Lavish Headquarters a Symbol of Showy Nature of Agency Biz

Offices make statement that the agencies are more than partnerships

CAA Offices
Paul Turang

Perhaps the best way to describe the hefty sums top talent agencies shell out for their headquarters comes from one of Hollywood’s best-known tenpercenters, WME’s Ari Emanuel: “Oy, gevalt. That’s a big number.”

In a 2010 deposition in WME Entertainment’s legal dispute over a Beverly Hills building it refused to accept in the Endeavor-William Morris merger, Emanuel used the Yiddishism to describe his thoughts upon hearing of the tens of millions of dollars his agency was paying for a long-term lease for its current headquarters at 9601 Wilshire Blvd.

“I heard the number, and I was like, most people wouldn’t understand,” he said, according to a transcript of the deposition obtained by Variety. He added, “You know, I started with $25,000 in my bank account … and that’s all I had to my name.”

The commercial real estate business is recovering from a bust, and many sectors of the entertainment business are trimming costs and seeking new revenue streams, but among the top talent agencies, hefty investments in their headquarters are regarded as necessary to foster teamwork among staffers and, of course, to impress clients — even if opulant digs seem out of whack with the economic realities of the industry.

In expense, scale and design, the offices make a statement that the agencies are more than partnerships, that they won’t settle for the button-downed, bland rows and cubicles of accounting firms, nor will they go so far as to bend to the Silicon Valley trend toward making environs resemble adolescent playgrounds.

Rather, the blueprint for these temples to talent seems to include sleek work spaces, specially made areas for art collections, large theaters and meeting spots and, in the case of CAA, an entrance and lobby area that have the feel of entering a separate universe encased in Carrara marble.

(UTA 9336 Civic Center Drive, Beverly Hills – Move In: 2012 – Size: 130,000 square feet – Architect: Rottet Studio.)

UTA left the Wilshire corridor last year for the former headquarters of Hilton Hotels, a 120,000-square-foot complex that underwent an extensive and expensive renovation to meet the agency’s specifications (in real estate circles, the rumor is that the build-out cost $30 million, and the landlord had reportedly been asking $4 per square foot per month in rent). Included was a reconfiguration of the space, cutting through five floors to create a floating central stairway that greets visitors from the valet and reception area.

There is more to come: Recently, the agency has been building out another 10,000 square-feet of space for expansion. In turn, UTA is no longer located in an office tower, but rather is ensconced in the newly named UTA Plaza, a sprawling campus-like setting near the Beverly Hills Post Office area that makes a statement about the agency’s stature relative to rivals.

“There has been a movement among all the talent agency groups to have a branding and identity to their premises,” says Joel Frank, senior VP at global real estate services firm CBRE in Los Angeles, noting that the trend also has extended to midsized agencies like APA, which has its own building in Beverly Hills. The cost of building spaces for agents is “much higher” than for other professionals, like lawyers, that want to appear to be on the cutting edge.

“The agency business is still about glitz and glam and bling, and there is a ‘wow’ factor that the agency wants to have as distinguished clients arrive for meetings,” Frank notes.

Jay Luchs, exec VP of commercial real estate advisor Newmark Grubb Knight Frank, echoes the sentiment. “If you’re known as the best in the business, you want to be visible,” he says. “The office is a powerful statement. Visitors come in and out all day.” That’s why agencies invest so much in their lobby. It is by design that a visitor waiting in CAA’s sprawling, glass-and-marble space is likely to see the bustle in the floors above.

(WME paid a settlement of more than $25 million after reversing a plan to relocate to this building on North Beverly Drive.)

Although most rents are not disclosed, it’s not too much of a leap to figure that the agencies are paying top rate, enduring the boom and bust cycles of commercial real estate. According to brokers, the average monthly rates for top-of-the-line space in Beverly Hills and Century City are running about $4 to $5 per square foot, down slightly from a peak of $5 to $6 or even $7 (for the very top “trophy space”) at the height of the market.

Talent agencies have a history of going over the top when it comes to expensive digs. Almost 75 years ago, Jules Stein enlisted architect Paul Williams to design the English Georgian revival headquarters of MCA, space that still greets drivers heading into Beverly Hills from Burton Way (and is now the home of Paradigm and Platinum Equity). The 360 N. Crescent Drive complex, at 124,000 square-feet, featured sweeping staircases, gardens and statuary, evoking many of the homes Williams designed for MCA’s clients.

By the same token, when CAA’s Michael Ovitz enlisted I.M. Pei to design new headquarters in 1989, he tried to remake the whole idea of office space. Nevertheless, as years passed, the building looked more like a combination museum (with the famous Roy Lichtenstein painting in the atrium)
and fortress.

That’s why CAA’s move to Century City in 2007 was viewed as much as a break from the past as a need to respond to the firm’s growth. It also set a new bar for talent agencies; at the time the deal was announced, the 15-year lease was valued by observers at $150 million. CAA’s headquarters anchored the makeover of the former ABC Entertainment Center, displacing a plaza that was a relic of 1960s modernism with Gensler-designed offices that seemed styled to inspire a sense of awe among all who wander inside. Designed by Gene Watanabe, the location was crafted to play to the client-visitor experience, a “trailblazer” move, in the words of one realtor, that created a buzz in the commercial real estate community because little expense was spared. “They went wild; it was a game-changing move,” he says. Other agencies, he notes, “had to keep up with the Joneses.”

With the buildings themselves making a statement about agency brands, the onus was on competitors to follow suit.

(ICM had to redo the lease for its Century City office space after MGM filed for bankruptcy in late 2010. The deal yielded a well-timed cash settlement for the agency.)

The drive for new digs also created some complications. In 2006, ICM signed a sublease for almost 93,000 square feet of space from MGM in the Lion’s nearby flashy MGM Tower, paying substantially less than MGM negotiated in its direct lease in 2000. According to bankruptcy court records, when MGM filed for Chapter 11 relief in 2010, and asked the court to break its lease, ICM could have been forced to create a direct lease with the landlord at MGM’s higher rent. A settlement was ultimately negotiated in which MGM agreed to pay ICM millions of dollars to try to make up the difference in the cost of its sub-lease agreement and the new deal it cut directly with the landlord at what is now known as Constellation Place.

A copy of a lease obtained by Variety shows that ICM negotiated a new deal in which it is paying $5.25 per square foot a month in its Century City space for 2013; that number rises to $6.31 per square foot in the final year of the lease in 2018. That’s still a hefty sum, but lower than MGM’s lease rate, and the timing was fortuitous: The agency was able to use its MGM settlement money to help facilitate its separation from private equity investor Rizvi Traverse Management, as well as fund an agent bonus pool at a time when it needed to incentivize key staffers.

WME’s dispute with George Comfort & Sons, the managing owners of the 165,000-square-foot Beverly Wilshire complex on North Beverly Drive, stemmed from the concern that WME would be sharing parking garage space with Gersh Agency. In the deposition, he and Comfort’s attorney argued over the proximity of Gersh, but Emanuel also was unimpressed by the design, calling it “traditional.”

The buzz in the real estate business was that the new leaders of WME didn’t want to take on the cost of such a large space, estimated at about $4 a square foot, as well as a pricey build-out, at a time when the companies already were dealing with the merger transaction. An arbitrator ruled in favor of the developer, and a subsequent settlement of more than $25 million spared WME from moving into space that was initially commissioned by WMA chief Jim Wiatt. (Wiatt paved the way for the union with Endeavor with the sale in 2008 of WMA’s three Beverly Hills buildings.) The settlement was sizable, but still less than WME would have spent to move. Instead, it wound up signing a renewal of its lease at 9601 Wilshire last year.

Despite the costs, some are determined to create spaces that project power and savvy even in a more austere era.

“What happened after the CAA (move) is a lot of agencies opened their eyes and said, ‘We should move to higher-profile space, up our game, because this industry is so competitive,” says Gary Weiss of L.A. Realty Partners, the broker for the landlord of Constellation Place. “You are accommodating your clients, because your clients, for the lack of a better term, are used to being looked after.”