DOWNTOWN — Santa Monica’s reputation for being a hot spot for technology and entertainment businesses received a boost with the reported $90 million purchase of five “creative” office buildings by a Houston-based real estate investment firm.

Lionstone Group, one of the largest owners of creative offices on the Westside with more than 800,000 square feet in its portfolio, bought the buildings from a limited partnership made up of investors from the entertainment industry, according to a press release issued Tuesday by the company.

Lionstone did not disclose terms of the deal, however, the L.A. Times reported the properties were sold for $90 million.

The deal comes at a time when Santa Monica properties are commanding high rents because of an increase in demand. It seems creative types like being by the beach and are drawn to the city’s old industrial spaces that provide high ceilings, flexible work spaces and a funky aesthetic. CEOs can’t fit pool tables into stuffy, boxy high-rises.

“Lionstone … saw this as an opportunity to purchase five trophy assets in a market with significant barriers to entry and capitalize on the supply/demand imbalance that exists in Santa Monica, especially for creative office space,” said Scott Rigsby, of Industry Partners, a Santa Monica-based firm that represented the seller on the transaction. 

“The demand for creative office space from tech, new media and post-production companies is driving leasing activity on the Westside,” he added. “Santa Monica is one of the tightest markets in Southern California, as both traditional and creative office users are drawn by the lifestyle, local amenities, and one of the fastest fiber-optic networks in the country.”

As a result, some are commanding rents for office space of over $5.50 per square foot in some buildings, Rigsby said.

Lionstone, which already has the Lantana media campus, Penn Station/1630 Stewart St. and Broadway Place in its portfolio, purchased four buildings that are pre-1950s construction that have been fully renovated, offering prospective tenants plenty of space and functionality. Current tenants include POP Sound, Clearstone Venture, Pier 59 Studios and Bolthouse Farms.

The properties are located in Downtown and Bergamot Station and are said to be 90 percent leased.

The influx of tech companies in recent years helped Santa Monica and Venice earn the nickname Silicon Beach, which has now morphed into a brand that seems to be working, said Jeff Jarow, a board member of the Santa Monica Chamber of Commerce and a broker with PAR Commercial.

Jarow said once Lionstone had a foothold with the Lantana complex it most likely saw how much of a demand there was and jumped at the opportunity to increase their presence in Santa Monica despite the price to purchase.

“It just shows you there is a need and there is excitement amongst investors to spend in Santa Monica,” Jarow said. “People keep waiting for the market to dip, and even if it does, it wouldn’t be much, so you have people like Lionstone with a lot of cash who see this as a protected investment.”

Jarow said with the American Film Market, one of the entertainment industry’s largest, remaining in Santa Monica for another five years and the arrival of the Expo Light Rail line in 2016, Santa Monica real estate is only going to be more attractive and more expensive. And with industrial spaces, buyers have a lot of room to expand under new zoning framework.

“It’s all value added,” he said.

kevinh@www.smdp.com

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