Water Garden II Deal in the Works

About two months after a deal to sell Santa Monica’s popular Water Garden II office complex fell through, a new buyer has emerged: the same banking giant that owns the adjacent first phase.

Sources following the negotiations confirm that an investment group advised by a J.P. Morgan Chase & Co. affiliate is about to purchase the Water Garden’s 600,000-square-foot second phase.

The price is thought to be in excess of $240 million--a bit less than the $260 million a would-be buyer advised by investment banker Lazard Freres & Co. had tentatively agreed to pay late last year. That deal fell through over the holiday season. The new deal is likely to close in mid-March.

A locally based project team, including development manager J.H. Snyder Co., TransAction Cos. and an investment fund managed by Colony Capital, recently completed Water Garden’s second phase at Cloverfield Boulevard and Colorado Avenue. The group said the project’s development cost was about $150 million.

The developers have not yet signed a formal contract to sell the property to the Morgan Chase group, said J.H. Snyder principal Jerry Snyder. If a deal is not formalized within a week or two, the owners may refinance the property instead of selling it, he added.

Officials at Morgan Chase and Colony declined comment, as did Eastdil Realty, which is handling the sale on behalf of the developers.

Water Garden II’s five- and six-story buildings were almost entirely leased before completion amid strong demand and skyrocketing rents for office space in that market.

However, the latest deal comes as many Westside businesses, particularly start-up Internet operations, are shrinking or disbanding--including some Water Garden tenants.

Nevertheless, from a long-term perspective it makes sense to unify Water Garden’s ownership--even at a head-turning price--said veteran Westside office broker Ian Strano at First Property Realty. Congested Santa Monica probably won’t see much office development in the future, he said, but will remain a preferred business address.

“As long as they’re pursuing [the investment] as a long-term player and are willing to let the market work for them over an extended period of time, these kinds of acquisitions make sense,” Strano said.

“The opportunistic days of getting in and out of properties with a big profit in just two or three years are over for now,” he said.

Nearly a million square feet of office space is available for lease or sublease within a mile of the Water Garden, added Bob Safai, principal in the Madison Partners brokerage firm. But given the continued demand for space and relative paucity of new construction in the area, “it will get absorbed,” he said.

Safai also said that at least one other fully leased office building in the vicinity of the Water Garden is for sale at a comparable price on a per-square-foot basis.