'Variety' Owner Eyes Move to New Headquarters (Exclusive)
Among the changes coming to Variety in the aftermath of its sale is the potential relocation of the trade newspaper's offices.
Variety's new owner, Penske Media Corp., wants to move the publication's Los Angeles headquarters from 5900 Wilshire Blvd., according to multiple sources who have discussed the matter with PMC principal Jay Penske.
Penske is said to have concerns that Variety's rent at the Miracle Mile building it has called home since 2008 is too high and feels that relocating the paper elsewhere makes economic sense, according to sources. Penske would move the publication once its lease expires in February 2014.
Penske Media leases space at a 15-story office tower in Inglewood; other media outlets in the company's stable are housed at this 9800 S. La Cienega Blvd. property. It's not clear where Variety would relocate, but a real estate source with knowledge of Penske's thinking believes the media entrepreneur -- the son of car-racing mogul Roger Penske -- will not move the paper to the Inglewood property.
"The team at Variety knows the facts. I assume the rest of the story won't be," Penske said in a statement to The Hollywood Reporter. His company, with financial backing from Daniel Loeb's Third Point LLC, announced its purchase of the 107-year-old publication on Oct. 9.
According to two real estate sources with knowledge of Variety's lease, the publication's deal with landlord Ratkovich Co. expires Feb. 28, 2014. The roughly five-year lease for 54,300 square feet at the Class A tower commenced in December 2008. Under Variety's agreement, which was struck by then-owner Reed Elsevier PLC, it will pay roughly $2.5 million in rent this year. That works out to about $3.84 per square foot per month, which experts say is high when compared with current asking rents but in line with 2008 rates. According to data from real estate services firm Jones Lang LaSalle Inc., the average asking rent for Class A office space in the Los Angeles metro area was $2.60 per square foot per month in the third quarter of 2012. On the Westside, the average asking rent was $3.60 per square foot per month.
Travis Landrum of entertainment office brokerage Industry Partners said comparable Miracle Mile office space can currently be leased for as little as $2.50 per square foot per month. "Variety's was a top-of-the-market deal," he said. "It's expensive for that market."
The Miracle Mile area is a popular locale for Hollywood-centric companies. Among firms housed there are E! Entertainment Television, OWN: The Oprah Winfrey Network, World Poker Tour, CBS Radio, Fox Television Animation and The Hollywood Reporter. "The Miracle Mile and Westside is the epicenter for entertainment companies," said commercial real estate broker Bob Safai, who recently represented the landlord of a Miracle Mile-adjacent office building on San Vicente Boulevard that inked a deal with talent agency Verve.
Variety moved into the 31-story tower at 5900 Wilshire Blvd. in December 2008, and the building was topped with two illuminated Variety signs. The trade publication's lease is for a portion of the tower's 27th floor and floors 29-31. These days, the 27th floor space is occupied by former Reed Elsevier unit MarketCast, which the British conglomerate sold earlier this year; and part of Variety's space on the 29th floor has been subleased to other companies over the years.
Penske Media's space at the 9800 S. La Cienega Blvd. tower, which is owned by Jamison Services Inc. and backs up to the San Diego Freeway, undoubtedly is less expensive than the Miracle Mile lease. According to data from real estate analytics company CoStar, asking rents at the property, which is 61 percent occupied, range from $1.30 to $1.50 per square foot per month -- a fraction of the Variety lease. The LAX-adjacent market in which the building is situated is known for having "the cheapest, lowest rents in the city," according to Safai, who is not involved in Penske Media's real estate dealings. The 357,817-square-foot building is recognizable by the large advertisements that wrap its exterior and are visible from the freeway. Penske Media's corporate headquarters are on the tower's 14th floor, according to its website. The property is on the western edge of Inglewood, near El Segundo.
With debt and equity financing for its Variety transaction provided by affiliates of Loeb's Third Point LLC, Penske Media is believed to have closed the deal with an offer of about $25 million. Reed Elsevier originally had been seeking at least $50 million.
It's not clear whether Variety would be able to replicate the sort of prime building-top signage it enjoys at its Wilshire headquarters once it relocates. A May 2009 story in the Los Angeles Business Journal said Variety paid Young Electric Sign Co. of Salt Lake City to create and install both LED signs for $160,000. According to the story, Variety did not pay a separate fee for the ability to hang the signage; instead the value of the signage rights was rolled into the deal. Clare De Briere, Ratkovich Co.'s chief operating officer, told the LABJ that including the signage rights in the deal was key to enticing Variety to ink the lease.