Value-added player targets LA area

Real Estate Alert, May 26, 2004

A recently formed investment firm that targets value-added office properties in the Los Angeles area is ramping tip its acquisition pace.

Palisades Associates last week closed on its second purchase, and the buzz is that it will soon wrap tip two off-market purchases.

The Santa Monica, Calif., company teams up with institutional or private investors to buy underperforming properties valued at tip to $50 million. Working in the competitive Los Angeles-area office market, it looks at properties that produce initial annual yields averaging roughly 8%, with the goal of improving returns by increasing occupancy rates, as well as by renovating or repositioning buildings.

For example, in the deal that closed last week, Palisades teamed with Rockwood Capital to pay Taiwanese investor William Chang $31.6 million for the 113,000-sf building at 520 Broadway Boulevard in Santa Monica. Palisade's angle: While the building is only 80% occupied, it is in a stabilized market that has an average Class-A occupancy rate of about 90%.

Late last year, Palisades joined forces with ING Realty Partners' second opportunistic fund to pay $21.9 million for the 86,000-sf building at 9440 Santa Monica Boulevard in Beverly Hills. Palisades was attracted by the fact that a 27,000-sf lease carrying a below-market rent expires in 2005. Bank of America uses the ground-floor space as a branch office. Palisades is looking to recruit one or more upscale retail tenants at higher rents. The company will also seek to increase the property's value by extending the building's ground lease by 30 years, to 2084.

Palisades was formed last year by Kevin Green, who previously headed value-added player Sagamore Equities. The acquisition director, Jason Haas, formerly oversaw value-added acquisitions along the West Coast for Invesco Realty Advisors' funds and separate account clients.