Mid-Wilshire, Miracle Mile count on renovations.

Quarter brings higher vacancies to both submarkets

A statement from real estate broker Mike DeSantis summed up a fact of commercial leasing life in the Mid-Wilshire and Miracle Mile submarkets during the first quarter.

"Every landlord has now come to the realization that it's difficult to replace a tenant, especially a credit tenant (one who is financially solid)," said DeSantis, associate director at Cushman & Wakefield of California Inc., the exclusive leasing agent and property manager for the former Ticor Title Co. headquarters at 6300 Wilshire Blvd. in the Miracle Mile district.

DeSantis said commercial landlords are "competing more aggressively" for tenants, which is broker jargon that translates to: Landlords are lowering rates to capture tenants.

Most big commercial leases in the Miracle Mile district, and many smaller ones, now involved tenants moving from one building to another or from one nearby market to another. That trend stands in sharp contrast to the heady days of the 1980s, when companies were expanding their spaces within markets, DeSantis said.

One of the biggest Miracle Mile leases during the first quarter is a perfect example of the type of musical chairs that is now going on within local markets and submarkets. That deal involved New York Life Insurance Co.'s 40,000-square-foot deal at 6300 Wilshire Blvd. The company is moving from a building just a few blocks down the street, at 5757 Wilshire, also in the Miracle Mile.

DeSantis said the 6300 building is now 55 percent leased, after having been emptied out in February 1992 to accommodate a $35 million renovation. That redo is scheduled to be completed this month.

Completion of the renovation means "we are taking tenants from other buildings because there has been no (tenant) expansion in the market," DeSantis said.

He stressed that by "the market" he was referring to the Westside because the Miracle Mile is now considered part of the Westside by the major brokerage houses.

Although some Westside submarkets, such as Santa Monica, may be showing net increases in tenant occupancy, there has been no real growth in the Westside market as a whole, DeSantis said, because tenants are simply moving from one building to another.

Although Miracle Mile is considered by many as part of the Westside market, and competes for Westside tenants, DeSantis said, it "has now developed into its own little specific submarket."

As a result, Miracle Mile landlords attract tenants primarily from within the Miracle Mile and from Mid-Wilshire, Hollywood, Beverly Hills and West Hollywood.

One of the biggest players in the Miracle Mile submarkets is the J.H. Snyder Co., which developed Wilshire Courtyard, and acquired and renovated both the former CalFed Tower at 5670 Wilshire Blvd. and the Museum Square building at 5757 Wilshire Blvd.

Cliff Goldstein, director of marketing for J.H. Snyder, said Museum Square has been 98 percent occupied since the Screen Actors Guild signed an 85,000-square-foot lease there last year. Meanwhile, the 5670 Wilshire building is more than 90 percent occupied, he said.

At Wilshire Courtyard, Vice President John Germano of LaSalle Partners Asset Management Ltd., which manages the courtyard, said that 89 percent of the project's 1 million square feet is occupied.

Germano said the courtyard, which includes two buildings of 500,000 square feet each, was nearly 99 percent leased until January, when Provident Life & Accident Insurance Co. moved out of a combined 136,000 square feet of space.

Provident dramatically downsized its L.A. operation by relocating certain parts of its business to the East Coast and moving its remaining workers over to 15,000 square feet of space at the 6300 Wilshire building.

During the first quarter, Wilshire Courtyard filled 50,000 square feet of Provident's former space, Germano said. The building now has a 60,000-square-foot and a 30,000-square-foot block of contiguous space, plus some smaller spaces, he said.

Renovated buildings have played a big part in the resurgence of the Miracle Mile, and some Mid-Wilshire landlords are hoping their renovations can have the same effect on their submarket. Mid-Wilshire, once a desirable business address, is widely viewed as a place in big trouble, as large corporate tenants leave and the submarket fights to shed its reputation as being both dangerous at night and unfashionable as a business address.

Landlords who are investing money in Mid-Wilshire, however, say they believe it has long-term potential and that perceptions about the market are worse than reality. They also have embarked on a plan to create a tree-lined "streetscape" median to improve the area's appearance.

Steve Miller, leasing manager at the Equitable Plaza Building in the Mid-Wilshire district, said that submarket "is not the ghost town it is sometimes portrayed as."

"Our vacancy rate still isn't any worse than some of the other markets," Miller said. According to a report by the commercial brokerage firm Julien J. Studley Inc., 20.3 percent of Mid-Wilshire's 15.2 million square feet of office space was vacant at the end of February, up from 19.9 percent at the end of December. The comparable vacancy rate for the first quarter of last year was not available because Studley only recently began tracking vacancy rates.

A total of 99,213 square feet of office space was leased in Mid-Wilshire during the January-February period, including 34,624 square feet of Class A and 64,589 square feet of lesser-grade space.

The Studley report showed seven L.A. Basin submarkets with higher vacancy rates than Mid-Wilshire. Among those softer submarkets were downtown Los Angeles and Westwood/West Los Angeles.

David Kim, managing director at Studley, said the vacancy numbers don't tell the whole story. The perception of which way a market is moving is very important, he pointed out. So Mid-Wilshire needs to change the perception that it is a down market heading downward.

If Mid-Wilshire is going to turn itself around, Kim said, landlords need to invest in more "redevelopment of space" through renovations, such as those that have rejuvenated the Miracle Mile.

"It's either going to be: 'Freshen up your buildings, Mr. Landlord, or watch as your corporate clients continue their exodus into other areas,'" Kim said, noting that Equitable, Central Plaza and a few other Mid-Wilshire properties have already invested in renovations.

According to Equitable leasing manager Miller, many of those renovation projects are close to completion. "About 90 percent of our building is sprinklered and the asbestos is abated (removed). We've done a lobby rehab and a lower plaza retail rehab, as have a couple of other buildings in our market," Miller said.

He said occupancy at the Equitable Plaza Building, which is owned by Rosenberg Real Estate Equity Funds, has hovered at approximately 65 to 70 percent for five years, as several large insurance firms have moved out and have been replaced by numerous smaller tenants.

"We're still doing a lot of little deals because that's what the market is right now, and that's what we focus on," Miller said. "We've used our 30 percent vacancy as a way to move tenants around, as we basically gut and rebuild the building and go through our asbestos abatement."

Miller said the renovation indicates, "We have made a financial commitment to the building and still believe Mid-Wilshire can be a viable marketplace."

Another Mid-Wilshire building that has gone the renovation route is Central Plaza at 3440-3470 Wilshire Blvd., where Vice President Donna Dalton of Total Properties Management Co. said there is movement afoot to improve the neighborhood and restore its image.

"We're not burying our head in the sand and pretending there aren't any problems here. We're trying to address the problems as we see them," she said.

An important element of plans by the Wilshire Chamber of Commerce and the Wilshire Stakeholders Group, a property owners' organization, is a "streetscape," Dalton pointed out. That streetscape would include a tree-lined median strip extending along Wilshire Boulevard from St. Andrews Place to Hoover Street.

Gary Russell of Russell & Associates, a Mid-Wilshire architectural firm designing the streetscape, said the project will cost about $3 million. That money would supposedly come from city, state and federal funds the two Mid-Wilshire business organizations have applied for.

According to Dalton, as part of the campaign to change the area's image, Mid-Wilshire landlords also are trying to convince people to refer to the neighborhood not as Mid-Wilshire but as Wilshire Center. That is the name originally used by the City of Los Angeles to refer to the area, before people started calling it Mid-Wilshire.

Dalton said many landlords believe that some of the concerns about Mid-Wilshire "are part of the economic conditions that prevail in all of the communities." Dalton further attributed some of the submarket's problems to changes in other submarkets, such as the glut of cheap downtown office space that has drawn some tenants from Mid-Wilshire.

"There are also changes in the way companies do business in today's economy," she said. "Corporations are downsizing and they are not signing 100,000-square-foot leases the way they once did."

The owners of Central Plaza have spent $23 million to renovate that building. Echoing the comments of the Equitable's Miller, Dalton said the renovation is evidence that "we are very committed and dedicated to this market and we are long term."

"We believe that there is activity out there if you put out the energy to go after it," she added.

Linda Hedden, leasing manager at Central Plaza and at the Metroplex, located just a block from Central Plaza, said Mid-Wilshire landlords can still maintain high occupancy levels if they put money into their properties.

Hedden said Metroplex is more than 90 percent occupied and Central Plaza is 75 percent leased. Central Plaza was more than 90 percent occupied until recently, when the California Department of Insurance moved out of 100,000 square feet and into downtown Los Angeles.

Hedden said Central Plaza is "one of a handful of buildings" that have completed installation of sprinkler systems, conformed with the Americans With Disabilities Act and all other retrofitting required by the City of Los Angeles for older buildings. She said landlords must meet these requirements and must make sure their projects are clean and attractive -- with plenty of restaurants, shops and other services -- if they expect tenants to return to Mid-Wilshire.