (SF)
NO. LOCATION STORIES (SF) AREA (SF) BUILT FLOOR(S) DIRECT SUBLEASE
--------------------------------------------------------------------------------------------------------------------------
S-9 BP PLAZA 55 1,421,711 25,849 1974 12 - 36 0 120,473
333 South Hope Street BSMT - 40 141,648 0
141,648 120,473
--------------------------------------------------------------------------------------------------------------------------
S-10 WELLS FARGO CENTER - NORTH TOWER 54 1,345,189 24,911 1982 Grnd 0 0
333 South Grand Avenue 4 - 42 202,905 0
202,905 0
--------------------------------------------------------------------------------------------------------------------------
S-11 MANULIFE PLAZA 21 392,626 18,696 1982 3 & 14 0 3,268
515 South Figueroa Street 9 & 10 8,270 0
8,270 3,268
--------------------------------------------------------------------------------------------------------------------------
S-12 FIGUEROA TOWER 24 259,549 10,815 1988 10 & 11 0 6,096
660 South Figueroa Street 8 - 18 35,733 0
35,733 6,096
--------------------------------------------------------------------------------------------------------------------------
S-13 WELLS FARGO CENTER- ST (KPMG) 45 1,159,015 25,756 1983 24 - 25 0 50,000
355 South Grand Avenue 27 - 42 28,814 0
28,814 50,000
--------------------------------------------------------------------------------------------------------------------------
S-14 ONE CALIFORNIA PLAZA 42 953,367 22,699 1985 1 - 26 76,314
300 South Grand Avenue 3 - 20 61,705 0
61,705 76,314
--------------------------------------------------------------------------------------------------------------------------
S-15 ERNST & YOUNG PLAZA 41 902,500 22,012 1985 21 - 40 0 54,082
725 South Figueroa Street 4 - 41 57,526 0
57,526 54,082
--------------------------------------------------------------------------------------------------------------------------
S-16 CITIBANK CENTER 48 893,979 18,625 1982 5 - 46 0 132,951
444 South Flower Street 21 - 44 52,410 0
52,410 132,951
--------------------------------------------------------------------------------------------------------------------------
S-17 MELLON BANK PLAZA 26 661,756 25,452 1982 9 0 26,306
400 South Hope Street 0 0 0
0 26,306
--------------------------------------------------------------------------------------------------------------------------
S-18 1000 WILSHIRE BUILDING 21 452,000 21,524 1987 6 & 18 0 27,004
1000 Wilshire Boulevard 2 - 22 114,617 0
114,617 27,004
--------------------------------------------------------------------------------------------------------------------------
TOTALS 377 8,441,692 22,392 703,628 496,494
1,200,122
Total SF
--------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
OVERALL QUOTED
ITEM BUILDING NAME / AVAILABILITY ANNUAL RENT LEASE OCCUPANCY RATIO
NO. LOCATION (SF) PSF PSF TYPE DIRECT OVERALL
------------------------------------------------------------------------------------------------------------
S-9 BP PLAZA $18.96 - $25.20 FSG 90.0% 81.6%
333 South Hope Street Total $18.96 - $19.80 NNN
262,121
------------------------------------------------------------------------------------------------------------
S-10 WELLS FARGO CENTER - NORTH TOWER ---- - ---- 84.9% 84.9%
333 South Grand Avenue Total $19.92 - $19.92 NNN
202,905
------------------------------------------------------------------------------------------------------------
S-11 MANULIFE PLAZA $19.80 - $19.80 FSG 97.9% 97.1%
515 South Figueroa Street Total $26.04 - $26.04 FSG
11,538
------------------------------------------------------------------------------------------------------------
S-12 FIGUEROA TOWER $20.04 - $23.00 FSG 86.2% 83.9%
660 South Figueroa Street Total $24.00 - $24.00 FSG
41,829
------------------------------------------------------------------------------------------------------------
S-13 WELLS FARGO CENTER- ST (KPMG) $17.76 - $17.76 FSG 97.5% 93.2%
355 South Grand Avenue Total $20.04 - $20.04 NNN
78,814
------------------------------------------------------------------------------------------------------------
S-14 ONE CALIFORNIA PLAZA $12.96 - $20.04 NNN/FSG 93.5% 85.5%
300 South Grand Avenue Total $18.00 - $18.00 NNN
138,019
------------------------------------------------------------------------------------------------------------
S-15 ERNST & YOUNG PLAZA $17.04 - $21.00 FSG 93.6% 87.6%
725 South Figueroa Street Total $20.04 - $20.04 NNN
111,608
------------------------------------------------------------------------------------------------------------
S-16 CITIBANK CENTER $18.96 - $21.96 FSG 94.1% 79.3%
444 South Flower Street Total $24.00 - $24.00 FSG
185,361
------------------------------------------------------------------------------------------------------------
S-17 MELLON BANK PLAZA $22.92 - $22.92 FSG 100.0% 96.0%
400 South Hope Street Total ---- - ---- ----
26,306
------------------------------------------------------------------------------------------------------------
S-18 1000 WILSHIRE BUILDING $12.00 - $21.00 FSG 74.6% 68.7%
1000 Wilshire Boulevard Total $25.92 - $27.96 FSG
141,621
------------------------------------------------------------------------------------------------------------
TOTALS Vacant 91.7% 85.8%
DIRECT OVERALL
OCCUPANCY RATIO
------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VALUATION ADVISORY SERVICES 100 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
--------------------------------------------------------------------------------
Class "A" Buildings Completed 1971-1976 As of 4th Quarter 2002
[Enlarge/Download Table]
-------------------------------------------------------------------------------------------------------------
BUILDING INFORMATION
ITEM BUILDING NAME / NO. OF AREA AVG. FLR. YEAR AVAILABLE SPACE (SF)
NO. LOCATION STORIES (SF) AREA (SF) BUILT FLOOR(s) DIRECT SUBLEASE
-------------------------------------------------------------------------------------------------------------
T-19 PAUL HASTINGS TOWER 52 1,180,789 22,707 1971 10 0 11,186
515 South Flower Street 5 - 51 348,295 0
348,295 11,186
-------------------------------------------------------------------------------------------------------------
T-20 BANK OF AMERICA TOWER 52 1,180,789 22,707 1971 46 0 2,271
555 South Flower Street 16 - 48 730,333 0
730,333 2,271
-------------------------------------------------------------------------------------------------------------
T-21 AON CENTER 62 1,028,000 16,581 1974 43 - 47 0 20,374
707 Wilshire Boulevard 4 - 54 227,001 0
227,001 20,374
-------------------------------------------------------------------------------------------------------------
T-22 611 PLACE 42 715,463 17,035 1968 16 0 13,000
611 West 6th Street GRnd-PENT 273,933 0
273,933 13,000
-------------------------------------------------------------------------------------------------------------
T-23 MCI-WORLDCOM CENTER 32 678,500 21,203 1973 25 & 32 0 22,973
700 South Flower Street 4 - 31 154,319 0
154,319 22,973
-------------------------------------------------------------------------------------------------------------
T-24 UNION BANK PLAZA 40 607,822 15,196 1967 36 0 16,419
445 South Figueroa Street 22 - 38 41,195 0
41,195 16,419
-------------------------------------------------------------------------------------------------------------
T-25 CHASE PLAZA 22 447,218 20,328 1986 0 0 0
801 South Grand Avenue 11 220,221 0
220,221 0
-------------------------------------------------------------------------------------------------------------
TOTALS 302 5,838,581 19,333 1,995,297 86,223
2,081,520
Total SF
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
GRAND TOTALS 1,043 22,049,617 21,141 3,368,692 1,051,373
4,420,065
Total SF
-------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
OVERALL QUOTED
ITEM BUILDING NAME / AVAILABILITY ANNUAL RENT LEASE OCCUPANCY RATIO
NO. LOCATION (SF) PSF PSF TYPE DIRECT OVERALL
--------------------------------------------------------------------------------------------------
T-19 PAUL HASTINGS TOWER $18.00 - $18.00 FSG 70.5% 69.6%
515 South Flower Street Total $21.96 - $30.00 FSG
359,481
--------------------------------------------------------------------------------------------------
T-20 BANK OF AMERICA TOWER $20.04 - $20.04 FSG 38.1% 38.0%
555 South Flower Street Total $21.96 - $27.00 FSG
732,604
--------------------------------------------------------------------------------------------------
T-21 AON CENTER $13.44 - $20.04 FSG 77.9% 75.9%
707 Wilshire Boulevard Total $18.00 - $24.00 FSG
247,375
--------------------------------------------------------------------------------------------------
T-22 611 PLACE $18.00 - $18.00 FSG 61.7% 59.9%
611 West 6th Street Total $24.00 - $24.00 FSG
286,933
--------------------------------------------------------------------------------------------------
T-23 MCI-WORLDCOM CENTER $14.04 - $21.96 FSG 77.3% 73.9%
700 South Flower Street Total $24.00 - $24.96 FSG
177,292
--------------------------------------------------------------------------------------------------
T-24 UNION BANK PLAZA $15.96 - $18.00 FSG 93.2% 90.5%
445 South Figueroa Street Total $24.00 - $24.00 FSG
57,614
--------------------------------------------------------------------------------------------------
T-25 CHASE PLAZA ---- - ---- ---- 50.8% 50.8%
801 South Grand Avenue Total $18.00 - $19.20 FSG
220,221
--------------------------------------------------------------------------------------------------
TOTALS Vacant 65.8% 64.3%
DIRECT OVERALL
OCCUPANCY RATIO
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
GRAND TOTALS Vacant 84.7% 80.0%
DIRECT OVERALL
OCCUPANCY RATIO
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VALUATION ADVISORY SERVICES 101 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
--------------------------------------------------------------------------------
Downtown Los Angeles
Central Business District
NET ABSORPTION TRENDS
(* - Excludes Sublease Absorption)
[Enlarge/Download Table]
-------------------------------------------------------------------------------------------------
END OF SQUARE FEET TOTAL NET ABSORPTION/
YEAR OF NET ABSORPTION * INVENTORY SF TOTAL INVENTORY
-------------------------------------------------------------------------------------------------
1983 1,567,194 16,319,586 9.6%
1984 (48,958) 16,319,586 -0.3%
1985 775,971 18,158,950 4.3%
1986 113,471 18,996,948 0.6%
1987 1,208,942 21,197,396 5.7%
1988 357,615 21,526,197 1.7%
1989 1,750,587 23,452,439 7.5%
1990 613,658 23,697,139 2.6%
1991 1,456,674 27,696,701 5.3%
1992 559,130 29,175,557 1.9%
1993 612,577 29,166,557 2.1%
1994 (419,208) 29,159,714 -1.4%
1995 (403,097) 29,242,986 -1.4%
1996 142,771 29,578,489 0.5%
1997 114,018 29,601,872 0.4%
1998 431,040 29,613,072 1.5%
1999 589,066 28,986,814 2.0%
2000 35,847 28,796,861 0.1%
2001 478,413 28,876,996 1.7%
2002 (304,003) 30,161,412 -1.0%
-------------------------------------------------------------------------------------------------
Total 1983 - 2002 9,631,708 509,725,272 1.9%
Annual Avg 481,585 25,486,264 1.9%
Annual Avg 1990-2002 300,530
-------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VALUATION ADVISORY SERVICES 102 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
--------------------------------------------------------------------------------
OFFICE DEMAND
Net Absorption
The accompanying chart summarizes the historical net office absorption for the
Central Business District during the past 20 years. For the purposes of this
analysis, net absorption is defined by Cushman & Wakefield as the net change in
occupied space on a landlord-direct basis (excluding changes in sublease space).
The annual net absorption levels ranged from (419,208) square feet in 1994, to
1,750,587 square feet in 1989. As indicated on the chart the average annual net
absorption during the past 20 years is about 480,000 square feet. Over the
13-year period 1990 through 2002, the average annual absorption level has been
300,530 square feet. The most significant recent positive net absorption levels
occurred during 1999 and 2001. The substantial negative absorption during 1994
and 1995 reflects, to a large degree, the change in direct and sublease
availabilities from substantial Security Pacific/Bank of America lease
expirations in two Bunker Hill buildings. The resulting re-categorization as
available space impacted net absorption calculations, which exclude sublease
space. The positive net absorption of 589,066 square feet shown for 1999
occurred despite the downsizing of Wells Fargo in its 707 Wilshire Boulevard
premises during first two quarters of 1999. Other occupancy losses do not appear
in the data, as they are considered in sublease availabilities, which are not
included in the net absorption data (refer to chart below). The leasing market
"flattened" in the CBD during 2002, with negative absorption of about 300,000
square feet.
Tenant demand for office space is directly related to the growth or
consolidation of the employment base in the competitive market. Fluctuations in
leasing activity during periods of employment growth can also be impacted by
limited new development demand. The growth in the Los Angeles population during
the past 20 years and corresponding employment growth, particularly in the
services sector, has historically created periods of pent-up demand which
resulted in "spikes" in the downtown absorption levels during or following
completion of significant new office supply. Based on the accompanying data this
trend apparently continued through 1991 according to net absorption estimated
discussed above.
As noted above Cushman & Wakefield has historically calculated net absorption
based upon the change in directly leased space. When sublease space is included
in the absorption analysis, however, the pattern of the "growth in tenant
demand" fluctuates when compared with the direct- net absorption figures. The
available sublease data covering the period 1998 through 2001 indicates the
following estimated pattern in the net change in total leased space, or the net
growth in the actual tenant base in the Central Business District.
[Download Table]
-----------------------------------------
YEAR GROWTH IN TENANT
BASE (SF)
-----------------------------------------
1988 5,329
-----------------------------------------
1989 1,750,587
-----------------------------------------
1990 608,605
-----------------------------------------
1991 582,966
-----------------------------------------
1992 428,745
-----------------------------------------
1993 322,957
-----------------------------------------
1994 (1,983)
-----------------------------------------
1995 406,022
-----------------------------------------
1996 94,537
-----------------------------------------
1997 310,455
-----------------------------------------
--------------------------------------------------------------------------------
VALUATION ADVISORY SERVICES 103 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
--------------------------------------------------------------------------------
[Download Table]
---------------------------------------------------
YEAR GROWTH IN TENANT
BASE (SF)
---------------------------------------------------
1998 727,170
---------------------------------------------------
1999 241,260
---------------------------------------------------
2000 (544,592)
---------------------------------------------------
2001 948,378
---------------------------------------------------
2002* 63,307*
===================================================
Total 6,128,156
===================================================
Annual Avg. 408,534
===================================================
Annual Avg 1990 - 2002 360,327
===================================================
*re-measured area as of 2002
As noted the 2002 growth in the tenant base incorporates calculations based on
re-measured areas for many of the buildings. The 63,307 square feet greater
occupied area is not necessarily a reliable indication of the tenant base growth
in the CBD market in light of the increase of more than four percent in total
rentable area. The previous negative net absorption calculation of 300,000
square feet is also less reliable an indication than in previous years due to
adjustments made to the inventory base during 2002.
When sublease space is included in the analysis the impact of the major tenant
consolidations discussed previously are recognized in the adjusted absorption
(or growth in tenant base) data. The Arco, Wells Fargo, and Pacific Enterprises
sublease space which entered the market in 2000 are reflected in the negative
544,592 square-foot tenant base calculation, which compares with the modest
positive absorption of 35,847 square feet of net absorption on a landlord-direct
basis during the same period. The apparent significant negative absorption
levels on a landlord-direct basis during 1994 and 1995 were offset by
significant sublease activity. The last full year's data - 2001, shows an
impressive 1,148,378 square feet of growth in the tenant base, including about
678,000 square feet on a landlord-direct basis and an additional 470,000 square
feet of sublease space absorption. The total absorption during 2001 exceeded any
year since 1990. The positive increase in occupied space during 2002 despite
calculated negative absorption may be partially attributable to the
re-measurement of many buildings in the inventory to BOMA 1996 standards.
Despite the fact that no new construction occurred, the inventory increased by
nearly 1.3 million square feet (4.4%) due to re-measurements.
RENTAL GROWTH TRENDS
The favorable absorption trends in the CBD in conjunction with the absence of
new construction has led to declining vacancy levels, which in turn have created
opportunities for landlords to achieve higher rental rates. The chart below
summarizes the rental rates quoted for available office space in the Los Angeles
CBD since 1996 (all building classes). The weighted average rental rates shown
in the following charts are based on full service gross terms, with tenants
paying increases in expenses over a base year figure.
--------------------------------------------------------------------------------
VALUATION ADVISORY SERVICES 104 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
--------------------------------------------------------------------------------
CBD/Financial District
Rental Rate Trends
[Download Table]
Year PSF Annual Rent
---- ---------------
1994 $19.42
---------------------------------------
1995 $19.40
---------------------------------------
1996 $18.84
---------------------------------------
1997 $18.84
---------------------------------------
1998 $20.76
---------------------------------------
1999 $21.84
---------------------------------------
2000 $23.40
---------------------------------------
2001 $24.24
---------------------------------------
2002 $24.72
(CBD/FINANCIAL DISTRICT RENTAL RATE TRENDS GRAPH)
CBD RENTAL GROWTH TRENDS
[Download Table]
-------------------------------------------------------------
YEAR-END PSF WTD. AVG. RENT % CHANGE
-------------------------------------------------------------
1996 $18.84 --
-------------------------------------------------------------
1997 $18.84 0.0%
-------------------------------------------------------------
1998 $20.76 +10.2%
-------------------------------------------------------------
1999 $21.84 +5.2%
-------------------------------------------------------------
2000 $23.40 +7.1%
-------------------------------------------------------------
2001 $24.24 +3.6%
-------------------------------------------------------------
2002 $24.72 +2.0%
-------------------------------------------------------------
Compound annual change 1997-2002 +5.6%
-------------------------------------------------------------
The figures above represent the weighted average rent for available space, and
the quality of the available inventory is not typically consistent from
year-to-year. The figures also represent "face" or contract rental terms and do
not consider differences in concessions such as free rent or tenant
improvements. Analyzing these factors is particularly important in the CBD
market.
The two exhibits above are based on data compiled by Cushman & Wakefield's
research group, with estimated adjustments to full service gross for NNN rents.
The best-quality Class A office properties in the CBD are typically leased on a
NNN basis, with the tenants responsible for pro-rata share of operating
expenses and real estate taxes. We calculated rental growth rates based on an
inventory of 52 buildings totaling 28.2 million square feet which were
"tracked" in surveys by Cushman & Wakefield's Valuation Services Group as of
year-end or approximately year-end 1995 through 2002. In order to provide a
consistent basis for comparison we adjusted the full service gross rental rates
to NNN equivalent based on our estimated annual operating expenses for the
categories of buildings and the timeframe for the survey. The results of this
analysis are
--------------------------------------------------------------------------------
VALUATION ADVISORY SERVICES 105 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
--------------------------------------------------------------------------------
summarized in the graphs and charts below. We also "segmented" the CBD market
by submarket location, showing the relationship between rental rates for Bunker
Hill buildings versus the overall CBD.
The eight-year trend in weighted average quoted NNN rental rates (including
estimated adjustments to full service gross rents) for available space based on
Cushman & Wakefield's Valuation Group surveys are summarized below.
Downtown Los Angeles CBD
Rental Rate Trends -- NNN Basis
[Download Table]
------------------------------------------------
YEAR PSF ANNUAL RENT % CHANGE
------------------------------------------------
1995 $13.30 --
------------------------------------------------
1996 $12.65 -5.1%
------------------------------------------------
1997 $11.28 -12.2%
------------------------------------------------
1998 $13.66 17.4%
------------------------------------------------
1999 $14.28 4.3%
------------------------------------------------
2000 $16.12 11.4%
------------------------------------------------
2001 $17.15 6.0%
------------------------------------------------
2002 $17.56 2.3%
(RENTAL RATE TRENDS GRAPH)
Bunker Hill
Rental Rate Trends -- NNN Basis
[Download Table]
------------------------------------------------
YEAR PSF ANNUAL RENT % CHANGE
------------------------------------------------
1995 $15.80 --
------------------------------------------------
1996 $14.90 -6.0%
------------------------------------------------
1997 $12.21 -22.0%
------------------------------------------------
1998 $16.89 27.7%
------------------------------------------------
1999 $16.44 -2.7%
------------------------------------------------
2000 $20.22 18.7%
------------------------------------------------
2001 $21.70 6.8%
------------------------------------------------
2002 $20.40 -6.4%
Although the rental rate indications vary based on the quality of the space
available in the individual buildings as of the timeframe for the surveys, the
data demonstrates a clear pattern of rental rate premiums achieved for the best
Class A buildings in the market, as well as for the Bunker Hill submarket. Each
of the data subsets indicates strong growth in rents since 1997, with the Bunker
Hill submarket exhibiting the highest rental rate.
CBD landlords have been able to achieve "real" rental rate increases in addition
to the contract rental increases in recent years, as concessions have declined,
including free rent and tenant improvement allowances. When considered in
conjunction with "face" rental increases, the lower concessions have resulted in
annual growth in net effective rents in excess of 20 percent for top-tier Class
A buildings from 1999 to 2001.
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DOWNTOWN TENANT BASE
The following chart on the next page summarizes more than 50 lease transactions
of 25,000 square feet or greater during 1997 through 2002 in the downtown
market. The leases, which total about 4.5 million square feet, include demand
from accounting firms (nearly 600,000 square feet), law firms, insurance firms,
financial institutions, financial services, and technology tenants.
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VALUATION ADVISORY SERVICES 107 (CUSHMAN & WAKEFIELD LOGO)
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SIGNIFICANT LEASING ACTIVITY
LOS ANGELES CBD
1997 - 2002
[Download Table]
----------------------------------------------------------------
SQUARE FEET
TENANT LEASED PROPERTY
----------------------------------------------------------------
Deloitte & Touche 340,000 Cal Plaza II
Union Bank 270,000 Union Bank Plaza
Paul Hastings 210,000 Arco Plaza
Wells Fargo 175,000 707 Wilshire
Ernst & Young 135,000 725 Figueroa
Equinox 130,000 600 7th St.
DMJM 120,000 Arco Plaza
KPMG Peat Marwick 120,000 IBM Tower
Howry & Simon 100,000 550 S. Hope St.
LA Care 100,000 Gas Tower (Sublease)
Wedbush Morgan 100,000 1000 Wilshire
Cal Trans 90,000 801 S. Grand
MCI Worldcom 85,000 800 S. Hope St.
MTA 80,000 818 West 7th
Secret Service 80,000 725 Figueroa
McCutchen Doyle 75,000 Wells Fargo Center
Oaktree Capital 75,000 Wells Fargo Center
Marsh McLennan 75,000 777 Tower
Kirkland & Ellis 75,000 777 Tower
Bankers Trust 70,000 Cal Plaza I
Nextlink 70,000 600 7th St.
Qwest Communications 70,000 600 7th St.
Pillsbury, Madison 70,000 725 S. Figueroa
Dean Witter 65,000 Sanwa Bank Plaza
Citibank 65,000 444 S. Flower
Arter & Hadden 60,000 725 S. Figueroa
Crosby Heafy 60,000 KPMG Tower
Cushman & Wakefield 55,000 Sanwa Bank Plaza
Dewey Ballantine 55,000 Wells Fargo Center
Salomon Smith Barney 55,000 444 S. Flower
Oaktree Capital 50,000 Wells Fargo Center
Paine Webber 50,000 777 Tower
Merrill Lynch 50,000 725 S. Figueroa
Winston & Strawn 50,000 Wells Fargo Center
Telex Communications 45,000 800 S. Hope St.
S.C.A.G 45,000 818 West 7th
Mellon Bank 44,000 400 S. Hope
Baker & Hostetler 40,000 Wells Fargo Center
CB Commerical 40,000 KPMG Tower
Whitman Abbott 40,000 Library Tower
Level 3 40,000 818 West 7th
Hennigan Mercer & Bennett 40,000 Sanwa Bank Plaza
Great American 40,000 801 Tower
Farmers Insurance 40,000 MCI Center
CIT Group 40,000 Cal Plaza I
Cal. Trust Bank 40,000 550 S. Hope St.
Am. Custom Insurance 40,000 801 Tower
Parker Stausbury 40,000 444 S. Flower
Baker & Hostetler 35,000 Wells Fargo Center
Splitrock Communications 35,000 818 West 7th
Compensation Resources 35,000 Library Tower
Cushman Realty 35,000 Sanwa Bank Plaza
Perkins & Will 35,000 617 7th Street
Lord, Bissell 30,000 Cal Plaza I
Solomon Smith Barney 30,000 Library Tower
Hill, Farrer & Burrill 30,000 Cal Plaza I
CEO Walls Group 30,000 Union Bank
Washington Mutual 26,000 Cal Plaza II
Sumitomo Bank of CA 25,000 AT&T Center
McKinsey & Co. 25,000 400 S. Hope
LA Unified School Dist. 25,000 KPMG Tower
Insurance Corp-of Hanover 25,000 ARCO Center
Coudert Brothers 25,000 ARCO Center
Capital Group 25,000 ARCO Center
ARCO 25,000 ARCO Center
Allegiance Telecom. 25,000 818 West 7th
Blue Cross 25,000 801 Tower
High Wire 25,000 KPMG Tower
----------------------------------------------------------------
Total square feet 4,475,000
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VALUATION ADVISORY SERVICES 108 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
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Tenant demand for Class A buildings in the CBD market is dominated by the
business and professional components, as well as the Finance, Insurance, Real
Estate sector. Domestic and foreign banks, legal/accounting firms, securities
firms, as well as tenants from the insurance and communications industry are the
dominant tenant base for the Class A product. A cross section of significant
tenants in Class A buildings, delineated by sector and location, is shown below.
CBD TENANT BASE PROFILE
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SECTOR SQUARE FEET BUILDING
---------------------------------------------------------------------------------------------------------
Banking
=========================================================================================================
Bank of America 420,000 ARCO Plaza (RFP out to
downsize to < 200,000 SF
---------------------------------------------------------------------------------------------------------
Wells Fargo 240,000 Wells Fargo Center
---------------------------------------------------------------------------------------------------------
Union Bank 300,000 Union Bank Plaza
---------------------------------------------------------------------------------------------------------
Sanwa Bank 213,000 Sanwa Bank Plaza (to consolidate
to Cal Plaza II)
---------------------------------------------------------------------------------------------------------
Wells Fargo 175,000 707 Wilshire
---------------------------------------------------------------------------------------------------------
Bank of America 150,000 600 Wilshire Blvd.
---------------------------------------------------------------------------------------------------------
Tokai Bank 75,000 Cal Plaza I (to consolidated with
Sanwa entity)
---------------------------------------------------------------------------------------------------------
Citicorp 70,000 444 Plaza
---------------------------------------------------------------------------------------------------------
Manufacturer's Bank 70,000 Manulife Plaza
---------------------------------------------------------------------------------------------------------
Dai-Ichi Kangyo Bank 70,000 Gas Tower
---------------------------------------------------------------------------------------------------------
Mellon Bank 60,000 400 South Hope
=========================================================================================================
CORPORATE/UTILITIES/GOVERNMENT
=========================================================================================================
Southern California Gas Co. 550,000 Gas Tower
---------------------------------------------------------------------------------------------------------
ARCO/BP 300,000 ARCO Plaza
---------------------------------------------------------------------------------------------------------
L.A. Unified School District 200,000 KPMG Tower
---------------------------------------------------------------------------------------------------------
ARCO/BP 250,000 BP Plaza
---------------------------------------------------------------------------------------------------------
Pacific Enterprises 220,000 Library Tower
---------------------------------------------------------------------------------------------------------
GSA - Secret Service / U.S. Trustee 125,000 725 Figueroa/Ernst & Young
---------------------------------------------------------------------------------------------------------
MCI 70,000 MCI Center
=========================================================================================================
Law
=========================================================================================================
O'Melveny & Myers 265,000 Mellon Bank
---------------------------------------------------------------------------------------------------------
Latham & Watkins 250,000 Library Tower
---------------------------------------------------------------------------------------------------------
Gibson, Dunn 240,000 Wells Fargo
---------------------------------------------------------------------------------------------------------
Paul, Hastings 220,000 ARCO Plaza
---------------------------------------------------------------------------------------------------------
Skadden, Arps 200,000 Cal Plaza I
---------------------------------------------------------------------------------------------------------
Morrison & Foerster 155,000 Gas Tower
---------------------------------------------------------------------------------------------------------
Jones, Day 150,000 Gas Tower
---------------------------------------------------------------------------------------------------------
Munger Tolles 125,000 KPMG Tower
---------------------------------------------------------------------------------------------------------
Sidley & Austin 120,000 Gas Tower
---------------------------------------------------------------------------------------------------------
Graham & James 115,000 801 Tower
---------------------------------------------------------------------------------------------------------
Milbank, Tweed 105,000 Sanwa Bank
---------------------------------------------------------------------------------------------------------
Pillsbury Madison 100,000 725 Figueroa
---------------------------------------------------------------------------------------------------------
White & Case 90,000 Library Tower (subleased)
---------------------------------------------------------------------------------------------------------
Loeb & Loeb 80,000 1000 Wilshire (vacated -
relocated to Century City; offerred
for SL)
---------------------------------------------------------------------------------------------------------
McCutchen Doyle 75,000 KPMG Tower
---------------------------------------------------------------------------------------------------------
Sedgwick Detert 65,000 801 Tower
---------------------------------------------------------------------------------------------------------
Arnold & Porter 60,000 777 Tower
---------------------------------------------------------------------------------------------------------
Crosby, Heafy 60,000 Wells Fargo Center
---------------------------------------------------------------------------------------------------------
Buchalter, Nemer 60,000 Sanwa Bank
---------------------------------------------------------------------------------------------------------
Heller, Ehrman 60,000 Sanwa Bank
---------------------------------------------------------------------------------------------------------
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VALUATION ADVISORY SERVICES 109 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
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[Enlarge/Download Table]
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SECTOR SQUARE FEET BUILDING
------------------------------------------------------------------------------------
Tuttle & Taylor 50,000 KPMG Tower
------------------------------------------------------------------------------------
Allen, Matkins 40,000 Manulife Plaza
====================================================================================
Insurance
====================================================================================
Marsh McLennan 155,000 777 Tower
------------------------------------------------------------------------------------
Aon 110,000 707 Wilshire
------------------------------------------------------------------------------------
AIG 105,000 777 Tower
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Chubb 90,000 801 Tower
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Aon/Alexander & Alexander 60,000 801 Tower
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Northern Trust 45,000 KPMG Tower
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Hanover 26,000 333 South Hope
====================================================================================C
Accounting/Consulting
====================================================================================
Deloitte & Touche 340,000 Cal Plaza II
------------------------------------------------------------------------------------
Ernst & Young 190,000 725 Figueroa
------------------------------------------------------------------------------------
KPMG 125,000 KPMG Tower
------------------------------------------------------------------------------------
Price Waterhouse Coopers 120,000 400 South Hope
------------------------------------------------------------------------------------
Mckinsey & Company 85,000 400 South Hope
------------------------------------------------------------------------------------
Price Waterhouse Coopers 80,000 Cal Plaza II
====================================================================================
Securities/Financial Services
====================================================================================
The Capital Group 300,000 BP Plaza
------------------------------------------------------------------------------------
Trust Company of the West 200,000 865 Figueroa
------------------------------------------------------------------------------------
Morgan Stanley/Dean Witter 65,000 Sanwa Bank
------------------------------------------------------------------------------------
Salomon Smith Barney 55,000 444 S. Flower
------------------------------------------------------------------------------------
Paine Webber 50,000 777 Tower
------------------------------------------------------------------------------------
Prudential Securities 40,000 777 Tower
------------------------------------------------------------------------------------
Although not reflected in the tenancies listed above, government and
"quasi-government" agencies have continued to expand in this market and to
consolidate locations in other areas of the county to the downtown area,
directly benefiting the Class B and C components of the market. Growth in tenant
demand for telecommunications space in the Class B component of the CBD market
has reversed due to over supply in this sector.
Government Tenant Demand
------------------------
Government and other public agency tenants represent a significant tenant demand
base in the downtown market area, including the CBD, Civic Center, and Central
City East submarkets of downtown Los Angeles. The City of Los Angeles represents
the largest public agency tenant from a leasing perspective in the downtown
market area. The Metropolitan Water District (MWD) and the Metropolitan
Transportation Authority (MTA) are locating in new headquarters office buildings
in the northeasterly portion of downtown Los Angeles, adjacent to Union Station
(the hub of the regional transportation network). The MTA also leased
(renewal/expansion) an additional 65,000 square feet in a rehabilitated CBD
building, however (818 West 7th Street). Other government tenants in CBD office
locations include the INS (80,000 SF in 606 Olive Street), Housing and Urban
Development (HUD), with 55,000 square feet in AT&T Center, and the Los Angeles
Unified School District (LAUSD), with 300,000 square feet in the Class A KPMG
tower on Bunker Hill. CalTrans is in the planning stages of a new development in
the historic core, and has also leased several large "blocks" of space in CBD
buildings (801 South Grand and 1000 Wilshire) for about a three-year timeframe
while a new headquarters building is being developed, near the Civic Center. The
GSA recently committed to two major leases for the Secret Service totaling about
125,000 square feet in the Class A Ernst & Young Plaza (725 South Figueroa
Street).
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VALUATION ADVISORY SERVICES 110 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
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Although not a primary component of the demand for Class A CBD office space,
government tenants, including city, county, state, and federal government
agencies and quasi-government agencies represent the largest sector for office
space in the overall downtown area.
The aggregate leased and owned area by government users (including the city,
county, state and federal governments as well as the school district and the
Metropolitan Water District) is about 21.4 million square feet. These users
solidify the occupancy base in the Civic Center and Historic core to the east
and north of the CBD, and provide a built-in demand base for industries serving
these users, including law firms, architecture firms, and accounting firms.
MERGERS AND CONSOLIDATIONS - HISTORICAL IMPACT ON THE DOWNTOWN MARKET
An analysis of the Los Angeles data shows its CBD and suburban markets were
experiencing similar vacancy levels during 1991, but diverged from 1992 through
1997 as suburban vacancy levels slowly declined and CBD vacancy rates remained
static.
Although the CBD market has "lagged" the suburban Los Angeles office market in
terms of vacancy and rental rate increases during the second half of the 1990's,
the CBD has nonetheless experienced stable, steady improvement in vacancy and
rental rate trends since 1995. This improvement has been achieved despite the
loss or pending loss during the past decade of virtually all of the "Fortune"
100 tenants headquartered in downtown Los Angeles, as well as the consolidation
trends in industries which historically represented the strongest demand base
for the downtown office market. At the beginning of the 1990's downtown Los
Angeles served as the headquarters location for Arco, Unocal, and First
Interstate Bank. Unocal relocated out of the area, and Security Pacific was
acquired by Bank of America, which subsequently merged with Nations Bank. Arco
merged during 2000 with British Petroleum (BP). Other major banks with a
significant presence (in excess of 40,000 square feet) in the downtown market
during this timeframe included Bank of America, Citicorp, Wells Fargo, Bank of
California, Union Bank, Chase Manhattan, Sanwa Bank, Manufacturer's Bank, Nippon
Credit, Tokai Bank, and the Industrial Bank of Japan. Mergers and consolidations
have resulted in the loss or downsizing of all these tenants excluding Union
Bank and Sanwa Bank. The two most significant mergers in terms of the impact on
the downtown market have involved Bank of America/Security Pacific and Wells
Fargo/1st interstate.
These two mergers alone accounted for more than two million square feet of
vacated space during the last decade. Other banks which have historically
maintained a significant downtown Los Angeles premises (such as Citicorp and a
number of Japanese banks) have vacated or downsized significantly in response to
the competitive environment. At the time of their merger in 1991, Bank of
America and Security Pacific National Bank had combined premises in excess of
1.5 million square feet in the CBD and on the Central City West plan area: The
chart below summarizes the largest premises of the two banks (not
all-inclusive).
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VALUATION ADVISORY SERVICES 111 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
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BANK OF AMERICA/SECURITY PACIFIC PREMISES (CIRCA 1992)
[Download Table]
------------------------------------------------
CBD
555 South Flower Street (BofA) 500,000 SF
333 South Hope Street (SP) 690,000 SF
300 South Grand Avenue (SP) 180,000 SF
600 Wilshire Boulevard 80,000 SF
------------
Subtotal 1,450,000 SF
CENTRAL CITY WEST
333 Beaudry (SP) 900,000 SF
------------
TOTAL: 2,350,000 SF
------------------------------------------------
Bank of America assumed the obligations of Security Pacific following the
merger. Of the premises above, the bank subsequently vacated 690,000 square feet
in 333 South Hope Street and has placed substantial portions of the 333 Beaudry
premises on the sublease market.
First Interstate Bank was headquartered in Los Angeles and, prior to its
acquisition by Wells Fargo in 1996, had multiple premises in the downtown
market. Wells Fargo had previously merged with Crocker Bank, which led to
significant downsizing during the first few years of the 1990's. The chart below
summarizes the largest premises for Wells Fargo (WF) and 1st Interstate as of
1998.
[Download Table]
------------------------------------------------
CBD
Wells Fargo Center (WF) 240,000 SF
Library Tower (1st) 160,000 SF
707 Wilshire (1st) 420,000 SF
444 South Flower Street (WF) 350,000 SF
------------
Subtotal 1,170,000 SF
CENTRAL CITY WEST
1200 west 3rd Street 750,000 SF
------------
TOTAL: 1,920,000 SF
------------------------------------------------
Wells Fargo has retained its premises in Wells Fargo Center and downsized to
175,000 square feet in 707 Wilshire at lease expiration in February, 1999. The
remaining premises have been subleased. The net occupancy loss for this tenant
totaled 755,000 square feet within the CBD and an additional 750,000 square feet
in the Central City West submarket. The 1200 West 3rd Street property has been
subleased to Prudential and to Bank of America, and substantial portions of the
Library Tower and 444 South Flower Street premises have been subleased to a
number of smaller tenants.
The chart below summarizes a cross section of major tenant consolidations during
the 1990's and the approximate premises for each of the entities in the downtown
market.
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VALUATION ADVISORY SERVICES 112 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
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[Enlarge/Download Table]
----------------------------------------------------------------------------------------------------------------
TENANT INDUSTRY PREMISES COMMENTS
----------------------------------------------------------------------------------------------------------------
Security Pacific Banking/Finance 700,000 SF Merger/BofA
333 South Hope Vacated
----------------------------------------------------------------------------------------------------------------
Security Pacific Banking/Finance 200,000 SF Merger/BofA
One Cal Plaza Vacated
----------------------------------------------------------------------------------------------------------------
1st Interstate Banking/Finance 420,000 SF Merger/Wells Fargo
707 Wilshire Reduced to 175,000
SF
----------------------------------------------------------------------------------------------------------------
IBM Technology 600,000 SF Downsize
Wells Fargo - South Vacated
----------------------------------------------------------------------------------------------------------------
Gas Company Utilities - Corporate 550,000 SF Downsize - 3 floors
Gas Tower Subleased
----------------------------------------------------------------------------------------------------------------
Pacific Enterprises Utilities - Corporate 225,000 SF Merger/Enova
Library Tower Subleased
----------------------------------------------------------------------------------------------------------------
ARCO Oil 200,000 SF Merger/BP
333 South Hope Subleased
----------------------------------------------------------------------------------------------------------------
ARCO Oil 160,000 SF Merger/BP
444 South Flower Subleased
----------------------------------------------------------------------------------------------------------------
1st Interstate Banking/Finance 160,000 SF Merger/Wells Fargo
Library Tower Subleased
----------------------------------------------------------------------------------------------------------------
TOTAL 2,395,000 SF
----------------------------------------------------------------------------------------------------------------
More recent mergers and acquisitions include Sanwa and Tokai Bank/Bank of the
West, which will result in the 200,000 square-foot premises in 601 South
Figueroa (Sanwa Bank Building) becoming available on a direct basis at the end
of 2005.
Excluding these tenant losses from the currently available space in the CBD
would result in vacancy indications of roughly eight percent on a direct basis
and 10 percent including sublease availabilities. Subsequent positive absorption
levels in the CBD helped to offset the loss of these tenants, and vacancy levels
in the CBD have declined on a generally consistent basis with the suburban
markets and the overall market from 1997 through 2000 as summarized in the
following chart. During 2001, however, the downward trend in vacancy continued,
and in fact accelerated in the CBD, while the suburban markets experienced a
softening, as shown below.
LOS ANGELES COUNTY VACANCY TRENDS
[Enlarge/Download Table]
----------------------------------------------------------------------------------------------------
YEAR-END CBD CHANGE SUBURBAN CHANGE TOTAL MARKET CHANGE
----------------------------------------------------------------------------------------------------
1996 20.5% +0.1 15.4% -1.9 17.3% -1.3
----------------------------------------------------------------------------------------------------
1997 18.9% -1.6 14.4% -1.0 16.2% -1.1
----------------------------------------------------------------------------------------------------
1998 17.4% -1.5 13.2% -1.2 15.3% -0.9
----------------------------------------------------------------------------------------------------
1999 15.6% -1.8 10.8% -2.4 12.8% -2.5
----------------------------------------------------------------------------------------------------
2000 15.9% +0.3 8.8% -2.0 10.6% -2.2
----------------------------------------------------------------------------------------------------
2001 12.9% -3.0 12.8% +4.0 13.3% +2.7
----------------------------------------------------------------------------------------------------
2002 16.4% +3.5% 14.6% +1.8% 15.3% +2.0%
----------------------------------------------------------------------------------------------------
CONCLUSIONS
In light of the loss of much of its Fortune 500 tenant base over the past
several years through the mergers and downsizings listed above in recent years,
the improved vacancy levels in the CBD market, from 20.5 percent at year-end
1996 to 12.9 percent at the end of 2001, suggests the remaining tenant base is
strong. The positive net absorption levels were achieved in
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VALUATION ADVISORY SERVICES 113 (CUSHMAN & WAKEFIELD LOGO)
DOWNTOWN LOS ANGELES OFFICE MARKET
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conjunction with substantial blocks of space either vacated or subleased.
Although these tenants have or will vacate the downtown market, the market has
nonetheless strengthened due to growing demand from the existing "traditional"
tenant base, including insurance, law, accounting, government, and architecture.
The tightening of the surrounding suburban markets through 2000 placed
increasing economic pressure on tenants located in or considering the Tri-Cities
or westside office markets to evaluate downtown premises. The westside markets
in particular weakened during 2002, however, and rate in these market declined.
Despite recent negative absorption levels on a countywide basis, the CBD
experienced impressive positive net absorption through year-end 2001. The 2002
absorption has been negative (about 300,000 square feet based on calculations
with re-measured areas). With the economic environment nationally, the favorable
(lower) spread in rental rates for office buildings in the CBD is becoming an
increasingly important competitive advantage.
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VALUATION ADVISORY SERVICES 114 (CUSHMAN & WAKEFIELD LOGO)
TRI-CITIES OFFICE MARKET ANALYSIS
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Los Angeles North
OFFICE MARKET & SUBMARKET STATISTICS
End of the 4th Quarter of 2002
[Enlarge/Download Table]
DIRECT
NUMBER DIRECT VACANCY
MARKET / SUBMARKET INVENTORY OF BLDGS AVAILABILITIES RATE
------------------ --------- -------- -------------- -------
SIMI / CONEJO VALLEY 6,925,724 127 1,017,537 14.7%
1 Simi Valley 191,607 6 3,111 1.6%
2 Thousand Oaks / Newbury Park 1,161,838 20 167,126 14.4%
3 Westlake Village 2,781,708 52 402,058 14.5%
4 Agoura Hills 782,292 15 276,455 35.3%
5 Calabasas 2,008,279 34 168,787 8.4%
WEST VALLEY 10,237,294 108 1,404,895 13.7%
6 Northridge / Reseda 462,646 7 124,733 27.0%
7 Tarzana 513,429 10 46,771 9.1%
8 Canoga Park / Chatsworth 2,061,539 28 215,814 10.5%
9 Warner Center 6,027,477 43 872,828 14.5%
10 Woodland Hills 1,172,203 20 144,749 12.3%
CENTRAL VALLEY 9,406,384 123 987,949 10.5%
11 Encino 3,978,722 39 325,367 8.2%
12 Sherman Oaks 2,229,406 30 254,338 11.4%
13 Van Nuys 1,496,023 28 169,742 11.3%
14 Pan. City / Granada / Mission Hills 510,592 8 97,313 19.1%
15 Valencia / Newhall 1,191,641 18 141,189 11.8%
EAST VALLEY / TRI-CITIES 20,751,820 186 2,569,394 12.4%
16 Universal City/Studio City 1,863,500 16 178,590 9.6%
17 Burbank - Media District 2,483,207 16 312,949 12.6%
18 Burbank - City Center 2,480,760 31 515,220 20.8%
19 Glendale 5,897,053 44 584,631 9.9%
20 Pasadena 5,575,913 55 629,766 11.3%
21 Pasadena East 1,323,466 11 158,949 12.0%
22 North Hollywood 1,127,921 13 189,289 16.8%
TOTAL 47,321,222 544 5,979,775 12.6%
OVERALL NET DIRECT
OVERALL VACANCY ABSORPTION WTD. AVG.
MARKET / SUBMARKET AVAILABILITIES RATE YE '02 RENTAL RATE
------------------ -------------- ------- ---------- -----------
SIMI / CONEJO VALLEY 1,377,767 19.9% 140,683 $26.11
1 Simi Valley 5,098 2.7% 8,150 $18.36
2 Thousand Oaks / Newbury Park 392,610 33.8% 27,133 $25.08
3 Westlake Village 448,372 16.1% 125,865 $26.16
4 Agoura Hills 290,840 37.2% (69,699) $25.68
5 Calabasas 240,847 12.0% 49,234 $27.84
WEST VALLEY 1,851,382 18.1% 228,087 $27.14
6 Northridge / Reseda 129,449 28.0% 11,077 $23.28
7 Tarzana 60,428 11.8% 5,437 $20.76
8 Canoga Park / Chatsworth 387,601 18.8% 192,601 $19.20
9 Warner Center 1,112,246 18.5% 12,012 $30.60
10 Woodland Hills 161,658 13.8% 6,960 $23.52
CENTRAL VALLEY 1,149,727 12.2% (122,967) $23.32
11 Encino 428,901 10.8% (44,767) $24.84
12 Sherman Oaks 300,225 13.5% (11,077) $24.48
13 Van Nuys 182,099 12.2% (13,103) $21.36
14 Pan. City / Granada / Mission Hills 97,313 19.1% (90,999) $19.20
15 Valencia / Newhall 141,189 11.8% 36,979 $22.92
EAST VALLEY / TRI-CITIES 3,855,375 18.6% 430,236 $27.19
16 Universal City/Studio City 254,107 13.6% (63,497) $30.96
17 Burbank - Media District 473,385 19.1% 158,911 $33.00
18 Burbank - City Center 939,793 37.9% 172,970 $25.92
19 Glendale 878,266 14.9% 196,469 $27.12
20 Pasadena 873,064 15.7% (68,400) $26.76
21 Pasadena East 233,673 17.7% 10,846 $24.00
22 North Hollywood 203,087 18.0% 22,937 $21.84
TOTAL 8,234,251 17.4% 676,039 $26.36
(MARKET SIZE COMPARISON PIE CHART)
(AVAILABILITIES BAR GRAPH)
(SUBMARKET WEIGHTED AVERAGE RENTAL RATE COMPARISON CHART)
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VALUATION ADVISORY SERVICES 115 (CUSHMAN & WAKEFIELD LOGO)
TRI-CITIES OFFICE MARKET ANALYSIS
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OVERVIEW
The Burbank market, together with Glendale and Pasadena, comprise the Tri-city
market area, which is one component of the larger Los Angeles North office
sector defined by Cushman & Wakefield.
The Los Angeles North office sector encompasses four market areas located
primarily in the San Fernando Valley, Santa Clarita Valley, and Conejo Valley
areas of Los Angeles County. The Los Angeles North sector also includes several
office locations which include sections of the southeastern portion of Ventura
County. The Los Angeles North office sector is the third largest sector in Los
Angeles County, after the Downtown Los Angeles and West Los Angeles markets,
respectively. The North Los Angeles sector is comprised of four major market
areas: Simi/Conejo Valley, West Valley, Central Valley, and East
Valley/Tri-Cities. The individual submarkets that comprise the overall North Los
Angeles market exhibit a wide range in construction quality, location, tenant
based, and corresponding rental rates. The accompanying exhibit provides an
overview of the locational and statistical characteristics of this office sector
and the 22 individual submarkets which comprise the four market areas.
As of year-end 2002, the Los Angeles North office sector contained 47,321,222
square feet of office space in 544 buildings, excluding owner/user, medical and
government buildings. The 22 individual submarkets that comprise the overall
competitive office market are differentiated according to access, market
perception, tenant appeal and improvement quality, and rental rates. The office
development in the Los Angeles North market is concentrated in three major
areas: Tri-Cities (Glendale, Burbank, Pasadena and adjacent submarkets), in the
eastern portion of the San Fernando Valley, the combined Encino/Sherman Oaks
submarkets in the central portion of the Valley, and the West Valley, including
Warner Center/Woodland Hills.
As of year-end 2002, the Los Angeles North office sector was experiencing a
direct vacancy rate of 12.6 percent and an overall vacancy level (including
sublease space) of 17.4 percent. The chart below summarizes the direct and
overall vacancy trends as of year-end 1992 through year-end 2002, for the North
Los Angeles sector.
[Download Table]
-------------------------------------------------------------
YEAR-END DIRECT VACANCY OVERALL VACANCY
-------------------------------------------------------------
1992 17.9% 20.1%
-------------------------------------------------------------
1993 15.5% 18.1%
-------------------------------------------------------------
1994 16.1% 18.3%
-------------------------------------------------------------
1995 14.3% 17.2%
-------------------------------------------------------------
1996 12.9% 15.5%
-------------------------------------------------------------
1997 12.4% 14.5%
-------------------------------------------------------------
1998 12.0% 14.7%
-------------------------------------------------------------
1999 10.4% 12.1%
-------------------------------------------------------------
2000 8.7% 9.6%
-------------------------------------------------------------
2001 12.3% 16.7%
-------------------------------------------------------------
2002 12.6% 17.4%
-------------------------------------------------------------
The vacancy rate decreased steadily from 1994 through 2000 reaching single-digit
levels as of year-end 2002. The year-end 2002 vacancy rate of 12.6 percent on a
direct basis represents an increase of 390 basis points over 2000 figures, which
is attributable to negative absorption levels in a number of markets and the
completion of some new development. The rental rate trends in the Los Angeles
North market have demonstrated a steady increase in conjunction
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with the vacancy rate trends since 1996, as shown in the chart below. Despite
some fluctuations, the weighted average annual asking rental rates for available
space in the overall Los Angeles market has increased 4.3 percent annually on a
compound basis during the six-year period since year-end 1996.
(NORTH LOS ANGELES VACANCY & RENTAL RATE TRENDS GRAPH)
The East Valley/Tri-Cities markets are the premier office markets in the Los
Angeles North area, due to the quality of the office supply and the tenant base
rates. The Tri-Cities market, which includes the cities of Burbank, Glendale,
and Pasadena, as well as the adjacent communities of Universal City and Studio
City is generally considered the most desirable in the Los Angeles North office
market. The tenant base in this market area is dominated by the entertainment
industry, particularly requirements from the major studios headquartered in
Burbank and nearby Universal City: Disney, Warner Brothers, NBC, and Universal.
The "urban center" of Warner Center anchors the western end of the Los Angeles
North office market. The tenant base in the West Valley market, and specifically
Warner Center, is characterized by a number of finance and healthcare related
companies including Blue Cross/Wellpoint, HealthNet, Prudential, 21st Century
and SunAmerica. The Central Valley submarkets of Encino and Sherman Oaks are
situated between these two major market areas, and the tenant base consists of
smaller law and accounting firms, as well as "overflow" entertainment tenants
from the Tri-Cities and insurance tenants from the West Valley market.
TRI-CITY/EAST VALLEY OFFICE MARKET
Overview
The Tri-City, or East Valley office market consists of the combined submarkets
of Pasadena, Burbank/Universal City, and Glendale. Beginning the first quarter,
1995, Cushman & Wakefield's Market Research Services Group has also included the
submarkets of Studio City
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and North Hollywood within this Tri-Cities market sector. According to Cushman &
Wakefield's year-end, 2002 survey, the combined Tri-City/East Valley office
market includes 20,751,820 square feet of rentable office space in 186 buildings
surveyed. Several accompanying exhibits provide statistical overview of the
vacancy rates and absorption levels in the East Valley market area, including
Pasadena, East Pasadena, Glendale, Burbank, Universal City/Studio City, and
North Hollywood. In order to isolate the most directly competitive markets to
Burbank, we also included separate "Tri-city" exhibits which exclude the less
competitive Pasadena East and North Hollywood markets.
The majority of the Class A office supply in the Tri-Cities market is situated
in buildings located within a few blocks of the Ventura Freeway. Burbank office
development is concentrated in the area surrounding Olive Avenue, between
Glenoaks and Hollywood Way, and includes the individual submarkets of Universal
City, the Burbank Media District, and City Center (downtown). The Glendale
office market is concentrated primarily along Brand Boulevard and Central
Avenue, extending from Glenoaks Boulevard to Colorado Boulevard and Broadway.
The Pasadena office market is located primarily south of the Foothill Freeway,
between Lake Avenue and Pasadena Avenue.
VACANCY TRENDS
The Tri Cities/East Valley office market has performed better than most other
Los Angeles County office markets throughout this decade. The year-end, 2002
vacancy rates in the East Valley (including Pasadena East and North Hollywood)
markets were 12.1 percent (direct) and 18.6 percent (including sublease space).
As shown on the Market/Submarket Statistics Exhibits the individual submarkets
experience a wide range in vacancy rates, with the entertainment-driven Burbank
Media District submarket experiencing direct and overall vacancy rates of 12.6
and 19.1 percent, while the Burbank City Center submarket has the highest
vacancy rate, with 20.8 percent (direct) and 37.9 percent (overall). The
Glendale market had a year-end 2002 direct vacancy rate of 9.9 percent, one of
the lowest vacancy rates in Los Angeles County. The Burbank Media District
vacancy rates include a new development - the Pinnacle - and two leases for
space in this project not included in the year-end statistics (Clear Channel and
NBC) total approximately 120,000 square feet, reducing the Media District
vacancy rate to about 7.7 percent. In additional, a lease has been negotiated
but not yet signed (as of February, 2003) for the entire Studio Plaza building
(in excess of 400,000 square feet) in the Media District. This building is
currently leased to Sony, who has subleased much of the space. The underlying
lease expires December, 2003, and the pending lease to Warner Bros for the
entire building mitigates the impact on the market from the near-term rollover
of this building. A second exhibit shows the year-end, 2002 statistics for the
"Tri-City" submarkets excluding East Pasadena and North Hollywood. Excluding
these two submarkets, the Tri-City market contains 18,300,433 square feet, and
has current direct and overall vacancy levels of 12.1 percent and 18.7 percent,
respectively.
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EAST VALLEY
MARKET & SUBMARKET STATISTICS
End of the 4th Quarter of 2002
[Enlarge/Download Table]
DIRECT OVERALL NET WTD. AVG.
NUMBER DIRECT VACANCY OVERALL VACANCY ABSORPTION RENTAL
MARKET / SUBMARKET INVENTORY OF BLDGS AVAILABILITIES RATE AVAILABILITIES RATE YE '02 RATE
------------------------------------------------------------------------------------------------------------------------------------
EAST VALLEY 20,751,820 186 2,569,394 12.4% 3,855,375 18.6% 430,236 $27.19
Universal City/Studio City 1,863,500 16 178,590 9.6% 254,107 13.6% (63,497) $30.96
Burbank - Media District 2,483,207 16 312,949 12.6% 473,385 19.1% 158,911 $33.00
Burbank - City Center 2,480,760 31 515,220 20.8% 939,793 37.9% 172,970 $25.92
Glendale 5,897,053 44 584,631 9.9% 878,266 14.9% 196,469 $27.12
Pasadena 5,575,913 55 629,766 11.3% 873,064 15.7% (68,400) $26.76
Pasadena East 1,323,466 11 158,949 12.0% 233,673 17.7% 10,846 $24.00
North Hollywood 1,127,921 13 189,289 16.8% 203,087 18.0% 22,937 $21.84
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(SUBMARKET COMPARISON CHART)
(AVAILABILITIES BAR GRAPH)
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TRI-CITIES
MARKET & SUBMARKET STATISTICS
End of the 4th Quarter of 2002
[Enlarge/Download Table]
DIRECT OVERALL NET WTD. AVG.
NUMBER DIRECT VACANCY OVERALL VACANCY ABSORPTION RENTAL
MARKET / SUBMARKET INVENTORY OF BLDGS AVAILABILITIES RATE AVAILABILITIES RATE YE '02 RATE
------------------------------------------------------------------------------------------------------------------------------------
TRI-CITIES 18,300,433 162 2,221,156 12.1% 3,418,615 18.7% 396,453 $27.88
Universal City/Studio City 1,863,500 16 178,590 9.6% 254,107 13.6% (63,497) $30.96
Burbank - Media District 2,483,207 16 312,949 12.6% 473,385 19.1% 158,911 $33.00
Burbank - City Center 2,480,760 31 515,220 20.8% 939,793 37.9% 172,970 $25.92
Glendale 5,897,053 44 584,631 9.9% 878,266 14.9% 196,469 $27.12
Pasadena 5,575,913 55 629,766 11.3% 873,064 15.7% (68,400) $26.76
------------------------------------------------------------------------------------------------------------------------------------
(SUBMARKET COMPARISON CHART)
(AVAILABILITIES BAR GRAPH)
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Tri-City Markets
HISTORICAL VACANCY TRENDS
Year End 1992 to YTD 2002
[Enlarge/Download Table]
YEAR END YEAR END YEAR END YEAR END YEAR END YEAR END
1992 1993 1994 1995 1996 1997
------------------------------------------------------------------------------------------------------------------------
INVENTORY 16,895,340 17,422,664 18,851,151 17,805,145 18,081,208 18,291,196
------------------------------------------------------------------------------------------------------------------------
Universal City/Studio City 1,594,888 1,594,888 2,001,488 1,763,500 1,863,500 1,863,500
Burbank - Media District 2,126,583 2,553,005 4,241,822 2,043,350 2,043,350 2,043,350
Burbank - City Center 1,124,080 1,172,080 N/A* 1,710,879 1,847,410 2,063,810
Glendale 4,909,545 4,786,047 5,290,117 5,052,071 5,060,535 5,184,022
North Hollywood 1,139,676 1,316,076 1,315,008 1,118,628 1,149,696 1,098,168
Pasadena 5,385,322 5,385,322 5,388,796 5,542,296 5,379,296 5,300,925
Pasadena East 615,246 615,246 613,920 574,421 737,421 737,421
YEAR END YEAR END YEAR END YEAR END YEAR END
1998 1999 2000 2001 2002
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INVENTORY 19,159,713 19,737,320 19,596,121 19,772,291 20,751,820
-----------------------------------------------------------------------------------------------------
Universal City/Studio City 1,863,500 1,863,500 1,863,500 1,863,500 1,863,500
Burbank - Media District 2,348,211 2,133,211 2,058,207 2,058,207 2,483,207
Burbank - City Center 2,060,529 2,275,529 1,998,660 2,248,660 2,480,760
Glendale 5,347,072 5,930,705 5,897,053 5,897,053 5,897,053
North Hollywood 1,125,862 1,120,862 1,127,921 1,127,921 1,127,921
Pasadena 5,341,240 5,341,240 5,327,314 5,503,484 5,575,913
Pasadena East 1,073,299 1,072,273 1,323,466 1,073,466 1,323,466
[Enlarge/Download Table]
YEAR END YEAR END YEAR END YEAR END YEAR END YEAR END
1992 1993 1994 1995 1996 1997
-----------------------------------------------------------------------------------------------
DIRECT VAC. RATE 15.4% 12.7% 13.7% 12.2% 10.0% 9.0%
-----------------------------------------------------------------------------------------------
Universal City/Studio City 5.4% 3.0% 7.3% 4.5% 1.3% 2.7%
Burbank - Media District 6.5% 6.4% 10.4% 1.6% 0.5% 2.8%
Burbank - City Center 15.9% 19.0% N/A* 14.2% 13.1% 10.1%
Glendale 20.7% 15.4% 13.2% 14.4% 9.7% 10.1%
North Hollywood 23.7% 19.5% 30.5% 13.2% 19.7% 22.2%
Pasadena 11.3% 8.6% 12.5% 13.2% 12.7% 8.6%
Pasadena East 48.4% 50.8% 34.2% 35.9% 18.1% 13.3%
YEAR END YEAR END YEAR END YEAR END YEAR END
1998 1999 2000 2001 2002
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DIRECT VAC. RATE 10.0% 8.9% 7.2% 11.1% 12.4%
-------------------------------------------------------------------------------------
Universal City/Studio City 4.4% 6.1% 5.4% 6.2% 9.6%
Burbank - Media District 7.3% 0.8% 1.7% 2.3% 12.6%
Burbank - City Center 4.8% 6.1% 3.2% 20.5% 20.8%
Glendale 10.8% 14.8% 9.4% 13.3% 9.9%
North Hollywood 23.6% 17.8% 15.6% 20.2% 16.8%
Pasadena 8.4% 5.8% 5.9% 8.9% 11.3%
Pasadena East 25.5% 9.2% 12.3% 5.7% 12.0%
[Enlarge/Download Table]
YEAR END YEAR END YEAR END YEAR END YEAR END YEAR END
1992 1993 1994 1995 1996 1997
---------------------------------------------------------------------------------------------
SUB-LSE VAC. RATE 2.6% 4.0% 1.9% 1.5% 1.4% 2.7%
---------------------------------------------------------------------------------------------
Universal City/Studio City 1.8% 5.4% 0.7% 2.8% 0.5% 0.0%
Burbank - Media District 5.9% 13.3% 2.1% 0.0% 0.0% 3.5%
Burbank - City Center 8.0% 1.5% N/A* 0.0% 0.4% 6.5%
Glendale 1.3% 0.8% 1.3% 2.0% 0.4% 2.5%
North Hollywood 1.0% 2.1% 1.1% 1.5% 1.5% 0.0%
Pasadena 2.0% 3.4% 3.1% 1.7% 3.6% 3.1%
Pasadena East 1.6% 0.0% 0.6% 1.7% 1.4% 0.0%
YEAR END YEAR END YEAR END YEAR END YEAR END
1998 1999 2000 2001 2002
---------------------------------------------------------------------------------
SUB-LSE VAC. RATE 4.3% 2.3% 0.7% 5.3% 6.2%
---------------------------------------------------------------------------------
Universal City/Studio City 16.0% 3.8% 0.4% 3.1% 4.1%
Burbank - Media District -5.1% 0.2% 2.3% 6.9% 6.5%
Burbank - City Center 13.0% 1.6% 6.0% 9.9% 17.1%
Glendale 3.0% 3.4% -2.9% 4.2% 5.0%
North Hollywood 7.1% 0.3% 1.8% 7.2% 1.2%
Pasadena 1.4% 2.6% 2.1% 5.3% 4.4%
Pasadena East 1.9% 0.2% 0.0% 0.8% 5.6%
[Enlarge/Download Table]
YEAR END YEAR END YEAR END YEAR END YEAR END YEAR END
1992 1993 1994 1995 1996 1997
------------------------------------------------------------------------------------------------
OVERALL VAC. RATE 17.9% 16.6% 15.6% 13.7% 11.5% 11.7%
------------------------------------------------------------------------------------------------
Universal City/Studio City 7.1% 8.3% 8.0% 7.3% 1.8% 2.7%
Burbank - Media District 12.5% 19.7% 12.6% 1.6% 0.5% 6.3%
Burbank - City Center 23.9% 20.5% N/A* 14.2% 13.5% 16.6%
Glendale 22.0% 16.3% 14.5% 16.4% 10.2% 12.6%
North Hollywood 24.6% 21.7% 31.6% 14.7% 21.1% 22.2%
Pasadena 13.3% 12.0% 15.7% 14.9% 16.3% 11.7%
Pasadena East 50.0% 50.8% 34.8% 37.6% 19.5% 13.3%
YEAR END YEAR END YEAR END YEAR END YEAR END
1998 1999 2000 2001 2002
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OVERALL VAC. RATE 14.3% 11.2% 7.9% 16.4% 18.6%
-------------------------------------------------------------------------------------
Universal City/Studio City 20.4% 9.9% 5.8% 9.3% 13.6%
Burbank - Media District 2.2% 1.0% 4.0% 9.2% 19.1%
Burbank - City Center 17.8% 7.7% 9.2% 30.4% 37.9%
Glendale 13.8% 18.2% 6.5% 17.5% 14.9%
North Hollywood 30.7% 18.1% 17.4% 27.4% 18.0%
Pasadena 9.8% 8.4% 8.0% 14.2% 15.7%
Pasadena East 27.4% 9.4% 12.3% 6.5% 17.7%
* - 1994 year end figures consolidated the Burbank Media District and City
Center submarkets y Center submarkets
The accompanying exhibit summarizes the historical trends in direct and overall
vacancy rates for the submarkets in the Tri-Cities/East Valley from 1992 through
2002. The data shows stable, steady improvement overall in these markets from
1992 through 2000, until an increase during 2001-2002, as summarized below.
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HISTORICAL VACANCY TRENDS - TRI CITY/EAST VALLEY
(INCLUDING NORTH HOLLYWOOD AND EAST PASADENA)
[Download Table]
--------------------------------------------------------------------
Year-End Direct Vacancy Overall Vacancy
--------------------------------------------------------------------
1992 15.4% 17.9%
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1993 12.7% 16.6%
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1994 13.7% 15.6%
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1995 12.2% 13.7%
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1996 10.0% 11.5%
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1997 9.0% 11.7%
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1998 10.0% 14.3%
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1999 8.9% 11.2%
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2000 7.2% 7.9%
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2001 11.1% 16.4%
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2002 12.4% 18.6%
--------------------------------------------------------------------
The vacancy rate declined steadily in these markets during the period from
year-end 1992 through 1997, from 15.4 percent to 9.0 percent. Despite positive
absorption levels, the vacancy rate increased to 10.0 percent during 1998 due to
the delivery of new supply to the market. New office developments completed in
1998 and 1999 include three projects in Glendale: Glendale Plaza and 400-450
North Brand Boulevard; and Phase II of Media Studios North in Burbank.
Additional indirect new supply, which was reflected in the "overall" vacancy
rate, included sublease availability of approximately 80,000 square feet in 600
North Brand Boulevard (master leased by Disney), as well as new sublease supply
in 700 North Brand due to the merger of Glendale and California Federal. In the
nearby Universal City market, Texaco placed significant portions of its 10 UCP
premises on the sublease market as well.
Notwithstanding the new construction completed vacancy levels in the Tri-Cities
declined to 8.9 percent in 1999 and to 7.2 percent as of year-end, 2000. New
office supply and negative absorption levels during 2001 resulted in a
significant increase in vacancy from 2000 to 2001 and 2002 from 7.2 percent to
11.1 percent on a direct basis, and from 7.9 percent to 16.4 percent including
sublease space during 2001, and to 12.4 percent (direct) and 18.6 percent
(overall during 2002).
Although several of the competitive markets continue to experience single-digit
vacancy rates, the sublease supply has increased significantly, and several
near-term building completions, as well as expiring major tenants, will add new
supply to the market over the near term. Studio Plaza, a 400,000 square-foot
Class A building in the Burbank Media District, is master leased to Sony to
December 2003. Sony subleased most of the space to tenants including Warner
Music and Allianz Insurance. Allianz signed a new lease to re-locate to a new
development in northern Burbank (Empire Center), and Warner Music signed a
200,000 square-foot lease to relocate to the new Pinnacle development. As
discussed previously, other recent leases in this new development include Clear
Channel, who is consolidating to this location from other Los Angeles markets,
and NBC, whose studio is located adjacent to the Pinnacle in the Media District.
The expected vacancy of 400,000 square feet due to the pending expiration of the
Sony master lease (year-end 2003) in Studio Plaza has been filled by a new lease
to Warner Bros for the entire building. Warner Bros' studio is located adjacent
to Studio Plaza in the Media District, and the lease is expected to have a term
of 15 years.
While the performance of the economy and the office market in the region have
fluctuated over the past decade, the Tri-City/East Valley markets have
historically out-performed the office
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market in Los Angeles County, experiencing significantly lower vacancy rates
than the county, as shown below.
Vacancy Trends
Tri-City Markets vs L.A. County
[Download Table]
------------------------------------------------------
Direct Vacancy (%) Special
Year L.A. County Tri-Cities* (Basis Pts)
------------------------------------------------------
1996 17.3% 9.4% (790)
------------------------------------------------------
1997 16.2% 8.1% (810)
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1998 15.3% 9.2% (610)
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1999 12.8% 8.4% (440)
------------------------------------------------------
2000 10.6% 6.7% (390)
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2001 13.3% 10.5% (280)
------------------------------------------------------
2002 15.3% 12.1% (320)
* - Includes Universal City/Studio City, Burbank - Media District, Burbank -
City Center, Glendale, Pasadena, and Pasadena East
(VACANCY TRENDS TRI-CITY MARKET VS. L.A. COUNTY GRAPH)
DEMAND AND ABSORPTION
Tenant Base
The Tri-cities market is a desirable residential location with a solid
demographic base and outstanding amenities. Each of the Tri-cities submarkets
has historically appealed to different primary tenant bases, with significant
overlap in tenant demand. Burbank is the location for three major studios - Walt
Disney, Warner Brothers, and NBC, and tenants from the entertainment industry
dominate this market. The Glendale market has captured a diverse mix of
corporate tenants, insurance companies, and real estate firms, as well as
entertainment tenants. Major tenants in the Glendale market include Nestle,
numerous insurance companies, and entertainment industry tenants. Service firms
from the legal and medical professions as well as insurance, mortgage, and
engineering firms dominate the Pasadena tenant base. Major tenants include
Countrywide Mortgage and Parsons Engineering. The smaller Universal City/Studio
City component of the Tri-cities market includes two major studios - Universal
and CBS, and the tenant base is oriented toward the entertainment industry.
In addition to the diverse tenant base in the Tri-Cities market, the
entertainment industry provides significant direct and peripheral demand through
its leased and owned facilities throughout the Burbank and Glendale markets. Six
major studios are located within the Burbank/Glendale/Universal City market:
Warner Brothers, NBC, Disney (Burbank),Universal Studios and CBS/MTM (Universal
City/Studio City), and the DreamWorks Animation Campus (Glendale). In addition
to the studios, Walt Disney Imagineering announced plans in July, 2000 to
re-develop the existing Grand Central Business Center in the San Fernando Road
area just north of Interstate 5 in Glendale into the 123-acre "Grand Central
Creative Campus". The campus is to consist of media-related high technology and
entertainment uses to include media office, high-bay space, sound stages,
production support, retail and other amenities, and a visitor center. The
planned development involves the retention, replacement, or renovation of
approximately 2.4 million square feet of existing space on the site plus an
additional 3.6 million square feet of new space to be developed incrementally
over the next 15 years. The new
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Disney campus is projected to add 4,000 new jobs during the initial 2.4-million
square-foot phase, and a total of 8,000 jobs to the labor base over the course
of the project.
The Glendale office market includes users from the entertainment industry,
insurance industry (including life, health, and real estate title), financial
services and real estate and corporate tenants. The largest insurance tenants in
Glendale include Fremont, Cigna, UNUM, Reliance, and State Compensation. The
Nestle Company is the largest corporate tenant, with about 500,000 square feet
in its headquarters building at 800 North Brand.
The following chart summarizes a cross section of leasing activity in the
Tri-City market area involving tenants of 20,000 square feet or greater.
RECENT MAJOR LEASE TRANSACTIONS
IN THE TRI-CITIES MARKET
[Enlarge/Download Table]
-----------------------------------------------------------------------------------------------------------------
Square
Date Building Name Building Address Tenant Feet
-----------------------------------------------------------------------------------------------------------------
PASADENA
--------
3Q02 Plaza Las Fuentes, II -- Western Asset Mgmt. 120,000
1Q02 199 South Los Robles 199 South Los Robles Physicians 21,000
4Q01 245 South Los Robles 245 South Los Robles Avaya 23,000
3Q01 580 N. Sierra Madre Villa 580 N. Sierra Madre Villa Nanostream 22,000
1Q01 Pasadena Financial Center 35 North Lake Bibb & Ass. 20,000
4Q00 150 South Los Robles 150 South Los Robles Pasadena W&P 23,000
3Q00 Parsons Campus 75 N. Fair Oaks E-Connections 50,000
3Q00 Koll Center 1055 East Colorado Paracel 85,000
2Q00 Parsons Campus 75 N. Fair Oaks Kaiser Permanente 90,000
2Q00 Pasadena Towers 800 East Colorado Regus Business 50,000
2Q00 300 North Halstead 300 North Halstead IndyMac 138,000
4Q99 Corporate Center Pasadena 251 South Lake Lawyers Title 21,000
4Q99 Corporate Center Pasadena 251 South Lake The Web Channel 21,000
4Q99 Corporate Center Pasadena 251 South Lake Homespace 21,000
4Q99 Pasadena Tech Center 465 North Halstead Earthlink 125,000
GLENDALE
--------
4Q02 701 North Brand Bldg. 701 North Brand Boulevard Barry Bartholomew 35,000
3Q02 505 North Brand Bldg. 505 North Brand Boulevard Associates Arthur J. 46,000
Gallagher
1Q02 700 North Brand Bldg. 700 N. Brand Boulevard California Guaranteed Ins. 25,000
Corp.
4Q01 701 North Brand Boulevard 701 North Brand Boulevard Bartholomew & Ass. 34,000
2Q01 330 North Brand Boulevard 330 North Brand Boulevard Catholic Healthcare 35,000
2Q01 330 North Brand Boulevard 330 North Brand Boulevard Teng & Ass. 35,000
1Q01 801 North Brand Boulevard 801 North Brand Boulevard Royal Indemnity 33,000
4Q00 330 North Brand Boulevard 330 North Brand Boulevard Safeco 35,000
4q00 500 Brand Boulevard 500 Brand Boulevard Speedyclick.com 32,000
3Q00 700 North Central 700 North Central Travelers Insurance 30,000
2Q00 Glendale Plaza 655 North Central Union Bank 35,000
2Q00 Glendale Plaza 655 North Central Hispanic Broadcasting 50,000
1Q00 450 North Brand Boulevard 450 North Brand Boulevard IHOP 67,000
1Q00 225 West Broadway 225 West Broadway Liberty Mutual 33,000
1Q00 Glendale Plaza 655 North Central Great West Life 110,000
BURBANK
--------
1Q03 The Pinnacle 3300 Olive Clear Channel 95,000
2Q02 2233 Ontario Bldg. 2333 Ontario Street Technicolor 52,000
2Q02 The Pinnacle 3300 Olive Warner Music 195,000
2Q02 Media Studios North Ph. II 2233 Ontario Technicolor 54,000
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[Enlarge/Download Table]
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Square
Date Building Name Building Address Tenant Feet
-----------------------------------------------------------------------------------------------------------------
2Q02 2600 West Olive Bldg. 2600 W. Olive Ave. Emmis Communications 23,000
1Q02 Toluca Lake Corporate Ctr. 4100 Alameda Ave. DIC Animation 26,000
1Q02 4411 Olive Ave. Modern Video Film 41,991
1Q02 Western Security Bank Bldg. 4100 Alameda DIC 26,244
1Q02 Media Studios North Ph. II 2255 Ontario Barth & Dreyfus 20,000
1Q01 Burbank Empire Center 2400 Empire Ave. Alianz Insurance 97,000
3Q01 Studio Plaza 3400 Riverside Turner Broadcasting 27,000
4Q00 Empire Technology Center 2350 Empire Avenue Allianz Insurance 97,000
4Q00 Media Studios North 2233 Ontario Technicolor 33,000
4Q00 Media Studios North III 2255 Ontario Liberty Livewire 23,000
4Q99 Media Studios North 2233 Ontario Virtualis 43,000
2Q99 Studio Plaza 3400 Riverside Drive Warner Brothers 51,000
UNIVERSAL CITY
--------------
3q01 Universal City Plaza 10 Universal City Plaza Watson Wyatt 37,000
2q01 Universal City Plaza 10 Universal City Plaza Firemans Fund 23,000
3q00 Universal City Plaza 10 Universal City Plaza Sun Microsystems 22,000
Absorption
The accompanying chart summarizes the net absorption trends from 1992 through
2002 for the Tri-City markets. The chart below summarizes the net absorption
trends shown on the exhibit.
[Download Table]
--------------------------------------------
Net Office
Absorption (SF)
Year Tri-City
--------------------------------------------
1992 (226,838)
--------------------------------------------
1993 136,537
--------------------------------------------
1994 214,240
--------------------------------------------
1995 (131,784)
--------------------------------------------
1996 304,988
--------------------------------------------
1997 137,656
--------------------------------------------
1998 522,503
--------------------------------------------
1999 886,773
--------------------------------------------
2000 374,504
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2001 (400,569)
--------------------------------------------
2002 396,453
--------------------------------------------
Avg. 11 years 201,315
--------------------------------------------
Absorption increased dramatically over the period 1996 through 2000, prior to
declining to negative 400,000 square feet in 2001. The negative absorption level
for the Tri-city markets during 2001 was attributable to the Burbank City Center
and Glendale submarkets. Absorption levels during 2002 increased to nearly
positive 400,000 square feet during 2002. Pasadena has maintained a stable
absorption and vacancy profile over the past several years, while the Glendale
market has fluctuated more significantly from year-to-year. The following chart
summarizes the historical absorption performance for the most pertinent Tri-city
submarkets over the past 10 years. As shown, Glendale has experienced the
highest average annual absorption levels during the past decade, with
approximately 120,000 square feet annually. The lower vacancy levels and lack of
new construction in the Burbank Media District and Pasadena have limited the
potential for significant positive absorption levels due to the absence of
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available space for lease. As noted previously, the Media District absorption of
just under 160,000 square feet for 2002 does not include the Clear Channel or
NBC leases at the Pinnacle, which represents about 120,000 square feet of net
positive absorption for this submarket.
NET ABSORPTION
TRI-CITY AREA
Market and Submarket (excluding sublease activity)
[Enlarge/Download Table]
MARKET 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
------ -------- ------- ------- -------- ------- ------- ------- ------- ------- --------
UNIVERSAL/STUDIO CITY (56,562) 37,930 (16,952) 57,054 54,920 (26,990) (32,426) 81,784 13,787 (15,358)
BURBANK MEDIA DIST. (65,139) (143,557) 85,085 87,406 21,225 (46,821) 131,893 58,068 (18,682) (11,517)
BURBANK CITY CENTER 15,864 (15,455) 20,587 (26,003) (24,884) 22,085 110,879 207,156 74,932 (147,733)
GLENDALE (9,660) 117,186 365,542 (144,759) 232,377 49,560 102,134 349,677 322,942 (226,818)
PASADENA (111,341) 140,433 (240,022) (105,482) (16,058) 139,822 210,023 190,088 (18,475) 857
-------- ------- ------- -------- ------- ------- ------- ------- ------- --------
TOTAL (SF) (226,838) 136,537 214,240 (131,784) 267,580 137,656 522,503 886,773 374,504 (400,569)
======== ======= ======= ======== ======= ======= ======= ======= ======= ========
MARKET 2002 AVERAGE
------ ------- -------
UNIVERSAL/STUDIO CITY (63,497) 3,287
BURBANK MEDIA DIST. 158,911 25,061
BURBANK CITY CENTER 172,970 40,039
GLENDALE 196,469 132,161
PASADENA (68,400) 11,848
------- -------
TOTAL (SF) 396,453 212,396
======= =======
(NET ABSORPTION TREND GRAPH)
1994 year end figures consolidated the Burbank Media District and City Center
submarkets
With single-digit vacancy levels in effect over the five-year period 1996
through 2000, the most significant levels of absorption in the Tri-City market
have occurred as the market responded to new construction. Three new class A
office developments were delivered to the Glendale market from 1998 through
2000, and this new supply benefited from pent-up demand following several years
of no new construction and tighter market conditions. As shown in the chart
below, the Glendale submarket has captured a significant portion of the total
Tri-City/East Valley absorption levels over the past several years.
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Net Absorption (SF)
Glendale vs Overall Tri-City Markets
[Download Table]
Net Absorption Percentage
Year Tri-Cities* Glendale of Total
---- ----------- -------- ----------
1996 267,580 232,377 87%
----------------------------------------------
1997 137,656 49,560 36%
----------------------------------------------
1998 522,503 102,134 20%
----------------------------------------------
1999 886,773 349,677 39%
----------------------------------------------
2000 374,504 322,942 86%
----------------------------------------------
2001 (400,569) (226,818) -57%
----------------------------------------------
2002 396,453 196,469 50%
*- Includes Universal City/Studio City, Burbank - Media District, Burbank -
City Center, Glendale, and Pasadena
(NET ABSORPTION (SP) GLENDALE VS OVERALL TRI-CITY MARKETS GRAPH)
RENTAL GROWTH TRENDS
The Tri-City markets experienced positive absorption levels for five consecutive
years 1996 through 2000, averaging 445,000 square feet annually over this
period. Including 2001-2002, the Tri-City markets averaged 212,000 square feet
in annual absorption over the last 11 years (1992 through 2002). In conjunction
with single-digit vacancy rates or low double-digit during this period, tenant
demand placed upward pressure on rental rates, as shown below.
TRI-CITIES
[Download Table]
Wtd. Avg. %
Year End Rent (PSF) Change
-------- ---------- ------
1996 $20.86 --
1997 $23.32 11.8%
1998 $26.41 13.3%
1999 $28.12 6.5%
2000 $26.55 -5.6%
2001 $28.75 8.3%
2002 $27.88 -3.0%
Compound annual change 5.0%
(TRI-CITIES WEIGHTED AVERAGE RENT GRAPH)
Future Office Development
A number of significant developments have been either recently completed, are
anticipated for near-term development, are entitled for development, or are in
the entitlement phase. These 13 developments are summarized on an accompanying
exhibit, and total an aggregate 3.1 million square feet of new office supply to
the Tri-City markets, including 882,000 square feet of proposed supply.
The chart below summarizes the most recent office deliveries and proposed new
supply in the Tri-City market.
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RECENTLY COMPLETED / PROPOSED OFFICE DEVELOPMENTS
Tri - Cities Market
[Enlarge/Download Table]
====================================================================================================================================
ITEM MARKET/ DEVELOPMENT
NO. PROJECT NAME LOCATION NRA CURRENT ENTITLEMENT STATUS TIME FRAME COMMENTS
====================================================================================================================================
====================================================================================================================================
1998 - 2002 COMPLETIONS
====================================================================================================================================
C-1 THE PINNACLE - PHASE I Burbank Media 385,000 Entitled as of 12/96 for May 2002 Phase I of 385,000 sf.
3300 Olive Ave. District 585,000 SF office; Phase I completion 1st qtr
6-stories, 4-level 2002. Warner Music - anchor
subterranean parking; tenant. Clear Channel and NBC
50,000 SF to 60,000 SF also signed
floor plates
------------------------------------------------------------------------------------------------------------------------------------
C-2 BURBANK EMPIRE CENTER - Burbank-North 230,000 Entitled 9/00 for Power Retail: 4Q2001 Zelman sold office portion of
PHASE I Center including 600K SF Office: 4Q2002 site to Menlo.
Empire Way/I-5 Freeway retail, 600K SF office, Hotels: 4Q2001 Allianz Insurance leased
6-acre transition area for 3Q2002 99,000 sf. Remaining
hotels with 350 rooms, 131,000 sf available for
a 160,000 SF Sears Great lease.
Indoors, and a 160,000 SF
Costco
------------------------------------------------------------------------------------------------------------------------------------
C-3 AIRPORT PLAZA Burbank-North 155,000 155,000 SF office building August 2001 Development by Trammel
2950 N. Hollywood Way with 3 stories Crow Company Surface parking
at a ratio of 5 per 1,000 SF
Entire building is available
for lease.
------------------------------------------------------------------------------------------------------------------------------------
C-4 KOLL CENTER PASADENA Pasadena 176,000 176,00 SF office and June 2001 Development by Koll -
Colorado Blvd. @ Catalina retail; 5 stories 85,000 SF was pre-leased
1055 E. Colorado Blvd. to Paracel.
------------------------------------------------------------------------------------------------------------------------------------
C-5 MEDIA STUDIOS NORTH Burbank-North 96,000 96,000 SF office building January 2001 Development by M. David
PHASE III with 3 stories Paul & Associates 100% leased
2233 Ontario St. to tenants include Virtualis
and Technicolor which
relocated from Studio Plaza.
------------------------------------------------------------------------------------------------------------------------------------
C-6 450 N. BRAND BLVD. Glendale 252,000 Approved OPA with City of September 2000 2000 completion. Old
450 N. Brand Blvd. Glendale for 20-story, Republic Title (45,000 sf)
461,500 SF office tower; 24-hr Fitness (56,000 sf),
developers downsized and Executive suites
to 7 stories, 252,000 SF, (22,000 SF) were pre-lease
500-car garage tenants; currently 97% leased
------------------------------------------------------------------------------------------------------------------------------------
C-7 MEDIA STUDIOS NORTH Burbank-North 215,000 Entitled as of 4/97 for October 1998 215,000 SF Phase II leases to
- PHASE II 1.2 million SF new office Equilon, Microcadam and
2255 N. Ontario Street /studio; up to 6-stories, Liberty Livewire - 100%
215,000 SF phase II leased
completed 1998 Phase III
completed 2000
------------------------------------------------------------------------------------------------------------------------------------
C-8 400 N. BRAND BLVD. Glendale 171,000 171,000 SF office building November 1998 Developed by the Howard
400 N. Brand Blvd. and a six-story 360-car Platz Group. Building is
garage currently 95% leased to
tenants including IBM, Cigna
and Verdugo Bank.
------------------------------------------------------------------------------------------------------------------------------------
C-9 GLENDALE PLAZA Glendale 533,000 533,000 SF, 24-story 8/97 to 4/99 Developed by Morgan Stanley
655 N. Central Ave. office tower & Pac 10 Partners Fully
leased to Great West Life,
CalPRES State Compensation
and Hispanic Broadcasting.
Sold to JP Morgan
------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL COMPLETED 2,213,000
====================================================================================================================================
====================================================================================================================================
PROPOSED / UNDER CONSTRUCTION
====================================================================================================================================
P-1 THE PINNACLE - PHASE II Burbank Media 230,000 Phase II - additional 2003 Developed by M. David
3300 Olive Ave. District 230,000 SF Paul Associates
Proposed
------------------------------------------------------------------------------------------------------------------------------------
P-2 MEDIA STUDIOS NORTH - Burbank 190,000 Phase IV of a multi-phase 2003 Developed by M. David
PHASE IV City Center office campus. Phase IV Paul Associates
2255 N. Ontario St. will include 190,000 SF of Proposed
office space, 5-stories.
------------------------------------------------------------------------------------------------------------------------------------
P-3 BURBANK EMPIRE CENTER - Glendale 162,000 N/A TBD Menlo Equities proposal
PHASE II to develop an additional
Empire Way/I-5 Freeway two buildings totaling
162,000 SF.
Proposed
------------------------------------------------------------------------------------------------------------------------------------
P-4 GLENDALE CENTER Glendale 300,000 300,000 SF proposed for TBD Maguire Partners seeking
611 N. Brand Blvd. Phase II of existing JV Partners and pre-leasing
development
====================================================================================================================================
SUBTOTAL PROPOSED 882,000
====================================================================================================================================
====================================================================================================================================
TOTAL COMPLETED AND PROPOSED 3,095,000
====================================================================================================================================
In addition to the proposed projects summarized on the chart, there are two
future office developments in the competitive Pasadena market as discussed
below.
PLAZA LAS FUENTES II - This under construction phase on the mixed-use Plaza
Las Fuentes development is located near the northwesterly intersection of
Colorado Avenue and Los Robles Avenue. The existing mixed-use development
includes a 350-room hotel, and an eight-story, 167,000 square-foot Class A
office building, and restaurants totaling 15,000 square feet. The new phase
is to include 250,000 square feet of office and 50,000 square feet of
retail space. The project is 50% pre-leased to Western Asset Management.
199 SOUTH LAKE AVENUE - This project is proposed for a 6-story, 220,000
square-foot office building with subterranean parking. The site is
currently improved with older office
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improvements subject to leases, and the developer has not obtained
entitlements from the city.
The timing for development of these properties will fluctuate based on the
general economic trends within the region and the subject's market, the demand
for space from the primary components of the tenant base including the
entertainment industry, and the achievable rental rates in comparison with
required rents to justify each of the new projects.
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SUPPLY ANALYSIS-EXISTING COMPETITIVE SUPPLY
The Westin Pasadena consists of a 350 unit, full-service Westin hotel located in
Pasadena, California. The property operated as a DoubleTree Hotel until December
2002 and competes to varying degrees with numerous full-service hotels located
in Pasadena and Glendale. In conjunction with the conversion to the Westin
brand, the property will undergo a $9.2 million renovation over the next three
years.
The Competitive Hotel Supply table on the second following page outlines
relevant operating statistics for the Westin Pasadena and its competitors. The
Competitive Hotels Profile table illustrates the amenities for the competitive
set, while the map depicts the location of the competitors in relation to the
subject. Additional information on the competitors follows:
COURTYARD BY MARRIOTT
The 314-room Courtyard by Marriott is located at 180 N. Fair Oaks Avenue,
approximately one mile west of the Westin. The property contains
approximately 5,747 square feet of meeting space, one restaurant, which is
open for breakfast only, one lounge, which serves a light evening meal, an
outdoor pool and an exercise facility. The hotel opened in July 2000. The
lobby and public spaces are furnished in the Craftsman style, an
architectural style found in many Pasadena homes. However, the guestrooms
are standard Courtyard by Marriott rooms. The property is in very good
condition. The property uses a city owned garage, which has direct access
to the property. The property enjoys good access and has good visibility
from the neighboring streets. It is within walking distance of Old Town
Pasadena, the city's retail district and therefore is popular with both
leisure and commercial travelers who like to be close to a retail
environment.
HILTON PASADENA
The 291-room Hilton Pasadena is located at 150 S. Los Robles, approximately
one mile south of the Westin Pasadena. The property contains approximately
18,480 square feet of meeting space, one restaurant, one lounge, an outdoor
pool and an exercise facility. The hotel opened in 1970 and in 2000
completed a renovation of its guest rooms and meeting space. The hotel is
owned by the Shidler Group and managed by Hilton Hotels. It enjoys good
access and has good visibility from the neighboring streets.
HILTON GLENDALE
The 348-room Hilton Glendale is located at 100 W. Glenoaks Boulevard,
approximately five miles west of the Westin Pasadena. The property contains
approximately 13,040 square feet of meeting space, two restaurants, a
lounge, an outdoor pool and an exercise facility. The hotel opened in 1991
as a corporate owned and managed Red Lion Hotel. The property enjoys good
access and has good visibility from the neighboring streets and limited
visibility from the 134 freeway.
SHERATON PASADENA
The 318-room Sheraton Pasadena is located at 303 E. Cordova Street,
approximately one-half mile south of the Westin Pasadena. The property
contains approximately 12,461 square feet of meeting space, one restaurant,
one lounge, an outdoor pool and an exercise facility. The hotel opened in
1975 as a Holiday Inn. In 2000, the property completed a reportedly $5
million renovation program of all the
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guest rooms and public spaces and was converted to a Sheraton franchise.
The property enjoys good access and has good visibility from the
neighboring streets. It is in very good condition. It is adjacent to the
Pasadena Center, the city's convention center. The hotel's parking is owned
by the City of Pasadena and therefore the hotel has limited control over
its pricing and flexibility with regards to groups.
RITZ-CARLTON
The 383-room Ritz-Carlton is located at 1401 S. Oak Knoll in Pasadena,
approximately 2.5 miles south of the Westin Pasadena. The property contains
approximately 24,592 square feet of meeting space, two restaurants, two
lounges, an outdoor pool and a spa facility. The hotel originally opened in
1906 as the Huntington Hotel, a destination resort in Pasadena. Various
additions were made to the property subsequent to its opening between 1913
and 1960. In 1989, the original 1906 main building was razed and a building
with the same exterior appearance was constructed in its place, while the
remainder of the hotel was completely renovated. The property is currently
owned by LACERA (Los Angeles County Employee Retirement Association) and
managed by Ritz-Carlton Hotels. The property is in very good condition. It
does not compete 100 percent on the same level as the other properties
because of its resort like destination. It attempts to attract corporate
groups that would select any other resort type destination in the Los
Angeles area.
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COMPETITIVE HOTEL SUPPLY
[Enlarge/Download Table]
ESTIMATED 2001
---------------------------------------------------------------------
NUMBER AVERAGE OCCUPANCY ADR REVPAR
PROPERTY OF ROOMS OCCUPANCY RATE REV PAR PENETRATION PENETRATION PENETRATION
-------- -------- --------- ------- ------- ----------- ----------- -----------
WESTIN PASADENA 350 74.0% $131.00 $96.94 103.4% 97.9% 101.2%
Courtyard by Marriott 314 73.0% 112.00 81.76 102.0% 83.7% 85.4%
Hilton Glendale 350 79.0% 126.00 99.54 110.4% 94.2% 103.9%
Hilton Pasadena 296 78.0% 113.00 88.14 109.0% 84.5% 92.0%
Ritz-Carlton Huntington 392 67.0% 199.00 133.33 93.6% 148.7% 139.2%
Sheraton Pasadena 317 59.0% 110.00 64.90 82.4% 82.2% 67.8%
-----------------------------------------------------------------------------------------------------------------------
OVERALL TOTALS/AVERAGES 2,019 71.6% $133.79 $95.77 100.0% 100.0% 100.0%
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Total Room Nights Occupied 527,524
Percentage Change from Previous Year
-----------------------------------------------------------------------------------------------------------------------
ESTIMATED 2002
-----------------------------------------------------------------------
AVERAGE OCCUPANCY ADR REVPAR
PROPERTY OCCUPANCY RATE REV PAR PENETRATION PENETRATION PENETRATION
-------- --------- ------- ------- ----------- ----------- -----------
WESTIN PASADENA 77.0% $130.00 $100.10 103.8% 98.3% 102.1%
Courtyard by Marriott 75.0% 113.00 84.75 101.1% 85.4% 86.4%
Hilton Glendale 77.0% 128.00 98.56 103.8% 96.8% 100.5%
Hilton Pasadena 81.0% 110.00 89.10 109.2% 83.2% 90.9%
Ritz-Carlton Huntington 69.0% 195.00 134.55 93.1% 147.5% 137.2%
Sheraton Pasadena 67.0% 107.00 71.69 90.4% 80.9% 73.1%
---------------------------------------------------------------------------------------------------------------
OVERALL TOTALS/AVERAGES 74.2% $132.24 $ 98.06 100.0% 100.0% 100.0%
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Total Room Nights Occupied 527,524
Percentage Change from Previous Year 3.6%
---------------------------------------------------------------------------------------------------------------
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COMPETITIVE HOTELS PROFILE
[Enlarge/Download Table]
2002 EST. MARKET MIX
-----------------------------
MEETING MEETING
YEAR NUMBER OF AND TOTAL MEETING SPACE SF
MAP NO. HOTEL/LOCATION OPENED ROOMS COMMERCIAL GROUP LEISURE SPACE (SF) PER ROOM
------- -------------- ------ --------- ---------- ------- ------- ------------- --------
1 WESTIN PASADENA 1989 350 46% 42% 12% 14,913 42.6
191 S. LOS ROBLES, PASADENA
2 Courtyard by Marriott 2000 314 75% 10% 15% 5,747 18.3
180 N. Fairoaks, Pasadena
3 Hilton Glendale 1992 350 60% 30% 10% 13,040 37.3
100 W. Glenoaks, Glendale
4 Hilton Pasadena 1970 295 65% 25% 10% 18,480 62.4
150 S. Los Robles, Pasadena
5 Ritz-Carlton Huntington 1991 392 35% 55% 10% 24,502 62.7
1401 S. Oak Knoll, Pasadena
6 Sheraton Pasadena 1975 317 55% 30% 15% 12,461 39.3
303 E. Cordova, Pasadena
AMENITIES
-------------------------------------------------------------
INDOOR OUTDOOR EXERCISE SHUTTLE COMPETITIVE ADVANTAGES
MAP NO. HOTEL/LOCATION RESTAURANT LOUNGE POOL POOL FACILITIES SERVICE /DISADVANTAGES
------- -------------- ---------- ------ ------ ------- ---------- ------- ----------------------
1 WESTIN PASADENA Y Y N Y Y N A: LOCATION HIGH QUALITY
191 S. LOS ROBLES, PASADENA FACILITIES
D: RELATIVE SIZE OF
DOUBLE DOUBLE GUESTROOM
2 Courtyard by Marriott Y Y N Y Y N A: New facility
180 N. Fairoaks, Pasadena D: Guest rooms have
standard furnishings
3 Hilton Glendale Y Y N Y Y N A: Guestroom views
100 W. Glenoaks, Glendale D: Proximity to
entertainment venues
4 Hilton Pasadena Y Y N Y Y N A: Renovation completed in
150 S. Los Robles, Pasadena 2000
D: Relative size of
guestrooms
5 Ritz-Carlton Huntington Y Y N Y Y N A: Quality of facilities
1401 S. Oak Knoll, Pasadena D: Proximity to demand
generators
6 Sheraton Pasadena Y Y N Y Y N A: Renovation completed in
303 E. Cordova, Pasadena 2000
D: Overall age of facility
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map
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Smith Travel Research (STR), an independent research firm that is recognized by
the lodging industry as the standard source of reliable data, provided operating
statistics on the local market as a whole. We have indicated this date in the
below chart. The Pasadena market has gone through an evolution in the past few
years. Due to the limited supply, many of the hotels enjoyed relatively high
occupancies and were able to increase average rates above inflation. The market
averages were brought down by the results from the Sheraton Hotel when it
operated under a Holiday Inn flag. That hotel, in the past and currently, lags
the market. The hotels were able to increase average rates considerably up until
2000. However, that luxury ended in 2001. As the hotels saw a softening in the
economy, many resorted to discounting the rates to attract business. Three of
the hotels, the DoubleTree Pasadena (now the Westin), the Hilton Pasadena and
the Sheraton Pasadena secured a three year contract with Qantas Airlines for a
large number of crew rooms. This was an effort to maintain hotel occupancy, but
it has had a dampening effect upon average rate. Combined with the overall
decline in economic activity and the September 11th terrorist attacks, the
market has experienced actual declines in RevPAR.
MARKET SUPPLY, DEMAND, OCCUPANCY, ADR AND REVPAR
[Enlarge/Download Table]
YEAR SUPPLY % CHANGE DEMAND % CHANGE EQ. INDEX OCC % % CHANGE ADR % CHANGE REVPAR % CHANGE
---- ------ -------- ------ -------- --------- ----- -------- ------- -------- ------ --------
1997 1,706 -- 468,726 -- 75.3% -- $119.32 -- $ 89.82 --
1998 1,706 0.0% 456,415 -2.6% -2.6% 73.3% -2.6% $133.67 12.0% $ 97.98 9.1%
1999 1,706 0.0% 438,223 -4.0% -4.0% 70.4% -4.0% $141.90 6.2% $ 99.86 1.9%
2000 1,864 9.3% 482,185 10.0% 0.8% 70.9% 0.7% $149.46 5.3% $105.91 6.1%
2001 2,020 8.4% 527,687 9.4% 1.1% 71.6% 1.0% $133.74 -10.5% $ 95.72 -9.6%
2002 2,020 0.0% 547,348 3.7% 3.7% 74.2% 3.7% $132.25 -1.1% $ 98.18 2.6%
Avg Annual
% Change 3.4% 3.1% -0.3% -0.3% 2.1% 1.8%
Source: Smith Travel Research
Although occupancy has increased in the market, room rate has decreased
significantly. This is due to properties "buying rooms", or lowering rates to
increase occupancy. However, the net result in 2002 was a 2.6 percent increase
in RevPAR for the market.
DEMAND ANALYSIS-MARKET FOR TRANSIENT ACCOMMODATIONS
The market for transient accommodations is an all encompassing term referring to
the various types of travelers that utilize the lodging facilities in a given
market area. The total number of rooms occupied by these travelers during a
specific time frame represents a market's accommodated room night demand.
In analyzing demand within a specific market, individual segments are considered
based on the nature of travel present in the area. Three primary demand
classifications occur in most markets including commercial, meeting and group,
and leisure.
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Based upon our field work and area analysis, we estimate that the distribution
of accommodated hotel room night demand for the market as a whole is illustrated
below:
HISTORICAL ACCOMMODATED DEMAND
[Download Table]
2002
MARKET-WIDE
ACCOMMODATED PERCENT
MARKET SEGMENT ROOM NIGHT DEMAND OF TOTAL
-------------- ----------------- --------
Commercial 302,812 55.4%
Meeting and Group 178,854 32.7%
Leisure 64,787 11.9%
------- -----
Total 546,452 100.0%
COMMERCIAL DEMAND
Commercial demand arises from individuals who are conducting business and
visiting various firms in the subject's market area. Commercial/corporate demand
is strongest Monday through Thursday nights, declining significantly on Friday
and Saturday, and increasing somewhat on Sunday. Commercial/corporate travelers
typical length of stay ranges from one to three days, and this demand is
relatively constant throughout the year, although some declines are noticeable
in late December and during other holiday periods.
Commercial/corporate travelers generally are not rate sensitive and represent a
very desirable and lucrative market that provides a consistent level of demand
at relatively high room rates. Commercial/corporate demand in the subject's
market area is generated both by the wide variety of corporate tenants in the
surrounding area. Many of these firms are located along N. Los Robles Avenue and
throughout Pasadena and neighboring Glendale. The Westin Pasadena is located in
an area with varied commercial uses, including municipal/government buildings,
low to mid-rise commercial properties, and limited residential development. The
most significant office development in the vicinity of the subject hotel is the
adjacent office building, which represents an attractive target for potential
corporate transient guests of the hotel, and is under the same ownership as the
Westin. The Kaiser Permanente regional offices located directly across Walnut
Street from the Westin employ approximately 2,500 to 3,000 persons at this
location and also comprises a potential source of room night demand for the
hotel. Other corporate tenants with significant operations in the Pasadena area
include CalTech, Fannie Mae, JPL, Pacific Bell, Lucent and Parsons Corporation.
In 2001, the Qantas airline crew secured rooms at the Westin, Pasadena Hilton
and the Sheraton Pasadena. As discussed earlier, this helped to increase the
occupancy base, but had a dampening effect upon the average rate. The three year
contract ends in 2004. At that time, the hotels will assess the need to maintain
the occupancy base. If business conditions have improved where the hotels can
replace some of the contract business with corporate business at much higher
rates, the contract probably won't be renewed.
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MEETING AND GROUP DEMAND
Meeting and group demand includes groups who reserve blocks of rooms for
meetings, seminars, trade association shows, and other similar gatherings of ten
or more persons. Group meetings and convention demand is typically strongest
during the spring and fall months, while the summer months represent the slowest
period for this market segment, and the winter demand varies. Meeting and group
travelers typically achieve an average length of stay of three to five days.
Commercial groups typically gather during weekdays, and social groups during the
weekend days. Due to the strength of the mid-week commercial market, many of the
Pasadena area hotels attempt to book groups on weekends, traditionally a slower
demand period and also capture groups that now do not necessarily have business
affiliates in Pasadena, but are attracted to the city as a destination due to
the various other activities in the city such as Old Town, and the city's
proximity to Burbank Airport.
Although room rates for meeting and group patronage are typically discounted,
hotels accommodating this demand benefit from the use of public facilities and
profits generated from food and beverage functions, and recreational amenities
offered.
Future demand potential in the meeting and group market segment is closely
related to commercial activity on a regional and national level. Because the
majority of corporate and business meetings and conferences have either a direct
or indirect business purpose, the current and anticipated economic health of
regional and national firms has a dramatic impact on the utilization of hotel
facilities. Additionally, due to the proximity of Pasadena to downtown Los
Angeles, large citywide conventions have some spillover effect into Pasadena.
The Pasadena Center also generates some group demand in the market.
LEISURE DEMAND
The leisure demand segment consists of individual tourists and families visiting
the attractions of a local market and/or passing through enroute to other
destinations. Leisure demand is strongest Friday and Saturday nights, holiday
periods and the summer months. These peak periods generally are negatively
correlated with commercial and meeting and group demand.
Local attractions include the Rose Bowl, which holds a variety of sports and
other events during the year. Other important entertainment facilities include
the Pasadena Civic Auditorium, Pasadena Playhouse, and the Ambassador
Auditorium, which favor theatrical, musical, and other stage productions
throughout the year. The combined attendance at these venues is reported to be
in the range of 650,000 to 750,000 persons per year. Although slightly
peripheral to the subject market, the Universal Amphitheater is also a
significant entertainment center. The facility hosts musical and other stage
productions with an average attendance in the range of 600,000 persons per year.
The Santa Anita Park racetrack in Arcadia offers some of the best horse racing
in the country during the racing season from late November through late April.
Santa Anita Park is located on Huntington Drive approximately one mile south of
the Foothill Freeway (1-210). The park's average annual attendance over the past
three years has been approximately 1.57 million persons, as measured by on-track
attendance.
CONCLUSION
The Pasadena market has fared better than most in the past few years. According
to Smith Travel Research, RevPAR for the competitive set increased in 2002.
Furthermore, the recent conversion of the hotel to a Westin and the planned
renovation should have a significant positive impact on the hotel.
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COMPETITIVE HOTEL SUPPLY
[Enlarge/Download Table]
ESTIMATED 2000
-----------------------------------------------------------
NUMBER PERCENTAGE COMPETITIVE AVERAGE OCCUPANCY ADR
PROPERTY OF ROOMS COMPETITIVE ROOMS OCCUPANCY BILL* REV PAR PENETRATION PENETRATION
-------- ----------- ----------- --------- ------- ------- ----------- -----------
PRIMARY COMPETITION
DOUBLETREE PASADENA 350 100.0% 350 74.0% $159.31 $117.89 104.4% 1069%
Courtyard by Marriott 314 100.0% 314 58.0% 116.00 67.28 81.9% 77.9%
Hilton Glendale 350 100.0% 350 76.0% 128.00 97.28 107.3% 85 9%
Hilton Pasadena 296 100.0% 296 77.0% 132.00 101.64 108.7% 88 6%
Ritz-Carlton Huntington 392 100.0% 392 76.0% 201.00 152.76 107.3% 134.9%
Sheraton Pasadena 317 100.0% 317 56.0% 117.00 65.52 79.0% 78.5%
------ ------ ------ ------- ------- ------- ------ ------
PRIMARY-TOTALS AND AVERAGES 2,019 2,019 70.9% $148.99 $105.56 100.0% 100.0%
------ ------ ------ ------- ------- ------- ------ ------
OVERALL TOTALS/AVERAGES 2,019 2,019 70.9% $148.99 $105.56 100.0% 100.0%
------ ------ ------ ------- ------- ------- ------ ------
Total Room Nights Occupied 481,861
Percentage Change from
Previous Year
ESTIMATED 2001
-----------------------------------------------------------------------------------
REVPAR AVERAGE OCCUPANCY ADR REVPAR
PROPERTY PENETRATION OCCUPANCY RATE REV PAR PENETRATION PENETRATION PENETRATION
----------- --------- ------- ------- ----------- ----------- -----------
PRIMARY COMPETITION
DOUBLETREE PASADENA 111.7% 74 0% $131.00 $96.94 1034% 97.9% 101 2%
Courtyard by Marriott 63.7% 73.0% 112.00 81.76 102.0% 83.7% 85.4%
Hilton Glendale 92.2% 79 0% 126.00 9954 110.4% 94.2% 103.9%
Hilton Pasadena 96.3% 78 0% 113.00 88 14 1090% 84.5% 92.0%
Ritz-Carlton Huntington 144.7% 67.0% 199.00 133.33 93.6% 148.7% 139.2%
Sheraton Pasadena 62.1% 59.0% 110.00 64.90 824% 82.2% 67.8%
------ -------- ------ ------ ------ ------ ------
PRIMARY-TOTALS AND AVERAGES 100.0% 71.6% $133.79 $95.77 100.0% 100.0% 100.0%
------ -------- ------ ------ ------ ------ ------
OVERALL TOTALS/AVERAGES 100.0% 71.6% $133.79 $95.77 100.0% 100.0% 100.0%
------ -------- ------ ------ ------ ------ ------
Total Room Nights Occupied 527,524
Percentage Change from 9.5%
Previous Year
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COMPETITIVE HOTELS PROFILE
[Enlarge/Download Table]
OTHER
---------------------------------------
MEETING
YEAR NUMBER AND TOTAL MEETING SPACE SF
MAP NO. HOTEL/LOCATION OPENED OF ROOMS COMMERCIAL GROUP LEISURE OTHER SPACE (SF) PER ROOM
------- -------------- ------ -------- ---------- ------- ------- ----- ------------- --------
1 DOUBLETREE PASADENA 1989 350 46% 42% 12% 0% 14,913 42.6
191 S. Los Robles, Pasadena
2 Courtyard by Marriott 2000 314 75% 10% 15% 0% 5,747 18.3
180 N. Fairoaks, Pasadena
3 Hilton Glendale 1992 350 60% 30% 10% 0% 13,040 37.3
100 W Glenoaks, Glendale
4 Hilton Pasadena 1970 296 65% 25% 10% 0% 18,480 62.4
150 S. Los Robles, Pasadena
5 Ritz-CarltonHuntington 1991 392 35% 55% 10% 0% 24.592 62.7
1401 S. Oak Knoll, Pasadena
6 Sheraton Pasadena 1975 317 55% 30% 15% 0% 12,461 39.3
303 E. Cordova, Pasadena
AMENITIES
-----------------------------------------------------
INDOOR OUTDOOR EXERCISE SHUTTLE
MAP NO. HOTEL/LOCATION RESTAURANT LOUNGE POOL POOL FACILITIES SERVICE COMPETITIVE ADVANTAGES/DISADVANTAGES
------- -------------- ---------- ------ ------ ------- ---------- ------- ------------------------------------
1 DOUBLETREE PASADENA Y Y N Y Y N A: Location, high quality facilities
191 S. Los Robles, Pasadena D: Relative size of double double
guestroom
2 Courtyard by Marriott Y Y N Y Y N A: New facility
180 N. Fairoaks, Pasadena D: Guest rooms have standard
furnishings
3 Hilton Glendale Y Y N Y Y N A: Guestroom views
100 W Glenoaks, Glendale D: Proximity to entertainment venues
4 Hilton Pasadena Y Y N Y Y N A: Renovation completed in 2000
150 S. Los Robles, Pasadena D: Relative size of guestrooms
5 Ritz-CarltonHuntington Y Y N Y Y N A: Quality of facilities
1401 S. Oak Knoll, Pasadena D: Proximity to demand generators
6 Sheraton Pasadena Y Y N Y Y N A: Renovation completed in 2000
303 E. Cordova, Pasadena D: Overall age of facility
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map
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VALUATION ADVISORY SERVICES 140 CUSHMAN & WAKEFIELD(R)
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Smith Travel Research (STR), an independent research firm that is recognized by
the lodging industry as the standard source of reliable data, provided operating
statistics on the local market as a whole. We have indicated this date in the
below chart. The Pasadena market has gone through an evolution in the past few
years. Due to the limited supply, many of the hotels enjoyed relatively high
occupancies and were able to increase average rates above inflation. The market
averages were brought down by the results from the Sheraton Hotel when it
operated under a Holiday Inn flag. That hotel, in the past and currently, lags
the market. The hotels were able to increase average rates considerably in the
last few years. However, that luxury ended in 2001. As the hotels saw a
softening in the economy, many resorted to discounting the rates to attract
business. Three of the hotels, the Doubletree Pasadena, the Hilton Pasadena and
the Sheraton Pasadena secured a three year contract with Qantas Airlines for a
large number of crew rooms. This was an effort to maintain hotel occupancy, but
it has had a dampening effect upon average rate. Combined with the overall
decline in economic activity and the September 11th terrorist attacks, the
market has experienced actual declines in RevPAR.
MARKET SUPPLY, DEMAND, OCCUPANCY, ADR AND REVPAR
[Enlarge/Download Table]
YEAR SUPPLY % CHANGE DEMAND % CHANGE EQ. INDEX OCC% % CHANGE ADR % CHANGE REVPAR % CHANGE
---- ------ -------- ------ -------- --------- ----- -------- ------- -------- ------- --------
1996 1,706 -- 454,582 -- -- 73.0% -- $110.16 -- $ 80.42 --
1997 1,706 0.0% 468,726 3.1% 3.1% 75.3% 3.1% $119.32 8.3% $ 89.82 11.7%
1998 1,706 0.0% 456,415 -2.6% -2.6% 73.3% -2.6% $133.67 12.0% $ 97.98 9.1%
1999 1,706 0.0% 438,223 -4.0% -4.0% 70.4% -4.0% $141.90 6.2% $ 99.86 1.9%
2000 1,864 9.3% 482,185 10.0% 0.8% 70.9% 0.7% $149.46 5.3% $105.93 6.1%
2001 2,020 8.4% 527,687 9.4% 1.1% 71.6% 1.0% $133.74 -10.5% $ 95.72 -9.6%
Avg Annual
% Change 3.4% 3.0% -0.4% -0.4% 4.0% 3.5%
YTD: 2/28/01 2,020 -- 83,761 -- 0.0% 70.3% -- $145.37 -- $102.20 --
YTD: 2/28/02 2.020 0.0% 92.204 10.1% 10.1% 77.4% 10.1% $139.54 -4.0% $108.00 5.7%
------ ---- ------- ----- ----- ----- ----- ------- ----- ------- -----
Source: Smith Travel Research
Although occupancy in the market has remained relatively flat for the past few
years, the demand for roomnights has grew 10.0 percent in 2000 and 9.4 percent
in 2001. The growth was due in part to a new property in the market, the
Courtyard by Marriott, which was able to capture business that desired a
mid-market hotel, as well as loyal Marriott guests. Additionally, the Qantas
airline crew brought new demand to the three properties mentioned earlier. As a
result of the Qantas crew in the market and general business conditions, the
average rate declined at each competitive property, which resulted in a 10.9
percent decrease in overall average rate between 2000 and 2001. Because of the
large decrease in average rate between 2000 and 2001, RevPAR declined 9.6
percent.
For the first two months of this year, occupancy and demand increased 10.1
percent, the average rate decreased 4.0 percent and the resulting RevPAR
increased 5.7 percent.
DEMAND ANALYSIS-MARKET FOR TRANSIENT ACCOMMODATIONS
The market for transient accommodations is an all encompassing term referring to
the various types of travelers that utilize the lodging facilities in a given
market area. The total number of rooms occupied by these travelers during a
specific time frame represents a market's accommodated room night demand.
In analyzing demand within a specific market, individual segments are considered
based on the nature of travel present in the area. Three primary demand
classifications occur in most markets including commercial, meeting and group,
and leisure.
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Based upon our field work and area analysis, we estimate that the distribution
of accommodated hotel room night demand for the market as a whole is illustrated
below:
HISTORICAL ACCOMMODATED DEMAND: MARKET VS. SUBJECT PROPERTY
[Download Table]
2001
MARKET-WIDE
ACCOMMODATED PERCENT
MARKET SEGMENT ROOM NIGHT DEMAND OF TOTAL
-------------- ----------------- --------
Commercial 292,663 55.5%
Meeting and Group 172,621 32.7%
Leisure 62,240 11.8%
-------- ------
Total 527,524 100.0%
COMMERCIAL DEMAND
Commercial demand arises from individuals who are conducting business and
visiting various firms in the subject's market area. Commercial/corporate demand
is strongest Monday through Thursday nights, declining significantly on Friday
and Saturday, and increasing somewhat on Sunday. Commercial/corporate travelers
typical length of stay ranges from one to three days, and this demand is
relatively constant throughout the year, although some declines are noticeable
in late December and during other holiday periods.
Commercial/corporate travelers generally are not rate sensitive and represent a
very desirable and lucrative market that provides a consistent level of demand
at relatively high room rates. Commercial/corporate demand in the subject's
market area is generated both by the wide variety of corporate tenants in the
surrounding area. Many of these firms are located along N. Los Robles Avenue and
throughout Pasadena and neighboring Glendale. The Doubletree Pasadena is located
in an area with varied commercial uses, including municipal/government
buildings, low to mid-rise commercial properties, and limited residential
development. The most significant office development in the vicinity of the
subject hotel is the adjacent office building, which represents an attractive
target for potential corporate transient guests of the hotel, and is under the
same ownership as the Doubletree. The Kaiser Permanente regional offices located
directly across Walnut Street from the Doubletree employ approximately 2,500 to
3,000 persons at this location and also comprises a potential source of room
night demand for the hotel. Other corporate tenants with significant operations
in the Pasadena area include CalTech, Fannie Mae, JPL, Pacific Bell, Lucent and
Parsons Corporation.
In 2001, the Qantas airline crew secured rooms at the Doubletree, Pasadena
Hilton and the Sheraton Pasadena. As discussed earlier, this helped to increase
the occupancy base, but had a dampening effect upon the average rate. The three
year contract ends in 2004. At that time, the hotels will assess the need to
maintain the occupancy base. If business conditions have improved where the
hotels can replace some of the contract business with corporate business at much
higher rates, the contract probably won't be renewed.
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MEETING AND GROUP DEMAND
Meeting and group demand includes groups who reserve blocks of rooms for
meetings, seminars, trade association shows, and other similar gatherings of ten
or more persons. Group meetings and convention demand is typically strongest
during the spring and fall months, while the summer months represent the slowest
period for this market segment, and the winter demand varies. Meeting and group
travelers typically achieve an average length of stay of three to five days.
Commercial groups typically gather during weekdays, and social groups during the
weekend days. Due to the strength of the mid-week commercial market, many of the
Pasadena area hotels attempt to book groups on weekends, traditionally a slower
demand period and also capture groups that now do not necessarily have business
affiliates in Pasadena, but are attracted to the city as a destination due to
the various other activities in the city such as Old Town, and the city's
proximity to Burbank Airport.
Although room rates for meeting and group patronage are typically discounted,
hotels accommodating this demand benefit from the use of public facilities and
profits generated from food and beverage functions, and recreational amenities
offered.
Future demand potential in the meeting and group market segment is closely
related to commercial activity on a regional and national level. Because the
majority of corporate and business meetings and conferences have either a direct
or indirect business purpose, the current and anticipated economic health of
regional and national firms has a dramatic impact on the utilization of hotel
facilities. Additionally, due to the proximity of Pasadena to downtown Los
Angeles, large citywide conventions have some spillover effect into Pasadena.
The Pasadena Center also generates some group demand in the market. The Pasadena
Center has a preliminary plan to build an additional 58,000 square feet of
exhibit space, approximately 63,000 square feet of meeting space and a possible
59,000 square foot ballroom. The funding would come from an increase in
transient occupancy taxes. The project has not yet been approved by the city
council. The project is expected to be presented to the City Council in August
2002. Construction could begin at the earliest one year later and would require
a vote by the city's residents to increase the tax. If this project proceeds,
the hotels should benefit as their would now be an expanded venue to attract
additional groups to the area that may have not previously considered Pasadena
as a group destination.
LEISURE DEMAND
The leisure demand segment consists of individual tourists and families visiting
the attractions of a local market and/or passing through en route to other
destinations. Leisure demand is strongest Friday and Saturday nights, holiday
periods and the summer months. These peak periods generally are negatively
correlated with commercial and meeting and group demand. Local attractions
include the Rose Bowl, which holds a variety of sports and other events during
the year. Other important entertainment facilities include the Pasadena Civic
Auditorium, Pasadena Playhouse, and the Ambassador Auditorium, which favor
theatrical, musical, and other stage productions throughout the year. The
combined attendance at these venues is reported to be in the range of 650,000 to
750,000 persons per year. Although slightly peripheral to the subject market,
the Universal Amphitheater is also a significant entertainment center. The
facility hosts musical and other stage productions with an average attendance in
the range of 600,000 persons per year.
The Santa Anita Park racetrack in Arcadia offers some of the best horse racing
in the country during the racing season from late November through late April.
Santa Anita Park is located on Huntington Drive approximately one mile south of
the Foothill Freeway (1-210). The park's average annual attendance over the past
three years has been approximately 1.57 million persons, as measured by on-track
attendance.
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CONCLUSION
The Pasadena market has fared better than most in the past few years. According
to Smith Travel Research, the occupancy level between 2000 and 2001, remained
relatively flat, but the average rate declined 10.5 percent, due in part to a
contract signed with Qantas Airlines at three of the major hotels, the
Doubletree, the Hilton and the Sheraton. Although this contract provided a
steady base of roomnights, it was at the expense of average rate. Through the
first two months of 2001, the occupancy level did increase approximately 10
percent and the average rate decreased approximately 4.0 percent, resulting in a
RevPAR increase of 5.7 percent. As the economy begins to recover, the hotels
should be able to increase their room rates to their corporate guests, while
gathering more occupancy points. The proposed expansion of the Pasadena Center,
if completed, should help to increase overall occupancy levels in the market.
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Los Angeles West
OFFICE MARKET & SUBMARKET STATISTICS
End of the 4th Quarter of 2002
[Enlarge/Download Table]
NUMBER DIRECT OVERALL OVERALL NET DIRECT WTD.
OF DIRECT VACANCY AVAIL- VACANCY ABSORPTION AVG. RENTAL
MARKET / SUBMARKET INVENTORY BLDGS AVAILABILITIES RATE ABILITIES RATE YE '02 RATE
------------------ --------- ------ -------------- ------- --------- ------- ---------- -----------
PARK MILE/WEST HOLLYWOOD 9,485,637 73 1,529,002 16.1% 1,934,150 20.4% 54,464 $25.33
1 Park Mile 1,032,587 10 117,561 11.4% 117,561 11.4% (47,904) $19.20
2 Miracle Mile 4,632,946 20 702,476 15.2% 1,052,809 22.7% 57,442 $25.68
3 Hollywood 2,442,216 27 512,768 21.0% 532,567 21.8% 137,859 $23.88
4 West Hollywood 1,376,888 10 195,197 14.2% 231,213 16.8% (92,933) $31 .56
BEVERLY HILLS/CENTURY CITY 14,818,364 90 1,992,492 13.4% 2,546,203 17.2% (701,033) $35.19
5 Beverly Hills 6,152,370 67 845,565 13.7% 1,049,353 17.1% (155,563) $33.60
6 Century City 8,665,994 23 1,146,927 13.2% 1,496,850 17.3% (545,470) $36.36
WESTWOOD/WEST LOS ANGELES 19,190,727 154 2,861,808 14.9% 3,724,395 19.4% (305,972) $33.47
7 Westwood 2,657,126 11 367,557 13.8% 655,547 24.7% 34,629 $36.48
8 Brentwood 3,256,119 23 345,168 10.6% 476,587 14.6% (155,761) $33.12
9 Santa Monica 7,334,037 66 1,180,766 16.1% 1,462,999 19.9% (191,479) $35.88
10 Pacific Palisades 160,407 3 35,431 22.1% 48,500 30.2% 2,675 $32.52
11 West Los Angeles 5,783,038 51 932,886 16.1% 1,080,762 18.7% 3,964 $29.40
MARINA AREA/CULVER CITY 5,551,811 47 1,310,986 23.6% 1,496,120 26.9% (74,231) $30.19
12 Marina Del Rey/Venice/MarVista 1,279,431 12 377,839 29.5% 411,808 32.2% (39,154) $34.20
13 Culver City/Westchester 4,272,380 35 933,147 21.8% 1,084,312 25.4% (35,077) $28.56
TOTAL 49,045,539 364 7,693,288 15.7% 9,700,868 19.8% (1,026,722) $31.74
[GRAPHS]
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WESTSIDE LOS ANGELES OFFICE MARKET
Market Overview
The westside Los Angeles market is comprised of 13 distinct submarkets within
four separate sectors. These sectors generally function independently of one
another, despite their close proximity. The following chart shows the division
of the four sectors into the 13 submarkets.
SECTOR 1
1 - Park Mile
2 - Miracle Mile
3 - Hollywood
4 - West Hollywood
SECTOR 2
5 - Beverly Hills
6 - Century City
SECTOR 3
7 - Westwood
8 - Brentwood
9 - Santa Monica
10 - Pacific Palisades
11 - West Los Angeles
SECTOR 4
12 - Marina Del Rey/Venice
13 - Culver City/Westchester
These sectors are differentiated according to location and access, market
perception and tenant appeal, improvement quality, and rental rates. The
combined westside Los Angeles market contained 49,045,539 square feet of office
area as of year-end, 2002. There were 7,693,288 square feet available for direct
lease in the overall westside office market, indicating a 15.7 percent direct
vacancy rate. Including sublease availabilities, the overall vacancy rate was
19.8 percent.
The westside market is widely acknowledged as the most desirable office location
in Los Angeles County. This area is home for many executives in the greater Los
Angeles area and includes the upscale residential locations of Beverly Hills,
Bel Air, Brentwood, Westwood, Santa Monica, and Hancock Park. The westside
office market is the preferred location for tenants from the entertainment
industry, and is the headquarters location for numerous advertising agencies.
Major components of the tenant base in the westside office market also include
law, accounting, and financial services firms, as well as high-tech companies,
foreign consulates, and corporate tenants.
The westside office market experienced high "double-digit" vacancy rates during
the recession of 1990 through 1994, as the significant new supply of office
space completed during the latter half of the 1980's through 1992 coincided with
the decline in demand during one of the most severe economic recessions in
southern California history. During the period 1995 through 2000
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the westside office market experienced positive absorption levels, declining
vacancy rates and increasing rental rates as the economy recovered and continued
to expand. This economic expansion coincided with a period of essentially no new
development in the westside markets during the six-year period 1993 through
1998. Following 2000, however, economic conditions have "softened", negatively
impacting most Los Angeles County markets, including the westside. During
2001-2002, vacancy rates have increased fairly significantly in the westside as
a result of new construction and negative absorption.
The chart below summarizes the direct and overall vacancy trends from 1989
through 2002.
[Download Table]
YEAR-END DIRECT VACANCY OVERALL VACANCY
-------- -------------- ---------------
1989 12.1% 15.1%
1990 15.9% 19.6%
1991 19.3% 23.7%
1992 19.7% 22.1%
1993 19.0% 21.4%
1994 17.4% 19.2%
1995 17.6% 19.4%
1996 14.2% 17.2%
1997 12.8% 14.5%
1998 11.1% 12.2%
1999 7.6% 8.5%
2000 6.9% 8.8%
2001 12.3% 16.3%
2002 15.7% 19.8%
The 14 full years summarized above cover the period prior to and following the
major economic recession that commenced during approximately the third quarter
1990 (in the Los Angeles area). Direct vacancy levels increased from 12.1
percent as of the end of 1989 to 19.7 percent as of year-end 1992. Direct
vacancy rates were relatively flat at or near their peak levels from 1991
through 1993, ranging from 19.0 percent to 19.7 percent prior to declining to
the 6.9 percent level as of year-end, 2000. The absence of new development and
the positive absorption levels resulted in a 12.8 percentage point decline in
the direct vacancy rate in the combined westside markets from year-end 1992
through 2000. Despite completion of some new supply during 1999 and 2000, strong
absorption levels resulted in a 70 basis points vacancy decline during 2000. The
weakening of the economy and collapse of the "dot-com" market increased vacancy
levels, including sublease rates in 2001-2002.
The chart below summarizes the net absorption trends in the westside market over
the 12-year period 1991 through 2002.
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NET ABSORPTION TRENDS
Los Angeles West
Office Market
[Download Table]
YEAR NET ABSORPTION(SF)
---- ------------------
1991 787,743
1992 179,486
1993 144,003
1994 341
1995 341,627
1996 1,523,155
1997 848,375
1998 701,045
1999 1,755,029
2000 1,414,759
2001 (1,888,836)
2002 (1,026,772)
[GRAPH]
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The net absorption of office space in the westside market area increased from
virtually zero square feet during 1994 to 1,523,155 square feet during 1996. The
1996 figure represented the most significant positive absorption for the
westside market area during this decade. The year-end, 1999 net absorption level
was 1,755,029 square feet and 2000 absorption totaled over 1.4 million square
feet. The positive absorption levels and the continued absence of new
development prior to 1999 resulted in continued declining vacancy rates and
increasing rents, and larger contiguous "blocks" of space became increasingly
scarce. More recently, however, the westside market experienced negative
absorption levels and the "premature" loss of a number of "dot-com" tenants
such as E-Toys (150,000 square feet) and subleasing activity from tenants such
as X-Drive, Sony, Turner Broadcasting, and Sapient. As of year-end, 2001 and
2002 there has been negative absorption nearly 1.9 million (2001) and 1.03
million (2002) square feet in these markets and an increase in larger contiguous
blocks of space in the westside.
Increased absorption and declining vacancy rates resulted in spiking rental
rates, particularly from 1996 through 2000 prior to leveling off during 2001 and
declining during 2002, as shown in the following exhibit.
[GRAPH]
Although the weighted average asking rental rate showed an increased of 8.3
percent during 2001 in comparison to 2001, achieved rental rates began to soften
and decline over the course of 2001, leading to a decline of 7.8 percent during
2002.
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PRIMARY COMPETITIVE WESTSIDE SUBMARKETS
Of the 13 submarkets included in the larger westside market area, eight
submarkets are recognized as the most desirable, competitive locations. These
eight submarkets are all located west of the eastern boundary of Beverly Hills.
The Santa Monica and Playa Vista submarkets compete most directly with these
eight markets, which contain an aggregate rentable area of 39.4 million square
feet in 288 buildings. As shown below, these combined eight markets had a
year-end, 2002 direct vacancy rate of 15.6 percent.
COMPETITIVE WESTSIDE SUBMARKETS
End of the 4th Quarter of 2002
[Enlarge/Download Table]
DIRECT
DIRECT DIRECT OVERALL DIRECT NET ABSORPTION DIRECT
NUMBER AVAIL- VACANCY AVAIL- VACANCY ----------------------- WTD. AVG.
SUBMARKET INVENTORY OF BLDGS ABILITIES RATE ABILITIES RATE YR END '01 YTD '02 RENTAL RATE
--------- --------- -------- --------- ------- --------- ------- ---------- --------- -----------
1 Beverly Hills 6,152,370 67 845,565 13.7% 1,049,353 17.1% (96,693) (155,563) $33.60
2 Century City 8,665,994 23 1,146,927 13.2% 1,496,850 17.3% (252,551) (545,470) $36.36
3 Westwood 2,657,126 11 367,557 13.8% 655,547 24.7% (348,358) 34,629 $36.48
4 Brentwood 3,256,119 23 345,168 10.6% 476,587 14.6% (71,168) (155,761) $33.12
5 Santa Monica 7,334,037 66 1,180,766 16.1% 1,462,999 19.9% (455,252) (191,479) $35.88
6 West Los Angeles 5,783,038 51 932,886 16.1% 1,080,762 18.7% (200,466) 3,964 $29.40
7 Marina Del Rey/Venice/MarVista 1,279,431 12 377,839 29.5% 411,808 32.2% (40,220) (39,154) $34.20
8 Culver City/Westchester 4,272,380 35 933,147 21.8% 1,084,312 25.4% (49,645) (35,077) $28.56
---------- --- --------- ---- --------- ---- ---------- --------- ------
TOTAL 39,400,495 288 6,129,855 15.6% 7,718,218 19.6% (1,514,353) (1,083,911) $33.33
========== === ========= ==== ========= ==== ========= ========= ======
[GRAPHS]
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VALUATION ADVISORY SERVICES 150 CUSHMAN & WAKEFIELD(R)
WESTSIDE LOS ANGELES OFFICE MARKET
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The current 15.6 percent combined direct vacancy level for these markets
represents a softening in the five-year trend of declining vacancy rates from
1996 through 2000, as summarized in the following chart.
COMPETITIVE WESTSIDE SUBMARKETS
DIRECT VACANCY RATES
Annual Trend
[Enlarge/Download Table]
SUBMARKET 1993 1994 1995 1996 1997 1998 1999 2000 2001 YTD '02
--------- ---- ---- ---- ---- ---- ---- ---- ---- ---- -------
Beverly Hills 22.0% 21.3% 20.0% 14.4% 12.6% 9.6% 6.7% 7.8% 10.9% 13.7%
Century City 16.8% 16.4% 14.0% 10.3% 9.0% 7.8% 6.7% 4.1% 6.9% 13.2%
Westwood 23.2% 20.5% 14.2% 9.7% 7.5% 7.6% 8.2% 8.2% 17.6% 13.8%
Brentwood 15.1% 14.3% 12.3% 12.9% 11.1% 9.8% 5.0% 3.4% 5.8% 10.6%
Santa Monica 11.1% 10.4% 18.1% 12.3% 10.3% 9.2% 3.2% 4.4% 11.9% 16.1%
West Los Angeles 19.8% 20.5% 21.6% 20.8% 16.3% 7.6% 8.4% 8.1% 13.4% 16.1%
Marina Del Rey/Venice/MarVista 22.8% 12.5% 12.9% 9.0% 9.9% 15.8% 9.1% 4.7% 8.6% 29.5%
Culver City/Westchester 24.7% 15.8% 14.7% 12.0% 11.1% 8.0% 5.3% 3.6% 15.4% 21.8%
---- ---- ---- ---- ---- ---- --- --- ---- ----
SUBMARKET TOTALS 18.5% 16.7% 16.3% 12.6% 10.8% 8.7% 6.2% 5.5% 11.0% 15.6%
==== ==== ==== ==== ==== ==== === === ==== ====
[GRAPHS]
Recent negative absorption trends (described below) resulted in increased
vacancy levels during 2001 from 5.5 percent to 11.0 percent and to 15.6 percent
during 2002. The current vacancy rate for these eight submarkets is between 1995
and 1996 levels.
The excellent westside tenant base, the quality of the office supply in these
markets, the desirable surrounding residential housing and the extensive retail,
restaurant and cultural amenities led to impressive absorption in recent years
as the economy strengthened, particularly from 1996 through 2000, as shown in
the following chart on the next page. The negative absorption of nearly 2.6
million square feet during 2001-2002 (in the aggregate) has offset the positive
net absorption figures in these eight markets during 1999-2000. Overall during
the past 10 years, these primary competitive markets have experienced an average
annual net absorption level of positive 341,000 square feet.
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VALUATION ADVISORY SERVICES 151 CUSHMAN & WAKEFIELD(R)
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COMPETITIVE WESTSIDE SUBMARKETS
NET ABSORPTION (SF)
ANNUAL TREND
[Enlarge/Download Table]
SUBMARKET YE'93 YE'94 YE'95 YE'96 YE'97 YE'98 YE'99 YE'00 YE'01 YE'02 AVERAGE
-----------------------------------------------------------------------------------------------------------------------------------
Beverly Hills (2,818) 45,581 143,812 307,735 95,636 170,357 165,649 (42,670) (96,693) (155,563) 63,103
Century City 48,648 81,205 173,451 329,592 112,504 97,146 15,471 225,027 (252,551) (545,470) 28,502
Westwood 166,823 149,313 172,706 183,354 130,891 (4,615) 325 243,594 (348,358) 34,629 72,866
Brentwood 19,779 37,078 148,907 (19,754) 56,790 44,937 145,272 52,664 (71,168) (155,761) 25,874
Santa Monica (74,459) (106,931) (141,470) 348,354 77,174 70,920 396,995 443,438 (455,252) 191,479 36,729
West Los Angeles 177,068 (243,152) (120,211) 31,224 170,020 384,866 849 146,252 (200,466) 3,964 35,041
Marina Del
Rey/Venice/
MarVista 127,351 1,379 92,935 42,788 (9,252) (128,868) 65,991 45,146 (40,220) (39,154) 15,810
Culver City/
Westchester 40,569 2,076 52,844 98,765 32,750 64,162 177,190 250,283 (49,645) (35,077) 63,392
Supermarket
Totals 502,951 (33,451) 552,974 1,322,058 666,513 689,905 967,742 1,363,734 (1,514,353) (1,803,911) 341,317
[GRAPH]
Prior to 2001, significant absorption, declining vacancy rates, and limited
new development prior to current construction projects created a favorable
leasing environment for office landlords who have benefited from rental spikes
and increasing cash flows. New construction or extensive renovation projects
have occurred in the three markets with the greatest recent (prior to 2001)
absorption levels (Santa Monica, Westwood, and Century City), demonstrating
that the lack of available space had negatively impacted the potential for
absorption in other westside market. The premier westside markets led the
countywide office market recovery during the second half of the last decade,
both in terms of high occupancy levels and market rental rates. The
significant 2001 negative absorption of 1.5 million square feet and 2002
negative absorption of 1.02 million square feet in these eight markets
overall, including negative absorption in each of the individual markets, has
contributed to recent declines in rental rates.
The chart below shows the improvement in vacancy levels from 1995 through 2000
for the competitive markets, as well as the increased vacancy levels during
2001-2002.
[Download Table]
YEAR-END 1995 YEAR-END 2000 VACANCY YEAR-END 2000-2002
WESTSIDE VACANCY
SUBMARKET VACANCY VACANCY CHANGE 2002 CHANGE
Beverly Hills 20.0% 7.8% (12.2%) 13.7% +5.9%
Century City 14.0% 4.1% (9.9%) 13.2% +9.1%
Westwood 14.2% 8.2% (6.0%) 13.8% +5.6%
Brentwood 12.3% 3.4% (8.9%) 10.6% +7.2%
Santa Monica 18.1% 4.4% (13.7%) 16.1% +11.7%
West Los Angeles 21.6% 8.1% (13.5%) 16.1% +8.0%
Marina Del Rey 12.9% 3.6% (9.3%) 29.5% +25.9%
Culver City/Westchester 14.7% 3.6% (11.1%) 21.8% +18.2%
Totals 16.3% 5.5% (10.8%) 15.6% +10.1%
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VALUATION ADVISORY SERVICES 152 CUSHMAN & WAKEFIELD(R)
WESTSIDE LOS ANGELES OFFICE MARKET
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The 10.8 percentage point decline in vacancy in the competitive westside markets
from 1995 through 2000 resulted in single-digit vacancy levels, limited "blocks"
of contiguous space, and spiking rents. During the most recent two-year period
2001-2002, however, the market has "given back" most of the 10.8 percentage
point vacancy improvement from 1995 to 2000, as vacancy levels increased in the
eight primary competitive markets from 5.5 percent to 15.6 percent, an increase
of 10.1 percentage points.
The vacancy fluctuations have had a corresponding impact on rental rates.
Weighted average annual per-square-foot direct rental rates for available space
in these markets increased 11.1 percent annually, compounded from year-end 1997
through 2000, and showed continued increase of 5.1 percent from 2000 to 2001.
The year-end 2002 weighted average rents declined by 10.4 percent from 2001
figures. The chart below shows the rental rate trends in these westside
submarkets since year-end 1993.
Competitive Westside Submarkets
DIRECT AVERAGE RENTAL RATES
Annual Trend
[Enlarge/Download Table]
Submarket 1993 1994 1995 1996 1997 1998 1999 2000 2001 YTD '02
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Beverly Hills $25.20 $24.24 $25.08 $24.72 $27.48 $28.68 $28.80 $33.48 $35.76 $33.60
Century City $25.56 $22.56 $23.28 $23.28 $27.84 $31.08 $32.04 $36.60 $42.24 $36.36
Westwood $27.60 $27.36 $28.32 $28.20 $32.52 $34.92 $34.68 $40.56 $41.52 $36.48
Brentwood $27.60 $26.04 $24.84 $23.64 $26.52 $30.48 $31.92 $37.80 $36.48 $33.12
Santa Monica $24.48 $21.72 $25.20 $27.84 $28.08 $29.76 $31.68 $41.28 $39.12 $35.88
West Los Angeles $20.88 $20.04 $18.84 $19.08 $21.72 $22.56 $23.88 $29.16 $33.48 $29.40
Marina Del $18.24 $18.12 $19.92 $18.96 $16.44 $20.40 $29.64 $35.04 $32.16 $34.20
Rey/Venice/MarVista
Culver City/Westchester $16.80 $17.16 $17.28 $17.16 $18.84 $21.36 $23.40 $24.96 $30.48 $28.56
Submarket Totals $23.93 $22.78 $23.32 $23.32 $25.84 $28.52 $29.88 $35.41 $37.21 $33.33
(GRAPH)
WESTSIDE TENANT BASE
The westside is the preferred executive housing location, and although office
rental rates in these markets are above other areas of southern California,
employee recruitment has become an important consideration, offsetting cost of
occupancy concerns, in location decisions. For national firms in particular the
westside Los Angeles rental rates are consistent or below rents for offices in
other major US markets such as Chicago and New York.
The westside Los Angeles housing market is the most desirable residential
location in southern California, as shown in the chart below.
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VALUATION ADVISORY SERVICES 153 CUSHMAN & WAKEFIELD(R)
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MEDIAN HOME PRICES - WESTSIDE LOS ANGELES VS. LOS ANGELES COUNTY
[Download Table]
MEDIAN PRICE
--------------------------
WESTSIDE MARKETS DECEMBER 2001 MARCH 2002 % CHANGE
---------------- ------------- ---------- --------
Santa Monica $547,250 $630,000 15.1%
Beverly Hills $700,000 $880,000 25.7%
West Los Angeles $390,000 $452,250 15.9%
Los Angeles County $235,000 $280,000 19.2%
Based on the most recent data (December, 2002), West Los Angeles median home
prices are 62 percent above the Los Angeles County median price, and individual
housing submarkets such as Beverly Hills and Santa Monica are 214 percent and
125 percent higher than the countywide median price, respectively. This clear
premium associated with the westside location reflects the relative desirability
of this market for the residential population.
The westside tenant base includes the entertainment industry and other
"creative" professions such as advertising and architecture. The westside has
also become a financial center for Los Angeles, and is a preferred location for
law, accounting, and financial services firms. Although technology tenants have
historically been well represented in the westside markets, this component of
the market expanded during 1999-2000, particularly in the field of technology,
eCommerce and "New Media". This category of tenant entered the westside market
during 1999-2000, competing aggressively for available space. The westside
market has a critical mass of creative marketing and technical talent, and a
dynamic environment created by a variety of cutting edge firms in these business
sectors. The "collapse" of the dot-com" market and several related technology
firms during 2001 changed the dynamics of this component of the market. The
influx of eCommerce or "dot-com" tenants in certain submarkets (such as
portions of Santa Monica) resulted in the loss of several major tenants in this
sector - examples include eToys in West Los Angeles and Alesis Studio
Electronics and "X-Drive" in Santa Monica. Other firms such as Sony and IBM
altered plans for technology ventures officed in the Santa Monica market,
subsequently (2002) subleasing significant premises in Class A buildings in this
market.
The chart below provides an overview of the components of the westside tenant
base, including entertainment, technology, financial services, law, and
corporate tenants.
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VALUATION ADVISORY SERVICES 154 CUSHMAN & WAKEFIELD(R)
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[Enlarge/Download Table]
------------------------------------------------------------------------------------------------------
ENTERTAINMENT - MOTION PICTURES, TELEVISION AND MUSIC
------------------------------------------------------------------------------------------------------
20th Century Fox Delta Music Rysher Entertainment
Activision Digital Ent. Network Saban Entertainment*
Actor's Equity E! Entertainment SAG (Screen Actor's Guild)
AFTRA EMI Music Publishing Showtime
Another Large Production Epic Records Sire Records Group
Artisan Entertainment Focus Media Sony*
Banned from the Ranch Fox Sports Net Sony Music
Bay Films Fox Television Spelling Entertainment
Bordertown Productions HBO TCI
Cablevision Hollywood Digital Telemundo Network
Caravan Pictures ICM (Talent Agency) Tri-Energy Productions (Getty Images)
CBS IMAX United Talent
Centropolis Effects Langley Productions Universal Music
Cinergi Maverick Records Vanguard Records
Cognito Films, Inc. MGM/United Artists Virgin Records
Creative Artists (Talent Agency) MTV Networks/Viacom Vision Entertainment
Cybermedia Pearson Television
Daily Variety Playboy Enterprises, Inc.
(relocating to Glendale)
------------------------------------------------------------------------------------------------------
TECHNOLOGY - COMPUTER SERVICES, E-COMMERCE, NEW MEDIA
------------------------------------------------------------------------------------------------------
Alesis Studio Electronics* GTE Mainstreet Microsoft
Apple Computer Hewlett Packard NewWave Entertainment
Broadband Sports Hollywood On-Line Novell
Canon Communications IBM OZ Digital Media/eCity Studios
Carat USA IBM Interactive* Perot Systems
Cypress West Industrial Light & Magic Sun Microsystems
Digiscope Info Tech Symantec Corporation*
Ecompanies Latitude 90 TCI
Excelergy Launch Todd AO
Four Media Lucent Technology
Global Crossing* Massive Media
------------------------------------------------------------------------------------------------------
PROFESSIONAL - FINANCIAL, INSURANCE, ADVERTISING, LAW, GENERAL
------------------------------------------------------------------------------------------------------
Abrams & Tanaka Haight Brown Bonesteel Oppenheimer
AG Edwards Herbalife International Rand Corporation
Argonaut Insurance HOK Random House
Aurora Capital IDS Financial Services Santa Monica College
Aurora National Life J. Paul Getty Trust Sapient Corporation*
Bear Stearns Japan Foundation SoCal Physician's Exchange
Berger & Norton Jeffer Mangels Paine Weber
Business Week Jefferies Group People's Bank
Campbell Ewald Kaufman & Broad Perkins Will
Capital Group Key Media Pricewaterhouse Coopers
Charles Schwab Korn Ferry Protocare
Christiensen, Miller KPFF Engineering Psomas & Associates
Cohen & Brown KPMG Peat Marwick Prudential Securities
Component Research Group LA Times Specialty Laboratories
Dean Witter Liberty Mutual Steelease
Donaldson, Lufkin & Jenrette Loeb & Loeb Stonefield Josepheson
Dreyfus Manatt Phelps Sun America
Fogel, Feldman Marathon Bank Sutro & Company
Foothill Capital McGraw Hill Companies Times Mirror Publishing
Frank Gehry & Associates Merrill Lynch Towers, Perrin
Freedman Broder & Company Mitchell Silberberg U.S. Bancorp
Gensler Morgan Stanley Western Media
Gillette Mutual of New York
Goldman Sachs Nelsen, Thompson
Greenberg Traurig Northrop Grumman Corp.
* Recent downsize or lease terminations
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VALUATION ADVISORY SERVICES 155 CUSHMAN & WAKEFIELD(R)
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The entertainment industry has historically provided a significant and stable
source of demand for office space in the Los Angeles westside market area as
well as in certain San Fernando Valley markets - - particularly Burbank,
Universal City and Glendale. The discussion below provides an overview of this
sector of the market.
ENTERTAINMENT INDUSTRY
The entertainment industry is a major demand generator for office space in the
Westside Los Angeles market. The entertainment industry continued to perform
well during the first half of the current decade despite the severe economic
recession which affected southern California.
The entertainment industry in Los Angeles County includes three primary
components: 1) the film, or motion picture/television industry; 2) the music
industry; and 3) the post production industry. The maps on the accompanying
pages provide an overview of the locations for a number of companies in each of
these components of the entertainment industry. The different groups within the
industry have concentrated in several areas of Los Angeles, including different
locational preferences for groups affiliated with a single ownership.
The film industry is concentrated in the Burbank/Tri-Cities area, in north Los
Angeles, as well as westside markets of Santa Monica, Brentwood, Culver City,
Beverly Hills and Century City. Although Burbank and adjacent markets capture
most demand from animation groups, including Disney, Warner Brothers, and
DreamWorks, other film groups associated with these companies may locate in the
westside market area. The music divisions of major entertainment companies
typically locate in westside Los Angeles submarkets, particularly Beverly Hills
and Santa Monica. The post-production companies are typically concentrated in
the area surrounding Burbank and Hollywood.
LOS ANGELES AS DOMINANT LOCATION OF THE ENTERTAINMENT INDUSTRY
California, and specifically the Los Angeles area has historically been the
dominant location for the entertainment industry. As shown on the accompanying
exhibits, the Los Angeles area has, by a significant margin, more sound stage
square footage and more film production than any other location, and benefits
from substantially greater entertainment industry expenditures. As shown the
charts, direct entertainment industry expenditures in Los Angeles are at least
10 times greater than the next closest competitive location, New York City.
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VALUATION ADVISORY SERVICES 156 CUSHMAN & WAKEFIELD(R)
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SOUND STAGE SPACE 1999
(SQUARE FOOTAGE]
(BAR CHART)
FEATURE FILM PRODUCTION BY CITY
1996-1999
(BAR CHART)
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VALUATION ADVISORY SERVICES 157 CUSHMAN & WAKEFIELD(R)
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DIRECT EXPENDITURES BY CITY
1996-2000
(BAR CHART)
Los Angeles County has been the center of the filmed entertainment industry
since the early days of filmmaking. The state of California accounts for
approximately 80 percent of the filmed entertainment industry employment
nationwide, with Los Angeles County accounting for over 93 percent of the
statewide total (statistics per State of the Industry, Motion Picture
Association of America, 1998 study). Many of the films and television programs
not actually produced in California are nevertheless created, controlled, and
administered from Los Angeles.
All the major studios and television networks, as well as most of the larger
cable networks, have headquarters and/or major production facilities in Los
Angeles County. The city of Burbank and adjacent Universal City area have the
highest concentration, with Walt Disney Studios, NBC Studios, Warner Bros.
Studios, Universal Studios, and Hanna-Barbara Productions all in this area.
Outside of Burbank/Universal City, the CBS Studios are located adjacent in
Studio City, ABC has Hollywood and Century City locations (with a new news
facility under-construction in Glendale), 21st Century Fox is in Century City
and Manhattan Beach, MGM/UA is in Santa Monica, and Sony Pictures Entertainment
is in Culver City. There are numerous independent studios in the region,
particularly in the Hollywood area. Increased space demands have resulted in
office space expansions on most of the studio sites, with additional office and
soundstage facilities planned.
The motion picture/television industry has experienced significant growth over
the past few years, both in terms of worldwide demand for television/film
product and the level of employment. In 2001, the motion picture industry
reported its highest level of movie attendance, at 1.49 billion, an increase of
more than 66 million from the prior year. The average admissions price per
person increased to $5.66 in 2001, and the Motion Picture Association of America
(MPAA) reports U.S. residents have attended at least five movies per year for
the past six years.
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VALUATION ADVISORY SERVICES 158 CUSHMAN & WAKEFIELD(R)
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Total US motion picture industry employment has increased by 55 percent from
1990 to 2000, of by 4.6 percent annually, compounded, as shown in the chart
below. The Production and Services category of employment in this industry
represents the largest component of the employment base, both in terms of total
employment and growth, with a 100 percent increase in employment from 1990 to
2000.
U.S. MOTION PICTURE INDUSTRY EMPLOYMENT TRENDS
(OOOS)
[Download Table]
Production & Video Tape
Year Total Services Theaters Rental Other
2000 630.8 296.2 132.2 184.4 18.0
1999 609.8 278.3 138.2 175.7 17.6
1998 576.0 255.4 136.8 166.7 17.1
1997 550.4 237.4 133.0 160.9 19.1
1996 524.7 222.5 123.9 155.1 23.2
1995 487.6 200.7 118.7 146.1 22.1
1994 441.2 169.6 113.4 138.8 19.4
1993 412.0 152.7 110.6 132.4 16.3
1992 400.9 148.8 110.2 127.1 14.8
1991 410.9 153.1 112.0 131.2 14.6
1990 407.7 147.8 112.1 133.7 14.1
1989 374.7 133.9 109.9 118.2 12.7
1988 340.9 113.7 108.0 103.3 15.9
Source: MPAA Worldwide Market Research
02_Film Industry Charts.xls
MOTION PICTURE INDUSTRY TRENDS
Domestic Box Office
[Download Table]
----------------------------------------------------
New No. Admissions Avg.
Pictures Indoor Total Ticket
Year Released Screens (millions) Price
----------------------------------------------------
1991 423 23,740.0 1,140.6 $4.21
1992 425 24,344.0 1,173.2 $4.15
1993 440 24,789.0 1,244.0 $4.14
1994 410 25,830.0 1,291.7 $4.18
1995 370 26,958.0 1,262.6 $4.35
1996 420 28,864.0 1,338.6 $4.42
1997 461 30,825.0 1,387.7 $4.59
1998 490 33,440.0 1,480.7 $4.69
1999 442 36,448.0 1,465.2 $5.08
2000 461 36,679.0 1,420.8 $5.39
2001 462 36,110.0 1,487.3 $5.66
Source: Nat'l Assoc. of Theatre Owners; 2001
Encyclopedia of Exhibition, MPAA
INDUSTRY TRENDS
(BAR GRAPH)
02_Film Industry Charts.xls
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VALUATION ADVISORY SERVICES 159 CUSHMAN & WAKEFIELD(R)
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Employment
The motion picture/television industry has been a strong stable source of high
wage employment within the Los Angeles area, and has surpassed the defense
industry in terms of countywide employment. Employment in this industry recorded
strong gains between 1993 and 1997, leveling off from 1998 through 2000. In 1998
and 1999, more modest job gains resulted from "runaway" productions (TV series
and movies moving production outside the U.S.) and cutbacks in feature film
productions by some major studios. The 25-week strike in 2000 by the Screen
Actors Guild (SAG) and the American Federation of Radio & Television Artist
(AFTRA) against commercial producers cost the local economy about $235 million,
with some commercial production going both to Canada and some domestic locations
outside Los Angeles County. As a result, there was a decline of 1,500 in
employment.
As shown in the chart below, Los Angeles dominates the high-wage
movie/television production component of the industry, with 50 percent of total
US employment in this field.
MOTION PICTURE / TV PRODUCTION EMPLOYMENT
[Download Table]
Los
Year Angeles California U.S.
---- ------ ---------- ----
1988 53,200 58,300 113,700
1989 67,100 72,500 133,900
1990 75,800 81,600 147,800
1991 81,700 89,200 153,100
1992 76,300 85,300 148,800
1993 87,400 92,400 152,700
1994 95,600 101,100 169,600
1995 111,000 118,200 200,700
1996 119,400 127,400 222,500
1997 132,400 141,200 237,000
1998 135,200 147,100 255,400
1999 137,900 150,600 279,000
2000 135,100 148,100 269,900
Source: Bureau of Labor Statistics (BLS), CA EDD
PRODUCTION EMPLOYMENT
(LINE GRAPH)
For 2001, the Los Angeles County Economic Development Corporation (LAEDC)
estimates that film/TV employment in Los Angeles County will remain steady at
approximately 136,400 jobs.
Box Office Receipts
Los Angeles County has historically been the headquarters location for the major
movie studios. The growth in employment from this sector is directly related to
the growth in domestic theatrical box office sales during the past 10 years, as
outlined in the chart below.
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VALUATION ADVISORY SERVICES 160 CUSHMAN & WAKEFIELD(R)
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U.S. Theatrical Box Office Receipts
Expressed in Billions
[Download Table]
Year Receipts %+
---- ------- ------
1991 4.80 --
1992 4.87 1.4%
1993 5.15 5.8%
1994 5.40 4.7%
1995 5.49 1.8%
1996 5.91 7.6%
1997 6.37 7.7%
1998 6.95 9.2%
1999 7.45 7.2%
2000 7.66 2.9%
2001 8.41 9.8%
(BAR GRAPH)
Source: Motion Picture Association of America (MPAA)
02_Film Industry Charts.xls
Film Permits
The increase in demand for movie and television production has created pressures
on the existing studio capacity levels in the Los Angeles area. Studio lots have
experienced strong demand for location and studio production through greater Los
Angeles. Additional demand has been created by television and cable television
requirements, as well as independent production companies, music videos, and
advertising agencies. The City of Los Angeles and Los Angeles County formed the
Entertainment Industry Development Corporation during the first portion of this
decade in order to "streamline" the film permitting process. The chart below
summarizes the growth in location film permits during the past eight years.
FILM PERMITS
LOS ANGELES COUNTY
[Download Table]
Year Receipts % +
---- -------- ------
1993 26,813 --
1994 26,698 -0.4%
1995 33,982 27.3%
1996 43,982 29.4%
1997 47,669 8.4%
1998 45,653 -4.2%
1999 46,410 1.7%
2000 46,808 0.9%
(BAR GRAPH)
Source: Entertainment Industry Development Corp. (EIDC)
02_Film Industry Charts.xls
The flat production figures during 2000 reflect the impact of the strikes by
SAG and AFTRA.
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VALUATION ADVISORY SERVICES 161 CUSHMAN & WAKEFIELD(R)
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Production Days in Los Angeles County
Location filming (outside of soundstages) is quantified on the basis of
production days. In Los Angeles County, the Entertainment Industry Development
Corporation (a quasi-public agency) is responsible for issuing location film
permits countywide. These permits essentially measure the number of production
days. Production days do not include soundstage use. As soundstages are private
property, owners are not required to obtain specific permits for individual
productions. Hence, there are no public agencies that track utilization rates.
There is some correlation between production days and soundstage utilization.
Total production days data is summarized below.
TOTAL AMOUNT PRODUCTION DAYS
LOS ANGELES COUNTY
[Download Table]
Year Days % +
---- ---- -----
1993 19,277 --
1994 19,724 2.3%
1995 23,332 18.3%
1996 30,614 31.2%
1997 33,328 8.9%
1998 30,616 -8.1%
1999 29,269 -4.4%
2000 27,608 -5.7%
2001 27,435 -0.6%
(BAR GRAPH)
Source: Entertainment Industry Development Corp. (EIDC)
02_Film Industry Charts.xls
As shown, the number of location production days increased significantly in 1995
and 1996, with growth moderating in 1997. The increases were due to growth in
the industry and were facilitated by a streamlining of the permitting process
and a more proactive government involvement led by the Entertainment Industry
Development Corporation. The 1998 figures indicate a decline in the number of
production days, the first since the start of the economic recovery attributed
to a well-publicized slowdown in the industry, particularly as it relates to
reduced feature film production and a shift in television production to other
locations. The 1999 and 2000 figures show continued slowing, but are below the
peak decline achieved in 1998. The 2001 figures show a slight loss of less than
1 percent compared to 2000 and reflects a flattening in continued losses in
production days resulting from economic conditions affecting the industry.
The Entertainment Industry Development Corporation data can be further analyzed
by type of production. Motion pictures and television shows typically have
higher employment levels and generate more revenues than commercials, music
videos, etc. Historical production data by type since 1993 is summarized below.
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VALUATION ADVISORY SERVICES 162 CUSHMAN & WAKEFIELD(R)
WESTSIDE LOS ANGELES OFFICE MARKET
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PRODUCTION DAYS BY TYPE
(Motion Picture for Profit)
[Download Table]
Year Features Commercial TV Music Total
---- -------- ---------- ----- ----- -------
1993 6,965 4,838 6,275 1,199 19,277
1994 7,304 4,743 6,535 1,142 19,724
1995 9,393 4,845 7,831 1,263 23,332
1996 13,980 5,645 9,425 1,564 30,614
1997 13,284 6,654 11,713 1,677 33,328
1998 11,542 6,152 11,185 1,737 30,616
1999 10,526 6,569 10,279 1,895 29,269
2000 9,483 4,950 11,123 2,052 27,608
2001 9,379 5,580 10,867 1,609 27,435
Source: MPAA Worldwide Market Research
PRODUCTION DAYS
(LINE GRAPH)
Los Angeles County Studio Facilities
All of the major film companies and television networks, as well as many of the
cable networks have either headquarters locations or other major production
facilities in Los Angeles County. The greatest concentration of entertainment
industry facilities is in the Burbank area, including within the city of
Burbank, Universal City, and Glendale. Major studios for Walt Disney, NBC,
Warner Brothers, and Universal are located within this market, and the animation
industry is also concentrated in the Burbank/Universal City/Glendale markets,
including Disney, Warner Brothers, Turner, DreamWorks, and Hanna Barbera. The
Hollywood market and the westside Los Angeles market area also contains numerous
entertainment studios.
According to a 1999 survey by the Entertainment Industry Development
Corporation, there are 375 sound stages in the Los Angeles area, with a combined
area of 4.21 million square feet. These stages are located in 80 separate
complexes, ranging from single-stage facilities to the 32 sound stages at
Universal (MCA).
The accompanying exhibit summarizes the major studio facilities throughout the
county, as well as proposed new studios or expansions of existing facilities.
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VALUATION ADVISORY SERVICES 163 CUSHMAN & WAKEFIELD(R)
WESTSIDE LOS ANGELES OFFICE MARKET
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STUDIO FACILITIES
Los Angeles County, California
[Enlarge/Download Table]
STUDIO TOTAL % STAGES SOUND STAGES OFFICE
ITEM NAME / FACILITY % OFFICES TOTAL TOTAL
NO. LOCATION SF % SUPPORT NO. SF AREA(SF)
-------------------------------------------------------------------------------------------
C-1 Warner 2,481,793 22% 36 539,849 1,063,414
Brothers 43%
Studios 35%
4000 Warner
Blvd.
Burbank
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C-2 Walt Disney 1,071,809 9% 5 99,813 611,921
Studios 57%
500 S. Buena 34%
Vista Ave.
Burbank
-------------------------------------------------------------------------------------------
C-3 Universal 2,448,000 32 389,772
Studios
100 Universal
City Plaza
Universal City
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C-4 CBS - Radford 522,847 45% 19 233,847 134,000
Studios 25%
4024 Radford Ave. 30%
Studio City
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C-5 KTLA 288,763 29% 8 84,720 139,408
Studios 48%
Sunset 23%
Blvd.
Hollywood
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C-6 Sunset Gower 489,705 35% 12 173,542 222,930
Studios 46%
1438 N. Gower 19%
St.
Hollywood
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C-7 Ren Mar 135,207 60% 6 80,721 30,204
Studios 22%
846 N. Cahuenga 18%
Blvd.
Hollywood
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C-8 Raleigh 312,941 N/A 12 129,638 161,611
Studios N/A
5300 N/A
Melrose Ave.
Hollywood
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C-9 Hollywood 226,565 40% 13 90,338 52,548
Center Studios 23%
1040 N. Las 37%
Palmas Ave.
Hollywood
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C-10 Paramount 1,015,676 36% 29 365,676 300,000 estimated
Studios 30%
5555 34%
Melrose Ave.
Hollywood
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C-11 Warner-Holly- 289,597 28% 7 80,822 81,519
wood Studios 28%
1041 N. Formosa 44%
Ave.
West Hollywood
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C-12 Sony Pictures 1,550,404 25% 26 382,435 510,018
Studios 33%
10202 W. 42%
Washington Blvd.
Culver City
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C-13 Culver Studios 538,493 29% 14 153,691 225,484
9336 W. 42%
Washington 29%
Blvd.
Culver City
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C-14 20th Century 1,123,460 29% 18 330,322 384,813
Fox Studios 34%
10201 W. Pico 36%
Blvd.
Los Angeles
(Century City)
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C-15 CBS 647,695 16% 8 103,400 184,786
Television 29%
Studios SEC 55%
Beverly Blvd.
& Fairfax
Ave.
Los Angeles
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C-16 Manhattan 540,000 53% 14 285,000 255,000
Beach Studios 47%
SW Rosecrans
Ave. & Redondo
Ave.
-------------------------------------------------------------------------------------------
C-17 Los Angeles 110,000 100% 6 110,000
Center Studios
1201 W. Fifth
St.
Los Angeles
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TOTALS 13,792,955 265 3,633,586 4,357,656
Total SF total Total SF Total SF
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VALUATION ADVISORY SERVICES 164 CUSHMAN & WAKEFIELD(R)
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PLANNED EXPANSIONS AND NEW DEVELOPMENTS
STUDIO / OFFICE
Los Angeles County, California
[Enlarge/Download Table]
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ITEM STUDIO NAME/ TOTAL SF SF SF SF
NO. LOCATION PROPOSED STAGES % OFFICE % SUPPORT % STATUS
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EPANSIONS
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P-1 Warner Brothers Studios 3,820,106 116,650 3% 3,542,638 93% 160,818 4% Approved Master Plan
4000 Warner Blvd.
Burbank
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P-2 Walt Disney Studios 2,059,989 67,300 3% 1,658,179 80% 334,510 16% Approved Master Plan
500 S. Buena Vista Ave.
Burbank
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P-3 NBC Studios 2,153,700 343,700 16% 1,810,000 84% Approved plan
2800-3000 West Alameda
Ave.
Burbank
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P-4 Universal Studios 950,000 Master Plan in
100 Universal City Plaza Progress EIR
Universal City Submitted
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P-5 CBS - Radford Studios 245,500 152,000 62% 284,500* 38% -- - Approved by LA
4024 Radford Ave. Planning Dept.
Studio City
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P-6 Sony Pictures Studios 992,415 Approved by Culver
City
10202 W. Washington
Blvd. Culver City
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P-7 20th Century Fox Studios 771,000 -- -- 479,000 62% 292,000 38% Approved Master
Plan
10201 W. Pico
Blvd.
Los Angeles
(Century City)
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SUB-TOTALS 10,992,710 679,650 7,489,817 787,328
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The westside market, together with the Tri-cities (particularly Burbank and
Glendale), represents the prime location for entertainment companies and related
businesses including law and accounting firms, advertising, public relations,
and technology support and innovation companies. Skills and wages are well above
average levels for this industry, supporting higher housing and office prices.
The tenant demand from this sector has historically been strong, and the
surrounding housing base, which includes the executive housing for the
"decision-makers", points to the continued preference for Los Angeles by the
entertainment industry.
RECENT AND FUTURE OFFICE DEVELOPMENT
Although rental rates reached replacement cost levels in the westside markets,
during 1999 serious constraints on new development have been in effect for
years, limiting both the number of potential sites and the size and height of
future new projects. These restrictions are generally tied to political factors,
issues of traffic congestion and other infrastructure concerns.
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VALUATION ADVISORY SERVICES 165 CUSHMAN & WAKEFIELD(R)
WESTSIDE LOS ANGELES OFFICE MARKET
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Improving market conditions created tremendous demand for office development
sites, but there have been only a handful of potential development sites in the
westside for the entire decade, most of these sites is currently under
development or nearing completion. Political or governmental restrictions, which
have been implemented over the past 15 years as a result of traffic and quality
of life issues, have resulted in permanent downzoning throughout the westside,
including the implementation of high "mitigation" fees for the few remaining
sites.
The most significant political constraint on new office supply in the westside
markets is Proposition U, which limits new commercial development on Height
District 1 properties to a maximum density of 1.5 FAR, and limits height to the
lesser of 3 stories or 45 feet in height. Nearly all vacant commercial sites in
the City of Los Angeles (excluding the CBD) have this height district 1
designation. Westside markets are also subject to traffic mitigation measures
implemented by the Department of Transportation (Ordinance No. 171492, known as
the "West Los Angeles Transportation Improvement and Mitigation Specific Plan)
(TIMP). These mitigation measures are tied to a comprehensive plan for traffic
circulation through the westside, and assess fees for new development based on
trip generation. The westside traffic ordinance may also require developers to
prepare Environmental Impact Reports (EIR), which identify negative traffic
impacts from a proposed development. The developers must include measures that
reduce these impacts to an "insignificant" level through fees, street
improvements, ride sharing programs, and public transportation plans.
The TIMP is a mechanism for controlling land use changes in order to mitigate
transportation-related impacts of development. The TIMP requires developers to
fund transportation infrastructure, and the ordinance establishes a scale of
development impact fees or Transportation Impact Assessment (TIA) fees collected
and used to fund future transportation improvements. The TIMP also encourages
developers to promote alternative modes of transportation for employees and
visitors to their projects. The TIA fee is assessed based on the number of
square feet of development or the number of peak-hour trips generated. TIA fees
are calculated based on one of two formulas, whichever is less:
1. FEE PER TRIP METHOD:
Fee = Number of Trips Generated x Trip Cost Factor
where
Number of Trips = Floor Area or Unit of Measure x Trip
Generation Rate
FEE PER SQUARE FOOT (OR PER UNIT)
METHOD:
Fee = Floor Area or Unit of Measure x TIA Fee per Square Foot
Trip Generation multipliers and TIA Fee multipliers are
outlined in Appendices A and B of the West Los Angeles
TIMP Specific Plan.
The TIA fee must be paid prior to the issuance of a building permit. The TIMP
and the associated TIA fees are issues affecting the entitlement process for new
projects in the TIMP Specific Plan area. Developers of large-scale projects in
this area are often required to file
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VALUATION ADVISORY SERVICES 166 CUSHMAN & WAKEFIELD(R)
WESTSIDE LOS ANGELES OFFICE MARKET
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Environmental Impact Reports (EIR's) which outline the impacts of the proposed
project including significant traffic impacts.
In addition to the westside traffic ordinance, Century City is also subject to
two specific plans (north and south) which will permit only one future new
building to be completed. The City of Santa Monica is well known as one of the
most restrictive locations in California for new development. The City
implemented a "Land Use" plan which provides specific uses and development
standards as to height and density for all parcels, with no district in the City
permitting more than a 2.0:1 density or more than four stories. The vast
majority of the City has existing density limitations of 1.0:1 or lower. The
current development activity in the Santa Monica Special Office District was
originally approved during the latter portion of the 1980's. The City council
members who approved these projects were removed from office during the
subsequent elections, and "anti-growth" activists have retained control of the
City for more than a decade. The development approvals for the Arboretum and
Water Garden projects recently completion were scheduled to expire if
construction did not commence by 1999, and the developers would have forfeited
their entitlements.
Only one high-rise development site remains in the most directly competitive
westside market area. This site, located in Century City, is currently under
construction. An additional major redevelopment project is also planned for
Century City. The existing 540,000 square-foot ABC Entertainment Center, which
includes office, retail and live theatre (the Shubert), is controlled by JP
Morgan entities who plan to demolish the existing project. The proposed
redevelopment will include an eight-story, 700,000 square-foot office
development. The ownership is pursuing entitlements and approvals, and hope to
begin the project during late 2002.
The Century City project received approvals during 1998 and is currently under
construction, with completion scheduled for June, 2003. The ownership (an entity
related to JMB, with a related interest by Equity Office) will be required to
invest a reported $5 to $8 million in offsite mitigation costs for a satellite
system to coordinate traffic signals at 55 intersections in the surrounding
area. The developer negotiated lease terms with MGM as the anchor tenant, who
will relocate from MGM Plaza in Santa Monica. The tenant will occupy about
300,000 square feet from the ground through 16th floors, and will receive
building signage rights. International Lease Finance will also re-locate here
from 1999 Avenue of the Stars and Christiensen Miller (65,000 square feet) will
relocate here from Fox Plaza. This project will be the last new development in
Century City under the specific plan. The ABC Entertainment Center ownership is
currently evaluating a major re-development of the existing center, however.
In addition to the projects above, a major mixed-use development known as Playa
Vista in the "lower westside" market area is scheduled to be developed in phases
over the next few decades. The development site is located just south of the
Marina Del Rey submarket. The property consists of a 1,087-acre property, which
was the former manufacturing center for Hughes Aircraft. Affiliates of Morgan
Stanley, Goldman Sachs, and Oaktree Capital acquired the property in 1997 from
Summa Corporation (successor to Hughes). In 1998 Union Labor Life and Pacific
Capital also acquired interests in the project.
The planned development includes a mix of housing types offered at a range of
prices as well as office and commercial space, an entertainment/media/technology
campus, recreational amenities and open space preserves including 340 acres of
protected wetlands (Ballona Wetlands). The development is proposed to include
13,085 residential units, five million square feet of office space, 595,000
square feet of retail space and 750 hotel rooms. Playa Vista Phase
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VALUATION ADVISORY SERVICES 167 CUSHMAN & WAKEFIELD(R)
WESTSIDE LOS ANGELES OFFICE MARKET
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One, which is reportedly entitled, will feature up to 3,246 new residential
units in an array of housing types.
The following chart summarizes the completed office projects in the competitive
westside markets during 2000-2002.
[Enlarge/Download Table]
RECENTLY COMPLETED/UNDER CONSTRUCTION PROJECTS
--------------------------------------------------------------------------------------------------------------------
PROJECTS DEVELOPER NO. TOTAL SF STATUS
OF
STORIES
--------------------------------------------------------------------------------------------------------------------
SANTA MONICA - 600,000 3rd Qtr. 2000 Completion 90%
SPECIAL OFFICE DISTRICT J.H. Syder/ 6 Preleased; sold to JP Morgan
Santa Monica Water Garden II Colony Capital 2/3 Fund; significant sublease
Bldgs. availabilities
--------------------------------------------------------------------------------------------------------------------
SUB-TOTAL 600,000
====================================================================================================================
SANTA MONICA
Completion 3rd Qtr. 2000 -
Lantana Hines 3 61,000 100% leased
Lantana West 3 64,000 Proposed
Lantana East 2/3 152,000 Proposed
Lantana South
--------------------------------------------------------------------------------------------------------------------
1733 Ocean Avenue Maguire Partners 4 90,000 Completed 2002
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SUB-TOTAL 367,000
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WEST LOS ANGELES
Media District Center Kilroy 4 380,000 150,000 SF 2nd Phase - 2002
completion - 1st Phase 100%
preleased to eToys, who defaulted
- currently available
--------------------------------------------------------------------------------------------------------------------
SUB-TOTAL 380,000
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CENTURY CITY
Constellation Place JMB 34 775,000 66% preleased; MGM and
Int'l Lease Finance; completion
2nd Qtr. 2003
SUB-TOTAL 765,000
--------------------------------------------------------------------------------------------------------------------
BEVERLY HILLS
The Maple Geffen 3 160,000 4th Qtr. 2002 completion;
no pre-leasing
--------------------------------------------------------------------------------------------------------------------
SUB-TOTAL 160,000
--------------------------------------------------------------------------------------------------------------------
PLAYA VISTA (MARINA) Maguire/ 4 420,000 Phase I - 248,000 SF
Water's Edge Equity Office Completion 4th Qtr. 2002
--------------------------------------------------------------------------------------------------------------------
SUB-TOTAL 420,000
--------------------------------------------------------------------------------------------------------------------
Total 2,702,000
Near Term Construction and Vacancy Trends
We analyzed the inventory of recently completed and under construction office
supply in the competitive westside office markets in conjunction with absorption
and vacancy trends presented in detail previously. We also considered a
reasonable timeframe for developing the proposed Playa Vista office campus in
conjunction with several alternative absorption scenarios
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VALUATION ADVISORY SERVICES 168 CUSHMAN & WAKEFIELD(R)
WESTSIDE LOS ANGELES OFFICE MARKET
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for the westside markets. The charts on the accompanying pages provide an
overview of the analysis, with actual year-end 2002 figures as the basis for the
projections. The projections also include, for an historical perspective, the
actual inventory, absorption, construction and vacancy trends for 1999, 2000,
2001 and 2002. The alternative absorption projections include a range from
"conservative" to "realistic" to "optimistic" based on historical trends
(average of approximately 350,000 square feet annually over the past 10 years).
The different absorption result in the following vacancy trends over the next
five years (2003 through 2007). The Scenario "D" projections assume average
annual absorption of 500,000 square feet, versus the 10-year average of
approximately 350,000 square feet for Scenarios A, B, and C.
Scenario A - Flat Absorption for 1 Year, Historical 10-year Average Thereafter
[Download Table]
SF Absorption Resulting Westside
Year Projection Vacancy - Year-end
------- -------------- --------------------
2003 0 14.9%
2004 350,000 13.8%
2005 350,000 12.7%
2006 350,000 11.7%
2007 350,000 10.7%
2003
Scenario B - Negative Absorption for 1 Year; Historical 10-year Average
Thereafter:
[Download Table]
SF Absorption Resulting Westside
Year Projection Vacancy - Year-end
----- ---------- ------------------
2003 (350,000) 15.8%
2004 350,000 14.6%
2005 350,000 13.5%
2006 350,000 12.5%
2007 350,000 11.5%
Scenario C - Historical 10-year Average
[Download Table]
SF Absorption Resulting Westside
Year Projection Vacancy - Year-end
---- ---------- ------------------
2003 350,000 14.1%
2004 350,000 12.9%
2005 350,000 11.9%
2006 350,000 10.9%
2007 350,000 9.9%
Scenario D - 500,000 SF Annual Absorption
[Download Table]
SF Absorption Resulting Westside
Year Projection Vacancy - Year-end
---- ---------- ------------------
2003 500,000 13.7%
2004 500,000 12.2%
2005 500,000 10.8%
2006 500,000 9.5%
2007 500,000 8.2%
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VALUATION ADVISORY SERVICES 169 CUSHMAN & WAKEFIELD(R)
WESTSIDE LOS ANGELES OFFICE MARKET
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Competitive Westside Submarkets
LOS ANGELES OFFICE MARKET
[Enlarge/Download Table]
Year of Area Current SF Percent
Completion Property Name Address City (SF) Leased Leased
---------- ------------- ------- ---- ---- ------ ------
COMPLETED PROJECTS
1999 Arboretum Gateway 2220 Colorado Ave Santa Monica 200,000 200,000 100.0%
Arboretum Courtyard 2120 & 2150 Colorado Ave Santa Monica 133,815 131,315 98.1%
--------- ------- -----
333,815 331,315 99.3%
2000 Westwood Center 1100 Glendon Ave Westwood 313,000 151,153 48.3%
Howard Hughes Center 5060/6060 Center Dr Culver City 239,000 229,993 96.2%
Lantana West 2900 W. Olympic Blvd Santa Monica 61,000 61,000 100.0%
331 Maple Avenue 331 Maple Avenue Beverly Hills 80,179 0 0.0%
Santa Monica Water Garden II 1601 Cloverfield & 2450 Colorado Ave Santa Monica 600,000 449,905 75.0%
Westside Media Center - Phase II 12200 W. Olympic Blvd West L.A. 151,018 0 0.0%
--------- ------- -----
1,444,197 892,051 61.8%
2001 Wateridge Two (Culver City) 5140 W. Goldleaf Cir. Culver City 125,000 0 0.0%
Howard Hughes/Univision 6701 Center Dr. West Culver City 313,833 251,333 80.1%
--------- ------- -----
438,833 251,333 57.3%
2002 Waters Edge Phase I 5510 & 5570 Lincoln Blvds. Playa Vista 250,000 0 0.0%
Westside Media Center - Phase III 12100 W. Olympic Blvd West L.A. 150,000 0 0.0%
Howard Hughes Center - Phase III 6100 Center Dr Culver City 284,147 0 0.0%
1733 Ocean Avenue 1733 Ocean Avenue Santa Monica 91,000 15,988 17.6%
--------- ------- -----
775,147 15,988 2.1%
--------- ------- -----
2,991,992 1,490,687 49.8%
PROJECTS UNDER CONSTRUCTION
2003 The Maple 407 N. Maple Dr. Beverly Hills 160,000 0 0.0%
MGM Tower 10270 Constellation Avenue Century City 775,000 518,000 66.8%
-------- ------- -----
935,000 518,000 55.4%
PROPOSED PROJECTS
2004 Lantana East 3030 W. Olympic Blvd Santa Monic 64,000 0 0.0%
Lantana South 3223 Exposition Blvd Santa Monic 152,000 0 0.0%
PV Campus Phase I Lincoln & Jefferson Blvds Playa Vista 686,250 0 0.0%
--------- ------- -----
902,250 0 0.0%
2005 PV Campus Phase II Lincoln & Jefferson Blvds Playa Vista 686,250 0 0.0%
--------- ------- -----
2006 PV Campus Phase III Lincoln & Jefferson Blvds Playa Vista 686,250 0 0.0%
--------- ------- -----
2007 PV Campus Phase IV Lincoln & Jefferson Blvds Playa Vista 686,250 0 0.0%
--------- ------- -----
2,961,000 0 0.0%
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WESTSIDE LOS ANGELES OFFICE MARKET
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[Enlarge/Download Table]
Competitive Westside Submarkets
ABSORPTION & VACANCY PROJECTIONS SCENARIO A - FLAT ABSORPTION FOR 1 YEAR; HISTORICAL 10-YEAR AVERAGE THEREAFTER
[Enlarge/Download Table]
1999 2000 2001 2002 2003 2004
---------- ---------- ---------- ---------- ---------- ----------
Total Westside Inventory 35,037,071 36,618,501 37,204,527 39,400,495 40,175,642 41,110,642
Under Construction/Proposed 0 0 0 775,147 935,000 902,250
Westside Media Center
- Phase III -- -- -- 150,000 -- --
MGM Tower -- -- -- -- 775,000 --
Waters Edge Phase I -- -- -- 250,000 -- --
Howard Hughes Center
- Phase III -- -- -- 284,147 -- --
The Maple -- -- -- -- 160,000 --
1733 Ocean Avenue -- -- -- 91,000 -- --
Lantana East -- -- -- -- -- 64,000
Lantana South -- -- -- -- -- 152,000
PV Campus Phase I -- -- -- -- -- 686,250
PV Campus Phase II -- -- -- -- -- --
PV Campus Phase III -- -- -- -- -- --
PV Campus Phase IV -- -- -- -- -- --
Projected Westside
---------- ---------- ---------- ---------- ---------- ----------
Inventory 35,037,071 36,618,501 37,204,527 40,175,642 41,110,642 42,012,892
---------- ---------- ---------- ---------- ---------- ----------
Less: Direct
Vacant Space 2,168,525 2,011,368 4,107,377 6,129,855 6,129,855 6,129,855
Less: Estimated
SF Absorption -- -- -- -- 0 350,000
---------- ---------- ---------- ---------- ---------- ----------
Total Vacant SF (End
of Period) 2,168,525 2,011,368 4,107,377 6,129,855 6,129,855 5,779,855
Estimated Direct
Vacancy (%) 6.2% 5.5% 11.0% 15.3% 14.9% 13.8%
2005 2006 2007
----------- ---------- ----------
Total Westside Inventory 42,012,892 42,699,142 43,385,392
Under Construction/Proposed 686,250 686,250 686,250
Westside Media Center
- Phase III -- -- --
MGM Tower -- -- --
Waters Edge Phase I -- -- --
Howard Hughes Center
- Phase III -- -- --
The Maple -- -- --
1733 Ocean Avenue -- -- --
Lantana East -- -- --
Lantana South -- -- --
PV Campus Phase I -- -- --
PV Campus Phase II 686,250 -- --
PV Campus Phase III -- 686,250 --
PV Campus Phase IV -- -- 686,250
Projected Westside
---------- ---------- ----------
Inventory 42,699,142 43,385,392 44,071,642
---------- ---------- ----------
Less: Direct
Vacant Space 5,779,855 5,429,855 5,079,855
Less: Estimated
SF Absorption 350,000 350,000 350,000
---------- ---------- ----------
Total Vacant SF (End
of Period) 5,429,855 5,079,855 4,729,855
Estimated Direct
Vacancy (%) 12.7% 11.7% 10.7%
Projected Vacancy Trend
Scenario A
[GRAPH]
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VALUATION ADVISORY SERVICES 171 CUSHMAN & WAKEFIELD(R)
WESTSIDE LOS ANGELES OFFICE MARKET
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Competitive Westside Submarkets
ABSORPTION & VACANCY PROJECTIONS SCENARIO B - HISTORICAL 10-YEAR AVERAGE
[Enlarge/Download Table]
1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
Total Westside Inventory 35,037,071 36,618,501 37,204,527 39,400,495 40,175,642 41,110,642
Under Construction/Proposed 0 0 0 775,147 935,000 902,250
Westside Media Center - Phase III -- -- -- 150,000 -- --
MGM Tower -- -- -- -- 775,000 --
Waters Edge Phase I -- -- -- 250,000 -- --
Howard Hughes Center - Phase III -- -- -- 284,147 -- --
The Maple -- -- -- -- 160,000 --
1733 Ocean Avenue -- -- -- 91,000 -- --
Lantana East -- -- -- -- -- 64,000
Lantana South -- -- -- -- -- 152,000
PV Campus Phase I -- -- -- -- -- 686,250
PV Campus Phase II -- -- -- -- -- --
PV Campus Phase III -- -- -- -- -- --
PV Campus Phase IV -- -- -- -- -- --
Projected Westside Inventory 35,037,071 36,618,501 37,204,527 40,175,642 41,110,642 42,012,892
----------- ---------- ---------- ----------- ----------- -----------
Less: Direct Vacant Space 2,168,525 2,011,368 4,107,377 6,129,855 6,129,855 6,479,855
----------- ---------- ---------- ----------- ----------- -----------
Less: Estimated SF Absorption -- -- -- -- -350,000 350,000
----------- ---------- ---------- ----------- ----------- -----------
Total Vacant SF (End of Period) 2,168,525 2,011,368 4,107,377 6,129,855 6,479,855 6,129,855
Estimated Direct Vacancy (%) 6.2% 5.5% 11.0% 15.3% 15.8% 14.6%
2005 2006 2007
---- ---- ----
Total Westside Inventory 42,012,892 42,699,142 43,385,392
Under Construction/Proposed 686,250 686,250 686,250
Westside Media Center - Phase III -- -- --
MGM Tower -- -- --
Waters Edge Phase I -- -- --
Howard Hughes Center - Phase III -- -- --
The Maple -- -- --
1733 Ocean Avenue -- -- --
Lantana East -- -- --
Lantana South -- -- --
PV Campus Phase I -- -- --
PV Campus Phase II 686,250 -- --
PV Campus Phase III -- 686,250 --
PV Campus Phase IV -- -- 686,250
----------- ----------- -----------
Projected Westside Inventory 42,699,142 43,385,392 44,071,642
----------- ----------- -----------
Less: Direct Vacant Space 6,129,855 5,779,855 5,429,855
Less: Estimated SF Absorption 350,000 350,000 350,000
----------- ----------- -----------
Total Vacant SF (End of Period) 5,779,855 5,429,855 5,079,855
Estimated Direct Vacancy (%) 13.5% 12.5% 11.5%
PROJECTED VACANCY TREND
Scenario B
[GRAPH]
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VALUATION ADVISORY SERVICES 172 CUSHMAN & WAKEFIELD (R)
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Competitive Westside Submarkets
Absorption & Vacancy Projections SCENARIO C - HISTORICAL 10-YEAR AVERAGE
[Enlarge/Download Table]
1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
Total Westside Inventory 35,037,071 36,618,501 37,204,527 39,400,495 40,175,642 41,110,642
Under Construction / Proposed 0 0 0 775,147 935,000 902,250
Westside Media Center - Phase III -- -- -- 150,000 -- --
MGM Tower -- -- -- -- 775,000 --
Waters Edge Phase I -- -- -- 250,000 -- --
Howard Hughes Center - Phase III -- -- -- 284,147 -- --
The Maple -- -- -- -- 160,000 --
1733 Ocean Avenue -- -- -- 91,000 -- --
Lantana East -- -- -- -- -- 64,000
Lantana South -- -- -- -- -- 152,000
PV Campus Phase I -- -- -- -- -- 686,250
PV Campus Phase II -- -- -- -- -- --
PV Campus Phase III -- -- -- -- -- --
PV Campus Phase IV -- -- -- -- -- --
Projected Westside Inventory 35,037,071 36,618,501 37,204,527 40,175,642 41,110,642 42,012,892
Less: Direct Vacant Space 2,168,525 2,011,368 4,107,377 6,129,855 6,129,855 5,779,855
Less: Estimated SF Absorption -- -- -- -- 350,000 350,000
Total Vacant SF (End of Period) 2,168,525 2,011,368 4,107,377 6,129,855 5,779,855 5,429,855
Estimated Direct Vacancy (%) 6.2% 5.5% 11.0% 15.3% 14.1% 12.9%
2005 2006 2007
---- ---- ----
Total Westside Inventory 42,012,892 42,699,142 43,385,392
Under Construction / Proposed 686,250 686,250 686,250
Westside Media Center - Phase III -- -- --
MGM Tower -- -- --
Waters Edge Phase I -- -- --
Howard Hughes Center - Phase III -- -- --
The Maple -- -- --
1733 Ocean Avenue -- -- --
Lantana East -- -- --
Lantana South -- -- --
PV Campus Phase I -- -- --
PV Campus Phase II 686,250 -- --
PV Campus Phase III -- 686,250 --
PV Campus Phase IV -- -- 686,250
Projected Westside Inventory 42,699,142 43,385,392 44,071,642
Less: Direct Vacant Space 5,429,855 5,079,855 4,729,855
Less: Estimated SF Absorption 350,000 350,000 350,000
Total Vacant SF (End of Period) 5,079,855 4,729,855 4,379,855
Estimated Direct Vacancy (%) 11.9% 10.9% 9.9%
Projected Vacancy Trend
Scenario D
[GRAPH]
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VALUATION ADVISORY SERVICES 173 CUSHMAN & WAKEFIELD(R)
WESTSIDE LOS ANGELES OFFICE MARKET
================================================================================
[Enlarge/Download Table]
Competitive Westside Submarkets
ABSORPTION & Vacancy Projections SCENARIO D O 500,000 SF ABSORPTION; HISTORICAL 10-YEAR AVERAGE THEREAFTER
[Enlarge/Download Table]
1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
Total Westside Inventory 35,037,071 36,618,501 37,204,527 39,400,495 40,175,642 41,110,642
Under Construction/Proposed 0 0 0 775,147 935,000 902,250
Westside Media Center - Phase III -- -- -- 150,000 -- --
MGM Tower -- -- -- -- 775,000 --
Waters Edge Phase I -- -- -- 250,000 -- --
Howard Hughes Center - Phase III -- -- -- 284,147 -- --
The Maple -- -- -- -- 160,000 --
1733 Ocean Avenue -- -- -- 91,000 -- --
Lantana East -- -- -- -- -- 64,000
Lantana South -- -- -- -- -- 152,000
PV Campus Phase I -- -- -- -- -- 686,250
PV Campus Phase II -- -- -- -- -- --
PV Campus Phase III -- -- -- -- -- --
PV Campus Phase IV -- -- -- -- -- --
Projected Westside Inventory 35,037,071 36,618,501 37,204,527 40,175,642 41,110,642 42,012,892
Less: Direct Vacant Space 2,168,525 2,011,368 4,107,377 6,129,855 6,129,855 5,629,855
Less: Estimated SF Absorption -- -- -- -- 500,000 500,000
Total Vacant SF (End of Period) 2,168,525 2,011,368 4,107,377 6,129,855 5,629,855 5,129,855
Estimated Direct Vacancy (%) 6.2% 5.5% 11.0% 15.3% 13.7% 12.2%
2005 2006 2007
---- ---- ----
Total Westside Inventory 42,012,892 42,699,142 43,385,392
Under Construction / Proposed 686,250 686,250 686,250
Westside Media Center - Phase III -- -- --
MGM Tower -- -- --
Waters Edge Phase I -- -- --
Howard Hughes Center - Phase III -- -- --
The Maple -- -- --
1733 Ocean Avenue -- -- --
Lantana East -- -- --
Lantana South -- -- --
PV Campus Phase I -- -- --
PV Campus Phase II 686,250 -- --
PV Campus Phase III -- 686,250 --
PV Campus Phase IV -- -- 686,250
Projected Westside Inventory 42,699,142 43,385,392 44,071,642
Less: Direct Vacant Space 5,129,855 4,629,855 4,129,855
Less: Estimated SF Absorption 500,000 500,000 500,000
Total Vacant SF (End of Period) 4,629,855 4,129,855 3,629,855
Estimated Direct Vacancy (%) 10.8% 9.5% 8.2%
Projected Vacancy Trend
Scenario D
[GRAPH]
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VALUATION ADVISORY SERVICES 174 CUSHMAN & WAKEFIELD(R)
WESTSIDE LOS ANGELES OFFICE MARKET
================================================================================
CONCLUSIONS
The westside Los Angeles office market is recognized as the most desirable in
the Los Angeles area. Rental rates in this market are at the upper end of the
range for office properties in southern California. The weakening in the economy
during 2001-2002 has contributed to negative absorption overall in the westside
markets, which in turn has contributed to increasing vacancy levels and a
"softness" in the quoted rental rates. Certain specific submarkets have declined
more significantly, such as portions of Santa Monica and West Los Angeles
dominated by larger high-tech tenants in recent years. The significant
constraints on new development limit new development upon the achieved
absorption levels and the level of construction prior to and during the slowdown
of 2001 has been substantially less than occurred during the later portion of
the 1980's through the early 1990's.
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VALUATION ADVISORY SERVICES 175 CUSHMAN & WAKEFIELD(R)
CERRITOS/LOS ANGELES SOUTH OFFICE MARKET ANALYSIS
================================================================================
Los Angeles South
OFFICE MARKET & SUBMARKET STATISTICS
End of the 4th Quarter of 2002
[Enlarge/Download Table]
Direct Overall Net Direct
Number Direct Vacancy Overall Vacancy Absorption Wtd. Avg.
Market/Submarket Inventory of Bldgs Availabilities Rate Availabilities Rate YE '02 Rental Rate
---------------- ---------- -------- -------------- ---- -------------- ------- -------- -----------
LAX/EL SEGUNDO 13,822,652 84 3,199,045 23.1% 3,575,361 25.9% (28,341) $ 25.25
1 Los Angeles Airport 3,736,716 18 863,140 23.1% 949,621 25.4% 29,758 $ 17.28
2 El Segundo/Manhattan Beach 10,085,936 66 2,335,905 23.2% 2,625,740 26.0% (314,099) $ 28.20
TORRANCE 7,032,767 78 821,796 11.7% 886,244 12.6% 26,700 $ 23.03
3 190th Street Corridor 3,261,606 32 267,040 8.2% 300,715 9.2% 45,643 $ 22.08
4 Central Torrance 3,493,661 44 549,209 15.7% 579,982 16.6% (25,491) $ 23.52
5 San Pedro 277,500 2 5,547 2.0% 5,547 2.0% 6,548 $ 19.56
LONG BEACH 9,323,017 73 1,161,200 12.5% 1,287,212 13.8% (111,507) $ 22.96
6 Long Beach Freeway 2,680,797 20 291,462 10.9% 332,813 12.4% (120,019) $ 23.52
7 North Long Beach 993,150 12 63,495 6.4% 79,597 8.0% 5,698 $ 16.44
8 Downtown Long Beach 3,690,963 20 542,270 14.7% 580,945 15.7% 9,743 $ 22.68
9 Long Beach Marina 479,257 6 35,567 7.4% 57,667 12.0% (4,934) $ 22.32
10 Cerritos (*) 1,478,850 15 228,406 15.4% 236,190 16.0% (1,995) $ 24.84
TOTAL 30,178,436 235 5,182,041 17.2% 5,748,817 19.0% (369,148) $ 24.39
MARKET SIZE COMPARISON CHART
[CHART]
AVAILABLE BAR GRAPH
[CHART]
SUBMARKET WEIGHTED AVERAGE RENTAL RATE COMPARISON CHART
[CHART]
* - La Palms and Cypress cities are no longer tracked by Los Angeles South Bay
office. They are being tracked by the Orange County office.
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VALUATION ADVISORY SERVICES 176 CUSHMAN & WAKEFIELD(R)
CERRITOS/LOS ANGELES SOUTH OFFICE MARKET ANALYSIS
================================================================================
LOS ANGELES SOUTH OFFICE MARKET
The Los Angeles South office market encompasses three market sectors located in
the South Bay area of Los Angeles County. Each of the three sectors is or
markets each comprised of several submarkets: LAX/El Segundo, Torrance, and Long
Beach. The individual submarkets that comprise the overall Los Angeles South
market exhibit a wide range in construction quality, location, tenant based, and
corresponding rental rates. The chart on the accompanying page summarizes the
Los Angeles South office sector and the submarkets in this area. Cerritos is
located in the extreme easterly portion of Los Angeles County, just north of the
Long Beach boundary and adjacent to the westerly boundary of Orange County. The
Cerritos office market is included as part of the Long Beach office sector.
Cerritos is also recognized as part of the "Mid-Cities" area which includes
adjacent cities in Orange County.
The Los Angeles South office market contains 30,178,436 square feet of office
space, excluding owner/user, medical and government buildings, as of year-end
2002.
The Los Angeles South office market has a direct vacancy rate of 17.2 percent.
The direct vacancy rate, which does not include sublease availabilities,
compares with the direct vacancy rate for the larger Los Angeles County office
market of 15.3 percent. The overall vacancy rate for the Los Angeles South
market, which includes both direct and sublease availabilities, was 19.0 percent
as of year-end 2002. The overall vacancy rate for the Los Angeles South market
is similar to the corresponding figure of 18.8 percent for the Los Angeles
County office market.
The vacancy rate for the South Bay market is generally consistent for all
categories of space, including Class A, B, and C (in terms of quality and
construction), although the rental rates for Class A office space are
considerably higher than for Class B and C space, as shown in the chart below.
LOS ANGELES SOUTH - OFFICE MARKET STATISTICS
[Download Table]
ANNUAL
BUILDING DIRECT PSF/WTD
QUALITY/ NO. OF INVENTORY VACANCY AVG. -
CLASS BUILDINGS (SF) RATE ASKING RENT
----- --------- ---- ---- -----------
Class A 95 16,390,222 17.3% $26.88
Class B 116 11,927,972 17.6% $21.60
Class C 24 1,880,422 13.1% $15.96
Totals 235 30,198,616 17.2% $24.39
The South Bay office sector has historically experienced double-digit vacancy
rates, although the vacancy levels since 1999 have been lower than the period
since 1993. The chart below provides an approximate 10-year historical overview
of the vacancy and rental rate (based on quoted rents for available space)
trends for the South Bay market.
------------------------------------------------------------------------------
VALUATION ADVISORY SERVICES 177 CUSHMAN & WAKEFIELD(R)
CERRITOS/LOS ANGELES SOUTH OFFICE MARKET ANALYSIS
================================================================================
SOUTH LOS ANGELES
Vacancy & Rental Rate Trends
[CHART]
Following several years of "flat" rental rates in these combined markets, the
weighted average rents increased by a total of more than 31 percent since
year-end 1998.
The more significant office markets in the Los Angeles South area, in terms of
the quality and amount of office product, include El Segundo, Central Torrance,
the 190th Street Corridor, and Downtown Long Beach. The El Segundo submarket,
which is situated immediately south of and adjacent to the LAX submarket,
contains a significant concentration of high technology, aerospace/defense, and
business service companies. The office product in this submarket ranges from
multi-building business parks to Class A high-rise space. The Downtown Long
Beach submarket contains a concentration of accounting, legal, and investment
firms, as well as government tenants related to the Port which have been
attracted to this submarket by the high quality product in the downtown area as
well as the significant volume of international trade and related business
generated by the Port of Los Angeles and the Port of Long Beach.
The Los Angeles South ("South Bay") market area is essentially bounded by the
Los Angeles International Airport (LAX) on the north, Long Beach and the Orange
County border on the south, and the San Diego Freeway (with some easterly
extension of the boundary) on the east. The South Bay employment base was
historically dominated by the aerospace industry, particularly during the
1980's, and this sector remains an important component of the employment base in
this area. The South Bay market area has experienced significant diversification
in the employment base over the last decade, however, and the region is "driven"
by a dynamic mix of industries, including international trade,
aerospace/defense, energy, automotive, health care, technology,
telecommunications, financial services, and tourism. The South Bay has also
attracted users and tenants from the entertainment industry since the completion
of Manhattan Studios during the last half of the 1990's.
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VALUATION ADVISORY SERVICES 178 CUSHMAN & WAKEFIELD(R)
CERRITOS/LOS ANGELES SOUTH OFFICE MARKET ANALYSIS
================================================================================
SOUTH BAY ECONOMIC BASE
[Download Table]
INDUSTRY MAJOR COMPANIES
-------- ---------------
Aerospace/Defense Boeing, Northrop Grumman, TRW, Ratheon, Hughes
Satellite
Energy Exxon-Mobile, BP, Chevron Texaco, Shell, Unocal
International Trade Ports of Long Beach & Los Angeles, Alameda Corridor
Automotive Nissan, Toyota, Honda
Health Care United Healthcare, SCAN Healthcare, Molina Medical
Technology Panasonic, Epson
Entertainment Fox (Manhattan Studios)
Telecommunications Sprint, Verizon, Pacific Bell
Financial Services Bank of America, Union Bank
Tourism/Travel LAX, Long Beach Airport, Long Beach Convention Center,
Queen Mary, Aquarium of the Pacific
CERRITOS OFFICE SUBMARKET
The Cerritos Office Submarket is a part of the Mid-Cities Market that includes
the several of the cities bordering the Los Angeles/Orange County border. These
cities include Lakewood, Artesia, La Palma, Cypress and La Mirada.
As of year-end 2002, the Cerritos submarket consisted of 15 buildings containing
1,478,850 square feet of office space, excluding owner/user, medical and
government buildings. The direct vacancy rate was 15.4 percent, whereas the
overall vacancy rate was 16.0 percent. The chart below summarizes this submarket
by building quality and class.
CERRITOS - OFFICE MARKET STATISTICS
[Download Table]
ANNUAL
BUILDING DIRECT PSF/WTD
QUALITY/ NO. OF INVENTORY VACANCY AVG. -
CLASS BUILDINGS (SF) RATE ASKING RENT
------- --------- --------- ------- -----------
Class A 8 1,062,916 18.8% $ 26.04
Class B 6 374,934 7.3% $ 16.44
Class C 1 41,000 3.5% $ 19.80
Totals 5 1,478,850 15.4% $ 24.84
The Class A space in the Cerritos market had an inventory of 1,062,916 square
feet in 8 buildings with a direct vacancy rate of 18.8 percent. The high vacancy
rate is attributable to the addition of a new office building, Cerritos Towne
Center (17777 Center Court Dr), which was added in 2002. This new building added
approximately 170,000 square feet to the inventory. Currently, the building has
a 91 percent vacancy, or 154,000 square feet of direct available space.
Excluding Cerritos Towne Center, the vacancy rate will be significantly lower.
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VALUATION ADVISORY SERVICES 179 CUSHMAN & WAKEFIELD(R)
CERRITOS/LOS ANGELES SOUTH OFFICE MARKET ANALYSIS
================================================================================
The accompanying exhibit summarizes the quoted asking rental rates and current
occupancy for the eight Class "A" office buildings, as of 1(st) Quarter 2003.
COMPETITIVE CLASS "A" OFFICE BUILDINGS First Quarter 2003
Cerritos, CA
[Enlarge/Download Table]
BUILDING INFORMATION
------------------------------------ OVERALL
ITEM BUILDING NAME/ NO. OF AREA AVG. FLR. YEAR AVAILABLE SPACE (SF) AVAILABILITY
NO. LOCATION STORIES (SF) AREA (SF) BUILT FLOOR(S) DIRECT SUBLEASE (SF)
-----------------------------------------------------------------------------------------------------------------------------
C-1 Carmenita Plaza Office Bldg 3 66,888 22,296 1981 2 - 3 0 0
13340 183rd St R-1997 Ground 0 0 Total
0 0 0
-----------------------------------------------------------------------------------------------------------------------------
C-2 Cerritos Towne Center II 7 140,392 20,056 1989 2 - 4 13,429 0
12750 Center Court Dr Ground 0 0 Total
13,429 0 13,429
-----------------------------------------------------------------------------------------------------------------------------
C-3 Cerritos Towne Center III 7 136,586 19,512 1991 3 & 6 0 18,676
17785 Center Court Dr 3 3,679 0 Total
3,679 18,676 22,355
-----------------------------------------------------------------------------------------------------------------------------
C-4 Cerritos Towne Center V 2 50,000 25,000 1998 2 0 0
17871 Park Plaza Dr Ground 0 0 Total
0 0 0
-----------------------------------------------------------------------------------------------------------------------------
C-5 91 Freeway Center 4 93,277 23,319 1986 2 & 3 11,932 0 Total
17100 Pioneer Blvd Ground 0 0 Total
11,932 0 11,932
-----------------------------------------------------------------------------------------------------------------------------
C-6 Cerritos Corporate Tower 9 186,000 20,667 1986 2 & 3 0 8,779
18000 Studebaker Rd 2 - 5 7,607 0 Total
7,607 8,779 16,386
-----------------------------------------------------------------------------------------------------------------------------
C-7 AT&T Wireless Services Hdqtr 7 326,535 46,648 1999 2 - 7 0 0
12900 Park Plaza Dr Ground 0 0 Total
0 0 0
=============================================================================================================================
MARKET SUB-TOTALS 39 999,678 25,633 36,647 27,455 64,102
=============================================================================================================================
C-8 Cerritos Towne Center 8 168,836 21,105 2002 1 - 8 153,815 0 Total
17777 Center Court Dr Ground 0 0 Total
153,815 0 153,815
=============================================================================================================================
MARKET TOTALS 47 1,168,514 24,862 190,462 27,455 217,917
=============================================================================================================================
QUOTED
ITEM BUILDING NAME/ ANNUAL RENT LEASE OCCUPANCY RATIO
NO. LOCATION PSF PSF TYPE DIRECT OVERALL
----------------------------------------------------------------------------------------------
C-1 Carmenita Plaza Office Bldg -- -- -- 100.0% 100.0%
13340 183rd St -- -- --
----------------------------------------------------------------------------------------------
C-2 Cerritos Towne Center II $ 24.60 $24.60 FSG 90.4% 90.4%
12750 Center Court Dr -- --
----------------------------------------------------------------------------------------------
C-3 Cerritos Towne Center III $ 21.60 $22.20 FSG 97.3% 83.6%
17785 Center Court Dr $ 24.60 $24.60 FSG
----------------------------------------------------------------------------------------------
C-4 Cerritos Towne Center V -- -- -- 100.0% 100.0%
17871 Park Plaza Dr -- --
----------------------------------------------------------------------------------------------
C-5 91 Freeway Center $ 21.00 $21.00 FSG 87.2% 7.2%
17100 Pioneer Blvd -- --
----------------------------------------------------------------------------------------------
C-6 Cerritos Corporate Tower $ 22.20 $22.20 FSG 95.9% 91.2%
18000 Studebaker Rd $ 25.80 $25.80 FSG
----------------------------------------------------------------------------------------------
C-7 AT&T Wireless Services Hdqtr -- - -- 100.0% 100.0%
12900 Park Plaza Dr -- -- --
==============================================================================================
MARKET SUB-TOTALS 96.3% 93.6%
==============================================================================================
$23.68 $23.68 Direct Weighted Average Rental Rate
C-8 Cerritos Towne Center $ 27.00 $27.00 FSG 8.9% 8.9%
17777 Center Court Dr -- -- --
==============================================================================================
MARKET TOTALS 83.7% 81.4%
==============================================================================================
$ 26.36 $26.36 Direct Weighted Average Rental Rate
OFFICE BUILDING ACTIVITY CHART
CERRITOS SUBMARKET
[CHART]
As shown in the chart above, seven of the Class "A" buildings comprise 1,168,514
square feet and have a combined vacancy rate of 16.3 percent. Excluding Cerritos
Towne Center, the vacancy rate is significantly reduced to 3.7 percent.
VALUATION ADVISORY SERVICES 180 CUSHMAN & WAKEFIELD(R)
CERRITOS/LOS ANGELES SOUTH OFFICE MARKET ANALYSIS
===============================================================================
Vacancy Trends
The current Cerritos submarket direct vacancy level of 15.4 percent compares
with rates ranging from 4.7 percent to 15.2 percent since 2000. The chart below
provides an historical overview of the vacancy trends in the subject's market
since 1996.
OFFICE MARKET VACANCY TRENDS
City of Cerritos
[Download Table]
VACANCY RATES
Year Quarter Direct Sublease Overall
---- ------- ------ -------- -------
1996 4th Qtr 8.2% 0.2% 8.4%
1997 4th Qtr 12.9% 0.0% 12.9%
1998 4th Qtr 10.7% 0.0% 10.7%
1999 4th Qtr 12.6% 0.0% 12.6%
2000 4th Qtr 5.2% 1.5% 6.7%
2001 4th Qtr 4.7% 6.2% 10.9%
2002 4th Qtr 15.4% 0.6% 16.0%
Vacancy Trends
[CHART]
Absorption Trends
The exhibit below summarizes the net absorption levels in the Cerritos submarket
since 1996.
--------------------------------------------------------------------------------
VALUATION ADVISORY SERVICES 181 CUSHMAN & WAKEFIELD(R)
CERRITOS/LOS ANGELES SOUTH OFFICE MARKET ANALYSIS
================================================================================
[GRAPH CHART]
The Cerritos market has experienced total positive absorption of approximately
101,000 square feet since 2000, or an average of 33,713 square feet annually
during the past three years. Based on the inventory of about 1.5 million square
feet, this average annual absorption represents over two percent of the total
inventory. The vacancy level remained fairly stable from 2000 to 2001, until
new supply entered the market in 2002. Since leasing activity has softened
during 2002, vacancy levels have been significantly impacted.
Rental Rate Trends
Although vacancy rates have risen during 2002, weighted average rental rates
(based on available direct space) increased during this period. The
accompanying chart summarizes the Vacancy & Rental Rate Trends for this
submarket since 1993.
--------------------------------------------------------------------------------
VALUATION ADVISORY SERVICES 182 CUSHMAN & WAKEFIELD(R)
CERRITOS/LOS ANGELES SOUTH OFFICE MARKET ANALYSIS
================================================================================
[GRAPH CHART]
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VALUATION ADVISORY SERVICES 183 CUSHMAN & WAKEFIELD(R)
Dates Referenced Herein
| Referenced-On Page |
|---|
| This ‘S-11/A’ Filing | | Date | | First | | Last | | | Other Filings |
|---|
| |  |
| Filed on: | | 4/28/03 | | | | | | | None on these Dates |
| | 2/26/03 | | 2 | | 3 |
| | 1/1/98 | | 27 |
| List all Filings |
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