Record ruling ups Sony’s rent by $20M

Tenant, landlord disagree on increase

Sony has lost one of the largest rent arbitrations on record in a dispute with Transpacific Development Corp., the landlord for Sony Pictures Plaza at 10000 Washington Blvd. in Culver City.

The building, across the street from Sony’s studio complex, is under a long-term lease in which the rent is reset to market every five years. The problem is getting both the landlord and tenant to agree on what is a fair market rent.

In this case, Sony thought the rent should be $390,000 per month but Transpacific thought it should be $710,000 per month — an unusually large difference of opinion.

The matter was decided earlier this month in what is called a “baseball arbitration,” in which an arbitrator must decide to use one of the figures presented by the quarreling parties — splitting the difference or coming up with a compromise rent is not allowed.

There is an incentive in a baseball arbitration for both parties to present a figure that is as close as possible to the fair market value, or what an arbitrator would determine, because the arbitrator must pick the figure that is closest to his own. People close to the matter say the arbitrator’s figure was right in the middle, but leaned toward the landlord by less than half of one percent.

“The arbitrator said it was an extremely close call; unfortunately, this time around things didn’t go our way,” a Sony spokesman said.

Attorney Tony Natsis, a partner with law firm Allen Matkins Leck Gamble & Mallory, who represented Transpacific in the matter, said the difference between the rents suggested by the two sides amounted to nearly $20 million over five years, a record for a rent arbitration.

Real estate experts noted that determining a market rent for a building such as the 330,000-square-foot Sony Pictures Plaza, which is unique in its size and location, is very difficult because there are no comparable buildings nearby to use as a reference.