What does Verizon’s acquisition mean for Yahoo’s Playa Vista campus?

Verizon is buying Yahoo’s core internet business — and its real estate holdings are part of the $4.8 billion deal.

Yahoo’s property holdings in California include a five-building campus in Sunnyvale that it acquired for $258.7 million in 2002. More important to those in La La Land, however, is its lease for 130,000 square feet of space in Playa Vista, which could eventually be up for grabs. 

Under the deal, some of Yahoo’s news websites, its advertising tools and its email service will eventually get the axe, which could mean layoffs and exits from leased space. Even before the deal was announced, last year, Yahoo closed its office in Burbank as part of a 15 percent staffing cut and moved all of its Los Angeles County employees to Playa Vista.

It’s unlikely that Verizon will make any more leasing changes before the acquisition closes. Yahoo will operate as a separate company for some time, and shareholder approvals are still needed, Verizon spokesperson Bob Varettoni told The Real Deal.

Still, many in the industry are wondering what will happen with Yahoo’s current lease at 11975, 11985 and 11995 West Bluff Creek Drive, three buildings at Tishman Speyer’s Collective campus in Playa Vista. And experts have different opinions on how it will play out.

Verizon is likely to assume responsibility for the lease, said Allen Trowbridge, a principal at tenant representation firm Cresa. After doing so, it would have a couple of options. Verizon could even decide that it will use the entire space after observing and considering the operation.

“Verizon will probably retain the properties and evaluate what they need over time,” Trowbridge said. “They probably wouldn’t dispose of [the lease] and might even grow [the amount of space they take].”

Verizon itself has a 135,000-square-foot lease in Playa Vista, according to CoStar.

The telecom giant would also have the option to relinquish some or all of Yahoo’s space at the Collective. There are multiple ways to do this, said real estate attorney Scott Kalt of Elkins Kalt Weintraub Reuben Gartside LLP.

“The hypotheticals are that either Verizon will use the entire space or they will go out and find someone to sublease the entire 130,000 square feet — difficult but doable,” he told TRD. “A more challenging option is that they could decide to work out some sort of termination with the landlord, in which they’d probably have to pay some sort of buyout fee. And the final option would be that they find a whole bunch of subtenants and chop up the space.”

Kalt said Verizon’s success in potentially subleasing the space would depend on timing because of market fluctuations. However, right now, the Playa Vista office market is strong. In the first three months of 2016, the office submarket saw average rents of $53.52 a square foot a year, or $4.46 a square foot a month, TRD previously reported. Rents rose significantly from last year’s average of $43.08.

Verizon could even make some profit charging the sublessor above the asking rate, CoStar analyst Steve Basham told TRD.

“If Verizon decides not to occupy the space themselves, there’s a lot of appetite for companies to move in,” he said. “Playa Vista is not only the hottest office submarket right now but also one of the busiest places from a [residential] point of view.”

Carl Muhlstein of JLL said that were the company to sublease, it wouldn’t be a struggle.

“Anyone looking to get out of a lease in Playa Vista shouldn’t have a problem because Playa is reaching full capacity in terms of office space,” he said, adding that it was too soon to know what Verizon will decide.

“We can work ourselves in a tizzy with all sorts of variables about real estate, but when you buy a company for $5 billion, a couple of leases here and there aren’t the issue,” Muhlstein said. “It’s really about…what employees will be cut. When they figure that out, we’ll have a real estate conclusion.”

While the lease may matter a lot to companies dreaming of space in Playa Vista, it is a minuscule part of the Verizon deal.

“A little profit or a little loss on a lease when dealing with a $5 billion acquisition isn’t going to matter,” Muhlstein said.

Yahoo did not respond to requests for comment.

Verizon spokesperson Varettoni confirmed that the company does not expect the transaction to close until the first quarter of next year.

Sean Stewart-Muniz contributed to the reporting