Glendale’s real estate community is reeling from the news that Nestlé, long headquartered in the city, will be leaving its 378,452-square-foot office by the end of the year.
But the swath of vacancy that will add to the market — with an awkward, five-year sublease period — won’t necessarily halt the flurry of deals already in the works in the area, experts told The Real Deal.
A big one, in fact, is close to closing. DivcoWest Real Estate Investments is in contract to acquire Glendale Plaza, a 582,000-square-foot Class A office tower at 655 North Central Avenue, for roughly $201 million, or $345 a square foot, sources told TRD.
The seller, Prudential Financial Inc., will dispose of the building at a loss. It acquired the tower in 2006 — during the rosy, pre-recession era — for $215 million, or $369 a square foot, CoStar shows.
The building is 95.5 percent leased, with Dreamworks Entertainment as its anchor tenant. The insurance company Unum Group and the law firm Lewis Roca Rothgerber Christie also have significant chunks of space.
Asking rents average roughly $2.75 a square foot a month in the building, CoStar shows.
The $345 per square foot deal is in line with several pending transactions in the $325 to $350 per square foot range, sources said.
Those prices are higher, however, than Glendale’s $291 a square foot average over the past year, CoStar shows. In September 2016, a property at 101 North Brand Boulevard traded for $128.3 million, or $314 per square foot.
Investment could take a hit when vacancy ticks up post-Nestlé, said broker Bill Boyd of Charles Dunn Company, who was not involved with the Glendale Plaza deal but is an expert on the city’s market. Since Divco’s soon-to-be property is almost fully leased, the company has little reason to worry, Boyd said. Projects with more vacancy, he said, will see darker times.
“Nestlé leaving will slow down the rent growth in Glendale because it will add vacancy,” he said. “There was 600,000 square feet vacant, now there will be over 375,000 more. For investors, that’s not encouraging news, to see vacancy rise from, say, 10 to 16 percent.”
The chocolate company’s move to Virginia was a shock to a historically stable market, Boyd said.
“Glendale is extremely consistent, historically,” Boyd said. “It has great amenities with the Americana at Brand and restaurants; it is surrounded by three freeways in a triangle; it is central to labor from the San Fernando Valley and Santa Clarita and Central L.A. It has what they call ‘good bones.’”
DivcoWest, led by CEO Stuart Shiff, is on a bit of a buying spree. The San Francisco-based investor is expected to close this week on its acquisition of the Telephone Building at 1314 Seventh Street in Santa Monica for roughly $52 million, or $867 a square foot, TRD reported.
DivcoWest and Prudential did not respond to requests for comment. CBRE, the brokerage that leases the building, declined to comment.