After $48M Office Acquisition, Harbor Associates To Invest Additional $250M In Office Properties In Los Angeles
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Citing robust leasing activity in submarkets across the Los Angeles market, Harbor Associates announced it plans to invest $250M in suburban commercial real estate assets in Greater Los Angeles within the next 12 months.
Harbor principal Paul Miszkowicz told Bisnow that diverse demand drivers such as media, tech, biotech and content creation businesses and companies looking for 1K to 8K SF of office space are thriving in and around Los Angeles, giving the company a bullish outlook on the health of the area’s office market.
“A number of industries are attracted to Los Angeles for the quality of life and university system which has resulted to strong growth this cycle and in particular over the last 18-24 months,” Miszkowicz wrote in an email.
“We think it’s a good time to invest in office because we are seeing business leaders making purchase decisions, growing their real estate footprints and square footage, investing in their space as a tool to attract and retain talent and signing long term leases — all indicative bullish signals,” he wrote.
The announcement comes as the Long Beach-based company, which specializes in value-add office acquisitions, recently completed the purchase of the Encino Office Park, a four-building, 213K SF office campus in Encino, from The Moss Group for $47.85M.
CBRE’s Anthony Delorenzo, Mark Shaffer, Todd Tydlaska and Mike Longo represented the seller. CBRE’s Shaun Moothart, Bruce Francis, Dana Summers and Katie Diaz arranged the financing for the project with PNC Bank.
Miszkowicz said the company plans to renovate the buildings and breathe new life into the office campus that was built in two phases in 1988 and 1990.
The renovations will include a new building entry, lobbies, the addition of EV charging stations, bike rooms and LED lighting, and improvements to the corridors and restrooms.
Bisnow asked Miszkowicz about the recent acquisition in Encino, the state of the office market in Los Angeles and the company’s $250M planned investment in the market.
Bisnow: Some experts are predicting some type of a market downturn or a blip. What is your outlook on the economy and how a downturn could impact the office industry?
Miszkowicz: We see a marked disconnect between "Main Street" and "Wall Street" at the moment.
Wall Street and the associated large private equity firms, pension fund advisers, fund managers, life insurance companies, etc., have been calling for a downturn that’s supposed to hit in the next 12 to 24 months since early 2016 — so that’s the lens of institutional capital.
Main Street in this example is our tenant base, which ranges from Fortune 500 companies to sole proprietors. We’re seeing business leaders making purchase decisions, growing their real estate footprints and square footage, investing in their space as a tool to attract and retain talent, and signing long-term leases — all indicative bullish signals.
So to answer the question directly, eventually Wall Street will be right on their prognostications, but fundamentals feel pretty good at the moment and our tenant base [is] continuing to give us more "BUY" signals.
Bisnow: Tell us about your latest acquisition. Why acquire the property now? Why in Encino? Why do you like this submarket?
Miszkowicz: Encino Office Park is a 213,459 SF, four-building office campus. We are excited about the opportunity to breathe new life into the project, work with best-in-class, third-party property management and leasing teams and reintroduce the renovated project to the tenant and brokerage communities. Our focus is on meeting our tenant’s real estate objectives and delivering efficient solutions.
Encino is largely comprised of small and medium-sized tenants with concentrations in professional business services including the legal, financial services, insurance and accounting fields. Encino tends to outperform the greater San Fernando Valley because of its proximity to West LA, executive housing and major regional transportation systems. We like that Encino isn’t overconcentrated to a specific industry or a specific tenant, and we view the tenant industries in Encino as lower beta relative to the explosive growth of say the technology industry in West LA.
Bisnow: Tell us generally about LA's office market. What is driving your planned office investment strategy in the LA Metro area? What are you seeing in the market that makes you bullish on this asset class in LA?
Miszkowicz: Our investment strategy is partially a response to industry and demographic trends and partially a reflection of where we see relative value. For example, we noticed the proliferation on content creation growth a few years ago and responded by purchasing Bespoke Century City in 2017 immediately next to the Fox Studios lot in Century City, and we purchased 4130 Cahuenga immediately next to the NBC Universal lot in Toluca Lake in 2018.
Bisnow: The latest Allen Matkins/UCLA forecast report found that office has reached its peak. Why do you think this is a good time to invest in the office market?
Miszkowicz: As a generalization that may be true, but we think the investments that we’re making are special situations that have unique circumstances surrounding them and present scenarios where we can add value and achieve outsized returns relative to broad-based indexes.
If you look at the investment universe, office offers higher yield potential than multifamily or industrial, which are largely priced to perfection in today’s market environment. Retail is experiencing some headwinds as the product type is reconfigured to better match today's retail needs. Some of the niche product types have become more crowded in recent years as well.
Last year our portfolio was 2M SF with roughly 1M SF of vacancy. In the last nine months we’ve leased 650K SF of that vacancy.