Does Playa Vista Have Room to Grow?

Kevin Shannon is the president of West Coast capital markets at Newmark Grubb Knight Frank.

LOS ANGELES—Playa Vista has experienced tremendous—and unprecedented growth—in the last five years. The result of that growth was recently demonstrated when Vantage Property Investors traded Playa Jefferson, a 200,000-square-foot office property, for $165 million, after purchasing the property in 2011 for $33 million. Kevin Shannon , president of West Coast capital markets at Newmark Grubb Knight Frank and the Vantage’s representation in the deal, says that Playa Vista still has more room left to grow, with pricing and rental growth leading the way. To find out more about the market—including where it came from and where it is going—we sat down with Shannon for an exclusive interview. GlobeSt.com: Tell me about the rapid growth in Playa Vista, and if there is still room for the market to grow. Kevin Shannon: The growth in value has been incredible, and it is a function of tenant demand and rent growth. Playa Vista’s growth has outpaced the market, and the increase in pricing is reflective of the ability of Playa Vista to get premium rents. There is an “it” factor about Playa Vista. The market reminds me in many ways of some of the more dynamic markets, like South Lake Union in Seattle. The market is going to continue to grow, especially with tenants like Google building out its campus. A lot of capital has decided to plant a flag there. A Playa Vista flag is good for fundraising and it is good for core portfolios, because it reflects a contemporary strategy and core funds increasingly want to have more of this creative lifestyle product in their portfolios. GlobeSt.com: With prices having increased so much in the last five years, are investors starting to dispose of assets? Is it a good time to sell? Shannon: There is clearly still demand and capital that wants product like Playa Vista. The box for a lot of investors has gotten smaller as we have gotten deeper into the recovery. Markets like Playa Vista still check all of the boxes and will still be able to create competitive processes. The capital that comes to this market tends to be long-term core capital, or owner users like Google that are clearly going to be there for the long term. It is more a patient type of capital that seeks core markets. GlobeSt.com: How difficult is it for new investors to break into this market? Shannon: As Playa Vista gets more mature, in the next few years there is going to be more product available. There is going to be occasional buying opportunities, but as the market gets fully built out, those opportunities are going to become scarcer. You have foreign buyers looking at the market, and you are also starting to see high net worth capital look at opportunities there, but it has predominantly been domestic core funds buying in the market. GlobeSt.com: Playa Vista has been called an emerging market for so long. Do you think that is still appropriate—has the market already emerged? Shannon: I don’t think that is an appropriate adjective anymore. This is clearly an established market. It is one of the most desirable markets in the Western United States. The scale and the environment in Playa Vista, is clearly what the high growth tech and entertainment tenants in the market want, which makes it really unusual. You don’t get master planned parks with this kind of scale, especially in L.A. This was the last large development site in West L.A., and it has turned into something really special. The pace of rental growth and property appreciation surprised most people. In 2011, when Vantage bought into Playa Vista, there were only a few buyers that saw the vision. It wasn’t the hyper-competitive market it is now. I think even those buyers, like Vantage, would tell you that they are shocked by the rapid appreciation.