Featured image credit: Dima Otvertchenko
San Fernando Valley-based private real estate firm Uncommon Developers is obviously a big believer in the old motto “No risk, no reward.” But they’re transparently banking on a big return from the entertainment industry (and to the office) in the not-so-distant future. They just added two North Hollywood towers to their portfolio. Does this speak to a larger trend or is it simply a maverick move from a wild investor?
The Office Drought
In 2023, office space pricing in Los Angeles plummeted by 43%. It was a year when corporate tenants relinquished over 65 million square feet of leased office space. And 2024 hasn’t brought much relief, though you can expect we’re closely watching trends as we await an expected about-face. Looking specifically at the Hollywood area, office space vacancies are still topping early pandemic stats at 15.5%.
But the return to pre-pandemic vacancy levels has to start somewhere and a few bold investors are beginning to make their bids. Among them is the San Fernando Valley’s Uncommon Developers. Living up to their name, they’ve bucked trends and plunked down $45 million on two North Hollywood acquisitions rooted in the currently floundering entertainment sector. One of these buildings, located at 5200 Lankershim Blvd, is dubbed the Academy Tower for its location, conveniently near the Academy of Television Arts & Sciences. The deal also hands 4640 Lankershim Blvd to the real estate firm.
Maverick Move or Savvy Investment?
The buildings’ relation to Hollywood’s embattled film and television industry is undeniable. Their vast majority of still-active tenancies are entertainment companies that have no doubt chosen these locations for their proximity to Studio City. But with Studio City still a ghost town and productions still jumping state lines in search of greener tax breaks… err, pastures… is Uncommon Developers making a move that will pay off anytime soon?
According to Newmark’s co-head of U.S. capital markets, Kevin Shannon… yes, frankly. Several Newmark brokers participated in the transaction, representing the seller, a joint venture between Rockwood Capital and Artisan Ventures. Speaking with CoStar, Shannon clarified, “There’s a general feeling that we’ve hit the bottom, and even though vacancy rates are still climbing in Los Angeles, deals are trading. We’ve reached a turning point for the market.”
A Time for Investors Who Don’t Mind Some Risk
With that belief, it’s hard to see Uncommon Developers’ acquisition as anything but smart business. The deal was set at a per-square-foot rate, allowing the firm to buy up the office space at approximately $186 per square foot. When Rockwood Capital and Artisan Ventures made the same purchase in 2019, their deal would have set the price at around $270 per square foot. Uncommon Developers made a killing. But that, of course, banks heavily on Hollywood’s return… as well as the return of the traditional officeworker. At one time, both would have seemed too big to fail, but we’ve seen businesses evolve (or devolve) so rapidly in the last five years that nothing’s too hard to imagine.
Yet, the most pessimistic business analysts would agree that the signs of a return to the office are all around us. Even in Los Angeles. In just the last year, Hollywood purchasers have increased transaction volume by 125% against 2023’s numbers. Across LA as a whole, sales volume is up 12% as people try to buy big before prices go up. If you’re looking for your next big investment, we would recommend silver polish… because we have a feeling there’s a massive silver screen that’s going to need some work.
