The Real Deal Los Angeles

Warner Music lease is already having ripple effect on Arts District

Insiders say entertainment lease will bring forth similar tenants — and interest has already spiked
By Cathaleen Chen | October 10, 2016 05:03PM

The Ford Factory building at 777 South Santa Fe Avenue and Warner Music Group CEO Stephen Cooper (Credit: Shorenstein, Music Business Worldwide)

The Ford Factory building at 777 South Santa Fe Avenue and Warner Music Group CEO Stephen Cooper (Credit: Shorenstein, Music Business Worldwide)

It’s only been three days since news broke that Shorenstein closed, at long last, the white whale of a lease at its Ford Factory building, but its ripple effects are already in action.

Warner Music Group’s 13-year, 257,000-square-foot deal marks the biggest commercial lease to close in Downtown Los Angeles this year, and the arrival of the Arts District’s first sizable office tenant. The success of several projects rising from the ground in the area hinged on that first big get — and some were concerned about its potential failure, especially after Buzzfeed backed out of a deal for the same space last year. But now that the lease is final, industry insiders say interest in the area has already ticked up, in the first signs of a snowball effect.

“It cannot be understated how significant this is for the Arts District,” CBRE broker John Zanetos told The Real Deal. “It is a massive game changer.”

Zanetos was the listing agent for Shorenstein’s massive warehouse conversion at 777 South Santa Fe Avenue, along with colleagues Todd Doney, Rob Waller, Chris Penrose and Phil Ruhl. But even those without a stake in the transaction itself say Warner will be a magnet for related companies.

“Right off the bat, there’s going to be a lot of smaller, satellite companies that will start filling in the area to be near Warner music,” Carl Muhlstein of JLL told TRD. “Look at Playa Vista with Facebook and Google. There’s a lot of demand in the surrounding buildings, [with landlords signing] 5,000 to 20,000-square-foot of tenants, all of whom do business with these big firms. I suspect the same will happen with the Arts District.”

Even before those entertainment-related tenants come marching in, Warner’s deal is streamlining existing negotiations, according to brokers in the area.

A land sale that was nearing a close at 2143 East Violet Street, for instance, has gained momentum from Warner’s commitment, and will now close more swiftly, according to Brandon Gill, leader of the CBRE team that brokered Shorenstein’s acquisition of the Ford Factory in 2014.

Gill is working on a handful of major Arts District sales and office leases, and he told TRD that the Ford Factory deal will have a positive effect on all of them.

“This is going to give confidence to other groups to close transactions,” he said. “Shorenstein’s misfired negotiations with Buzzfeed did create some concerns with investors, but this is really going to propel a lot of deals we have in the works.”

The snowball effect won’t be limited to just the commercial side of things, either. Come 2018, when Warner formally moves in, its thousands of employees could be seeking housing, lattes and salads.

“Just think of all the people wanting to get coffee, lunch and dinner, going out for drinks, etc.,” Zanetos said. “Considering that the current residential population of the Arts District is 2,400 people, the dynamic of the neighborhood will change a lot, but in a very positive way.”

The question remains, what will happen to the empty space Warner is leaving behind in Burbank and West L.A.? Brokers don’t seem too worried.

“We’re certainly optimistic,” said Owen Fileti, a leasing agent for Atria West at 10585 Santa Monica Boulevard, where Warner will vacate 50,000 square feet of space. “It’s a great building and we’re looking for another entertainment or media-related tenant.”

Warner Music Group, who also leases six floors of the Pinnacle office building at 3400 West Olive Street, will spend between $40 to $50 million building out the Ford Factory. Valued at upwards of $130 million, their new lease has the option of a 10-year renewal when it ends.