Connect with us

Business

A sign of the times: Tearing down an emptying O.C. office complex to build a warehouse

Published

on

A sign of the times: Tearing down an emptying O.C. office complex to build a warehouse

In the hierarchy of commercial real estate, office space has long been king.

Developers and landlords lived by the conventional wisdom that there was no better use for your square footage than business offices because they commanded higher rents than industrial spaces.

Simple math, the thinking went.

Well, not so simple anymore. At least in Santa Ana, where a perfectly good office complex is being demolished in a dramatic demonstration of how weak the office rental market has become and how deep the demand for Amazon-style distribution centers runs in Southern California.

The owners of the shiny glass building on Harbor Boulevard close to John Wayne Airport made the counterintuitive calculation that they will be better off owning warehouses than trying to wrangle tenants willing to pony up for conference rooms and corner offices.

Advertisement

“We had to make a strategic shift,” said Dan Broder, who is in charge of the redevelopment by Kearny Real Estate Co., owner of the property formerly known as Elevate @Harbor.

Lagging post-pandemic occupancy rates prompted owners of the office complex formerly known as Elevate @Harbor in Santa Ana to tear it down and build a warehouse.

(Lawrence M. Pierce)

The shift was prompted in large part by the COVID-19 pandemic, which contributed nationwide to shrinking office populations and rising demand for home delivery of all manner of goods. Four years on, overall demand for offices remains well below pre-pandemic levels, raising questions about how many buildings built for white-collar labor still have a viable economic future.

Advertisement

“There are a lot of office owners looking at their properties and wondering if those properties still make sense as offices,” said Michael Soto, Southern California research director for real estate brokerage Savills.

Some have decided they don’t, and the result has been a shrinking inventory of offices over the last year in several U.S. markets, including Orange County, Savills said in a recent report.

While those in urban centers making the decision to get out of the office game increasingly have looked to convert unloved offices to apartments, in some areas warehouses are hard to come by and, consequently, bring a premium, Soto said.

Orange County is prime territory for such switches, he said, because while it is still suburban in nature, it is densely developed with few empty sites available to build new distribution centers.

“There’s real pressure to redevelop older office buildings,” Soto said.

Advertisement

The incentive to redevelop Kearny’s property was enhanced by its location in an industrial district, which spared the company from having to go through time-consuming and challenging process of getting it rezoned for industrial use.

 An office building in Santa Ana is being demolished to make way for a distribution center.

Demolition is underway of an office complex on Harbor Boulevard in Santa Ana that will be replaced by a distribution center.

(Dania Maxwell/Los Angeles Times)

It was a different world for office landlords in 2018, when Kearny bought the office campus for nearly $35 million. The landlord took over a property that was almost fully leased, Broder said. And even though a large tenant was set to move out, Kearny was unconcerned because there was every reason to expect the vacancy would be an opportunity to sign new tenants at higher rents.

Kearny announced that it would spend about $15 million to upgrade the property into a campus-like setting with landscaped grounds, a fitness center and 24-hour access meant to appeal to tenants in creative fields such as technology. Marketing materials boasted that South Coast Plaza shopping center was nearby.

Advertisement

Then came the pandemic, and by early 2022, with occupancy rates hovering at about 60% and the office rental market losing ground, Kearny started to discuss converting the property to another use, Broder said. He declined to disclose further financial aspects of the project.

Kearny negotiated lease terminations with its tenants and set about to knock down the building that dates to 1982 and replace it with Harbor Logistics Center, a far less sleek 163,000-square-foot warehouse and distribution complex designed by SKH Architect set to be complete by the end of the year.

It’s intended to be a “last-mile” facility, Broder said, for goods arriving from elsewhere to be distributed to the surrounding community.

Last-mile facilities have “dramatically” increased in value in recent years and provide “solid rent growth” for their owners, the commercial real estate trade group NAIOP said, as e-commerce businesses such as Amazon compete to deliver within one day of a customer order or even on the same day it is placed.

Frequently ordered goods can be delivered more quickly from a compact nearby warehouse than from a farther-away sprawling fulfillment center such as those found in the Inland Empire.

Advertisement

Meanwhile, office rentals and onsite attendance by tenants continued to lag in in Southern California in 2023 as companies have tried to balance hybrid work policies with their desire for more employee engagement, real estate services company CBRE said in a recent report.

The value of office buildings has been falling nationwide, with average property values down by at least 25% from a year ago, according to a February report by real estate data provider CommercialEdge.

Rendering of the warehouse-distribution center.

Rendering of the less sleek 163,000-square-foot warehouse and distribution complex that will replace the office complex.

(SKH Architect)

“The downward trend in office valuation is more pronounced in older and less ideally located buildings,” the report said, perhaps such as the aging campus Kearny is knocking down.

Advertisement

“This is not a one-off,” Soto said of the landlord’s switch from office to industrial use of its property. “Especially in dense suburban markets like Orange County where land is expensive, we are going to see more of this.”

Business

Google fires 28 employees who protested Israel cloud contract

Published

on

Google fires 28 employees who protested Israel cloud contract

Google has terminated 28 employees after dozens of workers participated in sit-ins inside company offices this week to protest the tech giant’s work in Israel amid the war against Hamas in Gaza.

The protests, organized by the No Tech for Apartheid campaign, raised concerns about Google and Amazon’s $1.2-billion cloud computing contract with the Israeli government and military. The campaign is demanding that Google and Amazon drop the effort, known as Project Nimbus.

The advocacy group staged protests and sit-ins Tuesday at Google offices in New York and Sunnyvale, Calif., where nine Google employees were arrested for trespassing. The campaign said the firings included people who did not directly participate in the sit-in protests.

Google said the employees had violated company policy.

In a letter to Google staff, Chris Rackow, Google’s vice president of global security, said the workers were terminated after an internal investigation, adding that their actions ran afoul of the company’s code of conduct and harassment rules.

Advertisement

“They took over office spaces, defaced our property, and physically impeded the work of other Googlers,” Rackow wrote in a memo obtained by the New York Post, which first reported the firings. “Their behavior was unacceptable, extremely disruptive, and made co-workers feel threatened.”

In a statement on Thursday night, Google said all of the 28 people whose employment was terminated was “definitively involved in disruptive activity inside our buildings.”

“The groups were live-streaming themselves from the physical spaces they had taken over for many hours, which did help us with our confirmation,” Google said. “And many employees whose work was physically disrupted submitted complaints, with details and evidence. So the claims to the contrary being made are just nonsense.”

The protest group said the workers “have the right to peacefully protest about terms and conditions of our labor.”

“In the three years that we have been organizing against Project Nimbus, we have yet to hear from a single executive about our concerns,” the No Tech for Apartheid campaign said in a statement. “These firings were clearly retaliatory.”

Advertisement

The group said it plans to continue organizing until Google drops the contract.

The protests in the tech industry have escalated in the wake of Israel’s bombardment of the Gaza Strip, which began in response to the Oct. 7 attack on Israel by Hamas-led militants in which about 1,200 people were killed and about 240 taken hostage.

More than 33,000 Palestinians in Gaza have been killed in Israel’s air and ground offensive, according to Gaza health officials.

Google has said that its technology is used to support numerous governments around the world, including Israel’s, and that the Nimbus contract is for work running on its commercial cloud network, with the Israeli government ministries agreeing to comply with Google’s terms of service and acceptable use policy.

“This work is not directed at highly sensitive, classified, or military workloads relevant to weapons or intelligence services,” Google said in a statement.

Advertisement
Continue Reading

Business

L.A.-based social video platform Triller acquired by Hong Kong company

Published

on

L.A.-based social video platform Triller acquired by Hong Kong company

Social video platform Triller will be acquired by a Hong Kong financial services company as the Los Angeles-based firm looks to bulk itself up to counter TikTok’s dominance.

The agreement has already been approved by the boards of Triller and AGBA Group Holding Ltd., though it still needs regulatory and shareholder approval, according to a statement from the companies.

The deal is expected to close in late May, after which Triller will become a wholly-owned subsidiary of AGBA, which is publicly traded. This merger will take Triller public, and the newly combined company will be headquartered in Delaware, though AGBA will maintain an office in Hong Kong.

Shares of AGBA jumped 150% to about $1 in midday trading.

Advertisement

Triller, which has more than 200 employees, will remain in L.A. after the deal closes. An AGBA spokesperson said the company does not have plans for layoffs at the time, and will instead expand Triller’s workforce.

AGBA shareholders will own 20% of the newly combined company, while Triller stockholders will own 80%.

“We believe this is the most efficient route for Triller to access public capital markets and secure the liquidity needed for rapid growth,” Bobby Sarnevesht, Triller’s chief executive, said in a statement.

Triller has long lagged rival TikTok in the social video market, but the company got a major boost of interest in 2020, after former President Trump suggested he’d consider banning TikTok from the U.S. over its ties to China.

But since then, the company has been beset by allegations that it missed or made late payments to company affiliates, breach of contract lawsuits and concerns about its ability to compete in the tough world of social video.

Advertisement

In 2022, the company called off a $5 billion reverse merger with a video advertising software platform, saying at the time that it preferred to go public through an initial public offering.

TikTok’s woes in the U.S. are not yet over. Last month, the House of Representatives passed a bill that would lead to a ban of the popular app if its Chinese parent company, ByteDance, does not sell it.

Continue Reading

Business

Netflix's password-sharing crackdown is paying off as profits beat Wall Street's forecast

Published

on

Netflix's password-sharing crackdown is paying off as profits beat Wall Street's forecast

Netflix’s victory lap as the leader in streaming continued Thursday, as the company said it increased its subscriber base by 9.3 million to nearly 270 million in the first quarter.

Revenue was up 15% to $9.37 billion in the first quarter, the Los Gatos, Calif., streamer reported. Net income was $2.3 billion, compared with $1.3 billion in the same period in 2023.

The company beat Wall Street’s estimates on revenue, subscriber additions and net income. Analysts on average had projected that Netflix would increase its customer base by around 5.5 million subscribers, according to FactSet.

Netflix has impressed investors as the company cracks down on password sharing, grows its lower-priced ad-supported subscription tier and puts out a steady stream of popular original programs.

The steamer’s stock price has increased 30% so far this year and has recovered more than two years after subscriber losses and disappointing results sent it spiraling. Its shares closed at $610.56 Thursday, down 0.5%. The shares fell about 5% in after-hours trading.

Advertisement

“When analyzing key metrics such as subscribers, profitability, and audience demand, it’s clear that Netflix is pulling away from the competition and everyone else is fighting for second place,” Parrot Analytics analyst Wade Payson-Denney wrote in a report.

Netflix has remained the dominant subscription streaming platform in part because of its content prowess with licensed titles, such as “Suits,” and original programs, including international productions, K-dramas, reality shows, live events and sports documentaries.

In a letter to shareholders Thursday, the company forecast revenue growth of 13% to 15% this year. The number of sign-ups for subscriptions with ads grew 65% in the first quarter.

“We’re off to a good start in 2024,” the letter said.

New shows have included the live-action version of “Avatar: The Last Airbender,” based on the popular Nickelodeon series. The series was renewed for two additional seasons. Other popular titles include the fantasy adventure movie “Damsel,” drama “Griselda” and romantic limited series “One Day.”

Advertisement

Rivals are still trying to match Netflix’s recommendation technology. Walt Disney Co. Chief Executive Bob Iger called Netflix’s technology the “gold standard.” “We need to be at their level in terms of technology capability,” Iger said at a Morgan Stanley conference this year.

lthough many analysts are bullish on Netflix, some note that its growth prospects are limited in the United States and Canada, where many households already subscribe to the platform.

The streamer also needs to replenish its reservoir of popular shows, as some of its series with large fan bases, such as “Stranger Things” and “Cobra Kai,” are approaching their final seasons.

Netflix has been adapting popular manga and anime series such as “One Piece” and working with producers including “Game of Thrones” showrunners David Benioff and D.B. Weiss. Benioff and Weiss, alongside co-creator Alexander Woo, adapted the Chinese sci-fi trilogy “Remembrance of Earth’s Past” into the show “3 Body Problem,” which launched last month.

The company also is investing in live events and sports-related content, including signing a major deal with the WWE to bring its flagship weekly pro wrestling show “Raw” to Netflix in January.

Advertisement

Analysts are looking for more details about Netflix’s movies strategy, after its longtime film chief Scott Stuber left his position and was replaced by Dan Lin, founder of production company Rideback.

Under Stuber’s leadership, Netflix collaborated with high-profile, A-list stars and directors and won critical acclaim for movies including “The Power of the Dog” and “Roma,” though winning an Oscar for best picture has proved elusive.

Critics have pointed out that Netflix may make more money by investing in series rather than films because there are more hours of content for viewers to consume. Netflix executives have maintained that having original movies on the platform is a key part of their strategy.

“There is no appetite to make fewer films, but there is an unlimited appetite to make better films always,” Netflix co-Chief Executive Ted Sarandos said in an earnings presentation.

Another change that’s afoot — Netflix said starting with its first quarter in 2025, it will no longer provide quarterly membership numbers.

Advertisement
Continue Reading
Advertisement

Trending