WME, UTA Eyeing Same Office Building as Showbiz Real Estate Market Heats Up
Although the Los Angeles commercial real estate market remains mired in a protracted slump, there are bright spots in one important sector -- the entertainment office market. Exhibit A: WME and UTA are on the prowl for headquarters space and have toured the Cesar Pelli-designed, soon-to-be-completed Red Building at the Pacific Design Center in West Hollywood, according to several real estate sources.
Landing either agency -- "the best big fish," says commercial broker Hunt Barnett of L.A. Realty Partners -- would be a coup for any landlord in the fiercely competitive niche sector. A 10-year lease by either would easily be worth $35 million and could top $100 million over a longer period.
The agencies' search for potential new offices signals that the entertainment market "is showing signs of life again" after a few rough recessionary years, Barnett says.
WME and UTA aren't the only big tenants in the marketplace. According to sources, Telemundo, DirecTV, Time Warner Cable, Endemol and Electronic Arts are also looking for new or additional space for their L.A. offices.
"Companies are spending money again -- there is consensus around town about that," says Carl Muhlstein, an executive vp at Cushman & Wakefield, who has brokered the sale of several high-profile properties including Lantana Media Center and NBC Burbank Studios. "But you have to have landlords who know how to problem-solve and adapt their buildings to changing needs. The building has to work for a tenant."
Indeed, entertainment offices are rarely just rooms full of cubicles. Industry firms -- scattered across a wide swath of Los Angeles County, from Santa Monica to Burbank -- typically require such high-end features as screening rooms, enhanced security and robust telecommunications systems.
Several real estate experts say that there are no more than a few dozen office projects capable of catering to top-tier studios, production companies, agencies and media firms. That puts the premium properties in a better spot to lure and retain tenants than other segments of the commercial market.
Crunching the numbers, the vacancy rate for Class A office space in Los Angeles County was 17% in fourth-quarter 2010. But for all but one of L.A.'s top entertainment properties, it was no more than 13%. Industry office buildings also command higher rental rates, according to data provided by real estate services firm Grubb & Ellis. Consider West Los Angeles. The average asking rent for Class A space in West L.A. was $2.91 per square foot per month in the fourth quarter, but the asking rents at two of the area's entertainment office projects were significantly higher: Tribeca West ($4 per foot) and Westside Media Center ($3.50 per foot).
But those properties' rates don't compare to what developer Charles Cohen is asking for at the Red Building: about $5 per square foot. Both WME and UTA, according to several real estate sources, have toured the building, though neither agency would comment on its plans. According to Barnett, it's widely known that the firms are considering other sites.
The $165 million Red Building, which is now being clad in distinctive red panels, will open in the third quarter. The 400,000-square-foot project from Cohen Brothers Realty would be a flashy home for either agency, both of which are said to need larger offices. Cohen, also a film producer, says that a few years ago he had a lease negotiated with UTA for space at the eight-story project, but "for one reason or another, it didn't get closed." However, he confirms UTA has recently toured the property.
Cohen -- whose Cohen Media Group distributed the Oscar-nominated 2010 drama Outside the Law and produced 2008's Frozen River -- wouldn't address WME's interest in the property. He would only say that "other agencies" have toured the Red Building, which is just a two-minute drive from Soho House, already an unofficial commissary for agents.
According to sources, UTA, now at 9560 Wilshire Blvd. in Beverly Hills, is in the market for roughly 100,000 square feet; WME (9601 Wilshire Blvd.) is looking for as much as 200,000 square feet. Last year, the latter backed out of an agreement to occupy a new 144,000-square-foot building at 235-269 N. Beverly Drive that had been built for WMA, one of WME's predecessor firms. (MGM signed a lease for the entirety of the Beverly building in late December.)
Muhlstein says talent agencies are important tenants because of the ancillary business they create. One need only recall how CAA's and ICM's moves to Century City in 2007 spurred the growth of that neighborhood. "They clearly have a trickle-down effect on the local economy in terms of services, restaurants and hotel rooms," Muhlstein says. "That's why they are so desirable."