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Macerich, Hudson Pacific Confirm Plans to Redevelop Westside Pavilion

Plans Call for New Creative Office Project
March 5, 2018
It's official: Hudson Pacific Properties, the LA-based office REIT headed by Victor Coleman, and Santa Monica-based mall owner Macerich are forming a joint venture with plans to convert 500,000 square feet of approximately 600,000 square feet at Westside Pavilion into creative office space.

Hudson Pacific and Macerich, which announced the expected arrangement today, said Hudson Pacific would control 75% of the joint venture with the remaining 25% held by Macerich. As part of the deal, the joint venture will keep approximately 100,000 square feet of existing entertainment retail space intact.

The total cost of the project is estimated to range from $425 to $475 million, including the asset value at contribution, according to a joint statement. Each partner is expected to contribute its pro rata share.

Hudson Pacific will serve as the property’s day-to-day operator, project developer and the joint venture’s managing member. Construction is expected to be completed by mid-2021.

Gabe Kadosh, vice president of retail services at Colliers, said Hudson Pacific's track record in completing large-scale redevelopment projects bodes well for Westside Pavilion.

"Hudson Pacific Properties is one of the most innovative and forward-thinking landlords today," Kadosh said. "They have the resources to complete a creative office park, similar to what they did with Riot Games."

That company moved into Hudson Pacific’s Element L.A., leasing its entire office campus in West L.A. in November 2013.

Brokers also said the lack of new office product on the West side should work in favor of the project.

"No new significant office space has been built outside of Playa Vista and the need for space is there," Matthew May, president of May Realty Advisors, said. "Especially with the growth of the tech companies who need large space and big floor plates. There is also the concept of changing the zoning on the parking and building residential."

With its abundance of residential properties, the West Los Angeles area has been a historically overlooked submarket for office, according to Stephen Basham, a senior analyst with CoStar Market Analytics.

"The recently opened Expo Metro line, which connects downtown L.A. to Santa Monica and runs through the heart of the submarket, should breathe life into the office market here," Basham said.

"It’s close to many new and existing residential," Colliers' Kadosh said. "In addition, you have mass transit and freeways which can get you to downtown L.A. and Santa Monica within minutes."

Given Hudson Pacific’s success in office, Basham said it is "exciting to think of the type of tenant they might be able to attract to something like this."

The timing appears to be right for such a project, according to Kevin Shannon, co-head of U.S. capital markets for NKF Capital Markets.

"There is a lot of capital focused on struggling retail at this point of the cycle," Shannon said. "Much of that capital is looking at redeveloping those retail assets as a covered land play of sorts. I think Hudson has a great idea for repositioning the Westside Pavilion especially given the massive barriers to entry that exist in the West L.A. market."

By most accounts, Westside Pavillion has struggled in recent years and was especially hard hit with the departure of one of its anchor stores, Nordstrom. Although that store’s lease runs through 2035, it decided to pull out of Westside Pavilion in favor of nearby Westfield Century City as part of the mall’s $1 billion renovation, which included adding the first West Coast outpost of Eataly.

Westside Pavilion’s Macy’s store is scheduled to close later this month. Macy’s is located on a separate parcel that was purchased last year by GPI Cos. for $50 million, according to CoStar data.

It was announced in early November, on a Macerich earnings call, that the mall would be put up for sale.

Westside Pavilion, which has been under special servicer status, was last sold in July 1998 for $170.5 million, or $328 per square feet, according to CoStar data. It was renovated about 11 years ago and was built in 1991.

Karen Jordan, Los Angeles Market Reporter  CoStar Group   

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