Exiting tenants give Hollywood a 'thumbs down'; West Hollywood's performance elicits better reviews.

Ravaged by a lack of new development and declining image, the Hollywood/West Hollywood office submarket bombed in 1992, with tenants moving to Santa Monica and the Miracle Mile district of Los Angeles.

Vacancies in Hollywood/West Hollywood surged to 17.7 percent by the end of 1992, up from 11.3 percent at the end of 1991, representing a 161,000-square-foot increase in vacant space. That marked the submarket's worst performance in eight years and a stark contrast to the submarket's 1991 performance, when Hollywood/West Hollywood tenants moved into 11,000 square feet more space than they vacated, according to brokerage firm Grubb & Ellis Co.

"Redevelopment never occurred in Hollywood or West Hollywood (as it was planned) and, as a result, the entertainment companies are moving to the Westside and Burbank," said Brad Wilson, a Grubb & Ellis broker who works the Hollywood area.

The Hollywood Promenade, a mixed-use development planned for the entire city block adjacent to Mann's Chinese Theater, was put on indefinite hold in early 1992. That move dashed the hopes of Hollywood office brokers and building owners that the neighborhood's decline would be reversed any time soon, said Wilson and other brokers who work the Hollywood/West Hollywood submarket.

Pamela Cawsey, who manages the 200,000-square-foot 6430 Sunset Blvd. Building that houses Cable News Network's Los Angeles operations, is among those who say they are pessimistic about the submarket's future, even though she has no complaints about occupancy in the building she manages.

"We have 57,000 square feet of vacant offices, slightly more than we had last year at this time. But we are an exception. Hollywood is going down, and it won't be corrected until we get the transients off the streets," Cawsey said.

An increasing number of tenants are looking to move out of older Hollywood buildings that need to be retrofitted with sprinklers and have asbestos removed, Cawsey added.

For example, the Screen Actors Guild dropped the curtain on its long tenure in the Hollywood office market when it cut a deal last June to move from its old 32,000-square-foot haunt at 7065 Hollywood Blvd. into 82,000 square feet of space at Museum Square, 5757 Wilshire Blvd., in the Miracle Mile district. That move is scheduled to take place in August.

Scott Milano, a director at the L.A. office of commercial brokerage firm Lambert Smith Hampton, represents building owners in West Hollywood and Hollywood. He acknowledged the general decline in Hollywood and the blow that will be suffered by SAG's exit. Milano was quick to point out, however, that the West Hollywood office market is healthier than Hollywood's.

West Hollywood landlords are finding tenants willing to pay $1.75 to $2.50 a square foot per month for top-notch space. Meanwhile, landlords of the highest-quality Hollywood buildings are getting monthly rents of only $1.25 to $1.35 a square foot, Milano said.

"Though they (West Hollywood and Hollywood) are right next to each other, they are viewed completely differently by tenants," Milano said.

As an example of West Hollywood's relative attractiveness, Milano cited the 68,000-square-foot Playboy Building at 8560 Sunset Blvd. in West Hollywood. At the beginning of the year, that building had 30,000 square feet of vacant space, meaning it was almost 50-percent empty.

Lambert Smith Hampton, which handles leasing for the building, during 1992 inked Tribeca Restaurant Group to a 6,000-square-foot lease there and Western Media Representatives to two successive 6,000-square-foot leases. That brought the Playboy Building to its present 17.5 percent vacancy rate.

Hollywood landlords will need redevelopment financing to turn the deteriorating image around, said Grubb & Ellis' Wilson and Lambert Smith's Milano.

The Los Angeles Community Redevelopment Agency plans to help turn around the seedy Hollywood image with its "disappearing loan" program that helps landlords and businesses pay for sprucing up the neighborhood.

The pilot program, started in March 1992, has been allocated $2.5 million of the CRA's fiscal 1992-1993 budget and so far has entered into loan agreements with seven businesses or property owners along Hollywood Boulevard, said CRA Director of Operations Don Spivack.

Under the program, the CRA matches the owner's or tenant's remodeling expenses on a dollar-for-dollar basis up to $250,000, as long as the building is recognized by the Secretary of Interior as a historic site, Spivack said. Buildings along Hollywood Boulevard and all buildings that are used by the entertainment industry in the 1,100-acre Hollywood redevelopment area qualify, said Spivack.

The building owners or tenants will be forgiven 10 percent of their CRA matching-fund loans each year, as long as they keep their buildings up to pre-determined standards. So the total matching-fund debt to the CRA would be forgiven in 10 years.

A parallel $2.9 million program, targeted at Hollywood buildings that house entertainment businesses, was started by the CRA in Sept. 1992, Spivack said. That program is structured the same as the other program, with owners or tenants getting matching-fund loans that "disappear" in 10 years if certain standards are maintained. The CRA is currently processing 10 such loans under the entertainment business building rehabilitation program, Spivack said.

Rehab efforts in Hollywood and West Hollywood may come too late to prevent further tenant loss, said commercial leasing agents.

For example, Motown Record Co. L.P. has two years left on its 21,250-square-foot lease at the Trizec Hollywood Center, 6255 Sunset Blvd., but lately has been shopping for alternate digs outside Hollywood, said area brokers.

Motown officials said other sites had been evaluated, but they are not planning to move in the near future.

Officials at Trizec Properties Inc., which owns the building, confirmed that Motown has another two years left on its lease at 6255 Sunset.

Hollywood Center is one notable exception to the declining Hollywood office sector. Only 3,576 square feet of that Trizec Properties-owned 301,839-square-foot building is currently empty, said Trizec officials.

That represents a vacancy rate of slightly more than 1 percent, a sharp contrast to the 17.7 percent vacancy rate for Hollywood/West Hollywood's entire 2.3 million-square-foot inventory of multi-tenant office space.

Lana Hochman of Hochman Real Estate, who manages the 200,000-square-foot KB Hollywood Center at 6922 Hollywood Blvd., is among those suffering from Hollywood/West Hollywood's downturn. She said vacancy at KB Hollywood Center increased from 8,000 square feet in early 1992 to 18,000 square feet currently.

"We have mostly small, 1,500- to 2,000-square-foot tenants who won't sign leases for longer than one or two years," Hochman said.

The Lavco Group also reported lethargic leasing activity at 7060 Hollywood Blvd., a building which Lavco manages. About 32,000 square feet, or 19 percent, of that 164,000-square-foot building remains empty, a situation that has not changed in the past year, said a Lavco leasing agent.