Plans for Office Complexes Raise Hopes Skyline-High

Skylines around Los Angeles have remained unchanged for most of the decade, frozen in the profile of the late ‘80s.

But now a few developers are talking about new office towers--the first signs of life in the market since a real estate slump left the area awash in vacant offices.

And although there’s been more talk than action so far, brokers say that if any major office projects are built, they’ll be in outlying markets such as the San Fernando Valley rather than in downtown Los Angeles.

“There is a rush to get out of the ground to meet demand in this market,” said Jim O’Neil, special community development assistant for the city of Burbank. Thanks to the growth of entertainment-related tenants, “rental rates have increased, so that it justifies building again,” he said.

Among the developers vying to jump in first is K. Young Inc. of Los Angeles.

K. Young says its proposed 24-story Palladian World Center in Glendale will be the first major speculative office building to go up in the Los Angeles area since 1991.

A speculative, or “spec,” building is an industry term for a project built without commitments from tenants--a high-risk style of development common in the 1980s and not seen since.

The Palladian project has received government clearances, and its site at 655 N. Central Ave. has been cleared. Construction is scheduled to start in October.

K. Young is so confident of high demand in the Glendale market that leasing rates at the Palladian have been set at a princely $29 per square foot.

Some real estate experts are taking a believe-it-when-we-see-it stance toward the Palladian, whose groundbreaking has already been postponed since January. But the fact that K. Young is even talking about spec building is being taken as a positive sign.

“At least there’s talk,” said Seth Dudley, senior vice president at the commercial real estate brokerage Julien J. Studley. “Four or five years ago, no one talked.”

In contrast to downtown Los Angeles, where vacancy rates still hover around 18% to 20%, the Glendale office market boasts of a slim 6%, said William Boyd, senior vice president of CB Commercial in Glendale and broker for the Palladian.

Given the situation in Glendale, “one thing to say for sure is the building that gets built first will be successful,” Boyd said.

Complicating the picture for K. Young are financial troubles that came to light earlier this month at its giant South Korean affiliate, Kunyoung Group.

Kunyoung ran up against a shortfall that prevented its making interest payments on time. To avoid default, the home-building conglomerate sought emergency bank capital and is now trying to find a merger partner, said Christopher Kimm, director of acquisitions and executive in charge of the Palladian.

K. Young had earlier said that it would finance the estimated $100-million construction cost of the Palladian through Kunyoung. More recently, however, it has sought conventional financing from investment banking firms in the U.S.

Kimm acknowledged that “in the short period . . . it will be difficult to get additional security from our parent company.” But he contends Kunyoung’s difficulties will not affect the company’s ability to obtain conventional financing.

Some observers dispute that view. Despite increased interest in commercial real estate among investors, “it will be difficult to get that financing without any leasing whatsoever,” said Robert Cavanaugh, a Los Angeles-based real estate executive for Banker’s Trust of New York.

However, Cavanaugh predicts, it won’t be long before new buildings start to crop again in tight markets such as Glendale--whether or not K. Young takes the lead.

Already, the changing financial climate and K. Young’s plans have spawned a competitive mood in Burbank, Glendale’s next-door neighbor.

“We are very anxious to beat them [K. Young] out of the ground,” Burbank’s O’Neil said.

Burbank’s hopes are pinned on a proposed upscale office complex planned by J.H. Snyder Co. of Los Angeles. At 400,000 square feet, it would be smaller than the Palladian, which planned to encompass more than 500,000 square feet. Snyder is still in the process of buying a property at Olive Avenue and California Street, and construction probably won’t start until early next year, Snyder partner Cliff Goldstein said.