Experts Predict Smooth Sailing at Warner Ridge

WOODLAND HILLS —  Developer Jerry Katell will probably have a much easier time than his predecessors in building a massive commercial complex at Warner Ridge, one of the last remaining large open spaces in the west San Fernando Valley, according to critics and supporters of the controversial project.

That’s because Katell stands to acquire, along with the land, the hard-fought rights to build 690,000 square feet of office space and 125 apartments on the site.

Consequently, he may be spared the economic and political vicissitudes that sunk the first developer who proposed the project.

Katell, whose previous projects include the Great Western Bank complex in Chatsworth, Agoura Hills Business Park and Valencia Gateway Plaza, said Wednesday that, pending settlement of a lawsuit, he will buy the 21 1/2-acre site east of De Soto Avenue and build a vast commercial complex to rival those in nearby Warner Center.

The 55-year-old developer’s “timing is excellent” because the Valley’s battered commercial real estate market has just started to turn around, said Mike Zugsmith, chairman of Capital Commercial/New America Network, an Encino-based commercial real estate brokerage.

Katell’s position is in stark contrast to his predecessor, Jack Spound, whose identical plan for the site met fierce opposition from homeowners, who wanted homes and parks, not office buildings.

Spound, a promising young developer riding the crest of the ‘80s real estate boom, had no idea his proposal would enmesh him in one of the longest-running land-use battles in Los Angeles history, acquaintances said.

But beginning in 1988, former City Councilwoman Joy Picus led local homeowners in a spirited--but doomed--legal battle against Spound’s project that stretched over nearly six years.

Spound, who could not be reached for comment, finally won a Pyrrhic victory when a court ruled that the city must allow him to proceed and waive at least $4 million in development fees.

But by then, years had passed and the market had soured. Despite his victory, Spound’s lender balked and his biggest tenant, 20th Century Insurance, backed out of the deal in 1994. Spound’s project wound up entangled in bankruptcy proceedings, according to sources involved in the bankruptcy case.

He is now involved in construction management on tenant improvements in offices in Los Angeles, acquaintances said.

Although Spound stands to gain financially from a proposed legal settlement with his former partners, he is reportedly still bitter about Warner Ridge.

“It just killed him,” said Seth Dudley, senior vice president at the commercial real estate firm of Julien J. Studley Inc.

Katell, by contrast, is held to be “ahead of the curve,” in Zugsmith’s words, and unlikely to share Spound’s fate.

His entry into the troubled project is “a bold move,” but one very likely to pay off, said John Rooney president of the Valley Economic Development Center. “It’s time for that side of the Valley to turn around, and Katell is a logical player,” Dudley said. The reason is declining office vacancy rates, a sign that a new real estate cycle has begun, he said.

Valleywide, the office vacancy rate is about 13%--not nearly as low as cities such as Seattle and Salt Lake City--but still one of the strongest markets in Southern California, said Madalyn Seyer, research director for Grubb & Ellis.

Although office vacancies still hover at a relatively high 17% in the West Valley, much of that vacancy can be attributed to a single building, the huge Warner Center Plaza Three building at 21650 Oxnard St., still 85% vacant at the beginning of this year.

But in another sign of the market’s improvement, Andy Fishburn, director of leasing for Warner Center Properties, says the company expects to lease 100,000 square feet in Warner Center Plaza Three this year.

There are other signs that the market is rebounding.

Toibb Enterprises of Woodland Hills, which competed unsuccessfully against Katell to purchase the Warner Ridge site, is still looking for places to build in the area, Vice President Don Kinder said.

And Tishman International Co. is exploring the possibility of building a new twin tower to accompany the existing 20th Century Insurance tower in Warner Center, Tishman Chairman Alan Levy said.

Tishman and Katell have both expressed interest in capturing 20th Century as a tenant. The insurance company is outgrowing its Warner Center offices.

Because the development agreement that Spound finally wrested from the city is still on the books, Katell will not have to win time-consuming land-use permits for the project, said Ken Bernstein, planning deputy for City Councilwoman Laura Chick.

“All they would need to do is pull appropriate building and safety permits,” Bernstein said. “There is nothing that would require public hearings. We went through all that.”

Gordon Murley, president of the Woodland Hills Homeowners Organization, long the project’s strongest opponent, concurred. “If there was a way to invalidate the agreement . . . certainly we would,” he said. “But right now we haven’t found anything to suggest that we could do this,” he said, adding a promise to keep trying.

Moreover, in the aftermath of the Warner Ridge fiasco, which is widely held to have ended Councilwoman Picus’ career, politicians have been chastened, said Bob Scott, president of the Los Angeles Planning Commission.

“The city lost in a very big way,” Scott said. “The council took a look at the trials and tribulations of Joy Picus, and became aware that there is a limit to how much bullying can go on” in land-use cases, he said.