Residential Trends Are Trying to Blend With Commercial

By Natalie Dolce

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Experts at a recent CREW-LA program
see an increase in creative office spaces
and say that offices being leased
today include spaces incorporating
lounge areas and communal areas.

(Mark Your Calendars: RealShare REAL ESTATE 2012, March 22^nd in Los Angeles).

LOS ANGELES-“The risk in relocating your business is not in being different or innovative. The risk is remaining static and predictable.” So said Carl Muhlstein, executive vice president of Cushman & Wakefield, at the recent CREW-LA program titled: “Today’s Leasing Labyrinth: Don’t Get Caught in the Same Old Maze.” The event, which attracted more than 75 commercial real estate professionals, was held at the Millennium Biltmore in downtown.

Muhlstein sees an increase in creative office spaces, and says that “residential trends are really trying to blend with commercial.” Offices being leased today include spaces incorporating lounge areas and communal areas, he says. “We are really getting away from the line up of cube and fixed stations.”

The problem is remodeling these office buildings to fit the new structure of creative spaces, he added. “Diamonds in the rough would be an overstatement. The challenge of leasing these creative spaces is apparent, but redevelopment is increasing,” Muhlstein said, especially on the Westside.

The panel discussed that the hub of the creative office redevelopment is taking place on the Westside, such as Culver City, Playa Vista and Santa Monica. These spaces are conducive to quality of life and represent a “work, live, play” lifestyle. Businesses that have set up these creative work spaces on the Westside include a variety of new media companies such as Google, Facebook, YouTube and Zynga as well as Toms and Stamps.com, panelists said.

But panelists cautioned that with the onslaught of these new creative spaces, there are a variety of tenant and landlord issues that arise. Samantha Goodman, attorney with the Law Offices of Samantha S. Goodman, handles leasing in regards to tenants, and pointed out that the top issues for tenants include understanding the landlord ownership structure and “making sure that they consider reviewing the current title report to understand liens and the need for an SNDA from current and future lenders.”

When dealing with construction and tenant improvements, tenants must think about security for tenant improvement allowance and build out, as well as escrows and offset rights, said panelists. Tenants must protect themselves against unexpected costs such as legal compliance issues outside the premises and hazardous materials. Pamela L. Westhoff, partner with Sheppard Mullin Richter & Hampton LLP, who primarily deals with landlords, emphasized that there is always a balancing act and you must be able to please tenants, investors and lenders. “You must ensure that strong underwriting practices are in place and that there is careful structuring of tenant lease security and guaranties,” Westhoff said. “You also have to think about short term versus long term deals and make sure you find a way to keep your lender happy.”

With tenant priorities, it’s important to be flexible, but be smart and careful according to Westhoff. “It’s important to think about sublease and assignment concerns and to preserve financial strength.”

When faced with the questions regarding  accommodating the increase of employees that will be moving towards working in the new office spaces on the Westside, panelists pointed to mass transit being the key answer, which Muhlstein said needs to be restructured and brought up-to-date. “Los Angeles is behind other cities in this realm and in order to move with times and the market, mass transit needs to be restructured,” he said.

Categories: West, Office, Industry Coverage, Los Angeles