A Tale of Two Valleys
With a stronger office market recovery than in LA overall, the San Fernando Valley is nobody's ugly stepchild. At Bisnow's Future of the Valley, our panel of owners, developers, and brokers gave a thumbs-up to both the S.F. and Conejo valleys.
Topa Management president Jim Brooks is a big believer in the Westlake Village submarket, where 600k SF of the company's 3M SF portfolio is concentrated. Landlords there have held the line—rents have stabilized and are moving up into the $2.50/SF range. While rents are still 30% below where they need to be to justify new construction, there's only about 500k SF of residual entitlement in the northern Conejo Valley. (Half of that of that was acquired by Invesco in its purchase of Westlake Plaza, which Topa managed as a third-party manager.) Over time, this should create some pretty healthy opportunity, he says. (Fruit's getting ripe, get the oven ready.)
Cassidy Turley executive managing director Lee Black points to the positive side of consolidations in the Valley. The relocation of Farmers Insurance into Warner Center will benefit other landlords down the street. (Those landlords should pitch in and get them a gift basket, maybe something with artisanal cheeses.) Other consolidations such as BofA facilitate the re-strategizing of existing corporate assets into creative multitenant environments. With vacancies coming down and asking rates going up, the opportunity for institutional landlords to purchase and reposition buildings vs. new construction will be the norm going forward.
Rising Realty Partners president Chris Rising says the company's thesis about the Conejo Valley is that it's one of a very few suburban markets that really should trade like urban markets, given its demographics and amount of wealth. Another factor: traffic. You can't get very far on the 101 between 7am and 10:30am, he notes. (Hopefully you have a decent car radio.) Chris insists these suburban environments can offer many of the elements that Millennials are finding in urban areas. "When you see these younger families and the kind of lifestyles they’ve built out here, I don’t believe they’re going to pick up and move Downtown."
While Younan Properties chairman Zaya Younan is concerned about employers migrating out of the area, he also sees significant employment absorption from others moving in. He's purchased four assets in the past eight months, and hopes to continue buying property in the West Valley from Warner Center to Oxnard before prices start to adjust. (Get under the limbo bar before you embarrass yourself in front of the whole resort. We know from experience.) This used to be a national market that drew attention from national landlords. "Today, it’s a local market because everybody’s still busy from the recession." The opportunity to buy might continue for the next six to 12 months, and then it will disappear, he says.
According to NAI Capital SVP Cathy Scullin, the Valley area actually has a lower office vacancy than the overall LA market, and on average the rents are within pennies of one another. That said, the East Valley is still a little challenged due to the Disney move-out and a new project by M David Paul, both in Burbank, which skew the numbers. (Disney isn't quite as magical when it's messing up your rents.) Otherwise, the market is strong with only 26 blocks over 10k SF. With prices firming on the concessions side, she sees effective rates starting to come up.
According to Lee & Associates LA North/Ventura principal Jim Fisher, the outlook for the multifamily market is positive from Glendale all the way up the 101 Corridor to Thousand Oaks. Some of the submarkets boast 2% vacancies with nothing new coming in the pipeline, creating good opportunity for rent growth in the next couple of years.
Our moderator, Allen Matkins partner Alain R'Bibo, was born and raised in the Valley. One project he's excited about is Laurel Plaza in North Hollywood. As a resident of the neighborhood, he'd "like to see it cleaned up."
Thanks to Rising Realty Partners for hosting our event at its 4500 Park Granada project in Calabasas. The property has a rich history as a corporate facility for Lockheed and later for Countrywide. Today, BofA is the tenant.
Before the program, we snapped former Hudson Pacific president Howard Stern and Lee & Associates' Mark Leonard. As many of you know, Howard's been spending a lot of time in Tuscany. He was still going through his mail and getting rid of jet leg, having just gotten back the Saturday before our event.