Reach for the skies! Downtown LA growing up

The City of Angels — the expansive, unwieldy web of avenues and enclaves synonymous with urban sprawl — suddenly is standing tall and shoulder to shoulder in its own downtown. It’s been years in the making, but Los Angeles, once a lights-out financial services hub that all but closed after hours, is now undergoing a transformation of a magnitude seldom seen by other U.S. cities.

Lofts. Apartment and condominium towers. Restaurants and cafes. Galleries. Hotels. Office buildings. Mixed-use projects. All are present and accounted for now in a stunning turnabout that has only come about in just the last few years. Between 1992 and 2012, just one major downtown high-rise was built — the 54-story L.A. LIVE tower. Today, more than 100 projects of all sizes — high-rise, medium-, and low — are either underway or in the offing, according to the Los Angeles Downtown News.

By comparison, “downtown in 1990 was 9 to 5 — you drove in, you drove out,” recalled Carol Schatz, CEO of the Downtown Center Business Improvement District (DTLA), speaking to L.A. Confidential magazine. “It was dark… it was blighted, and in many places, dirty and uncomfortable,” she added.

To some degree, the renaissance mirrors efforts among cities nationwide to create 24/7 downtowns— places to live, work, and recreate — in a reverse sprawl that is tipping the nation’s demographic back toward a more “urbanized” future. In LA, as elsewhere, financial consultant Ernst & Young (EY) fixes the downtown revival to “the increase in residents who want to live, eat and shop close to where they work,” according to its Outlook on Downtown Los Angeles Real Estate 2016.

“This is a once-in-a-century phenomenon… We don’t view this as a cyclical phenomenon of build and pull back, build and pull back”

“Rather than continue to grow out, LA is beginning to grow up, with one- and two-story residences being replaced by structures seven and eight stories, or taller,” said JLL SVP Rob McRitchie, who is based in LA. “One of the reasons it’s happening downtown is residents are tired of the long commutes from places like Palmdale, on the far fringes… (So) in terms of sprawl, we reached our geographic limits. Residents came to recognize the advantages of being in closer proximity to transit, work and other amenities.”

where the action is

In particular, downtown is proving an ideal match to professionals involved in engineering, accounting, law, the arts, graphic design and fashion, observed Paul Barrow, a VP with commercial real estate broker Marcus & Millichap. “This is a once-in-a-century phenomenon. We don’t view this as a cyclical phenomenon of build and pull back, build and pull back. There’s no place in LA quite like downtown; its historic backdrop can’t be replicated elsewhere.”

Though the market has been gathering momentum for a decade, what’s unusual now is the breathless speed, scale and acuity with which developers and builders are putting the pieces in place. In fact, news of other mega developments in the area, including plans by the NFL Rams to build a 73,000-seat stadium and entertainment complex in nearby Inglewood, seemingly pale in comparison.

For now, all eyes are drawn to the growing skyline, where the rise is being led by the 73-story Wilshire Grand Center, developed by Korean Air Lines Co. owner Hanjin International and designed by LA-based architect AC Martin Partners. Home to a 900-room hotel and set to be LA’s first tower without a flat roof, the project broke ground in 2013 and is being built Turner Construction, aided by structural engineer Thornton Tomasetti. In early 2014, crews even cracked the Guinness Book of World Records, pouring 82 million lbs. of concrete at the site, enough to set the record for the largest continuous concrete pour, said Phil Tollios, LA operations manager for permitting expediter Burnham Nationwide. Among other tasks, the firm had procured the street closure permits needed to allow the record to be set.

“in terms of sprawl, we reached our geographic limits. Residents came to recognize the advantages of being in closer proximity to transit, work, and other amenities”

Developers wishing to build big in downtown LA have other advantages. They aren’t likely to encounter the pushback they would if they attempted similar work in Hollywood, or other smaller-scale locations, noted McRitchie. At present, 9,500 apartments and condominiums are under construction downtown and another 10,000 are in the planning stages, according to Marcus & Millichap.

In April, World Property Journal ranked LA second on its annual list of Top 30 Boom Towns in the U.S. That boom has been driven in part by big spenders determined to create a destination downtown.

• In recent years, the area has seen a surge in interest among higher income residents, driven by vibrant cultural offerings such as the Walt Disney Concert Hall and Dorothy Chandler Pavilion, restaurants and nightlife, as well as new residential development. [It] is expected to experience household growth of 8.8 percent over the next five years. LA County is expected to see more than 22,000 new housing starts and 65,000 new jobs created in 2016 — five times and 7.2 times more than the average of the top 100 [U.S.] counties, respectively — Monsef Rachid, WPJ

In all, no fewer than 11 major residential and hospitality projects are set to come on line before 2017, including Ten50, a 25-story residential facility developed by San Francisco-based Trumark Urban, and offering 151 one- and two-bedroom units. Meantime, Cleveland-based Forest City Enterprises is also completing a $100-million, five-story complex that will add 237 units, ranging in size from studios to three-bedroom apartments, with 53 residences also set aside for low-income occupants.

One of downtown’s most highly anticipated projects is the $1-billion Metropolis high-rise condo and retail mega-project. Consisting of five buildings, Phase 1, the 18-story, 900-room Hotel Indigo, and a 38-floor condominium tower are due to open in December. Phase 2, which includes two 40- and 56-story condominium towers, is due for completion in 2018. Developed by China’s Greenland Holding Group, the mega-Metropolis is being built by San Francisco-based Webcor Builders, following the design and master plan developed by an international all-star team that includes Gensler, San Francisco; SPAN Architecture, NYC; Woods Bagot, Sydney, AUS; and Harley Ellis Devereaux, Southfield MI.

two booms, one key law

So, what changed? Well, a number of factors, both societal and procedural, have contributed to the new LA. The modern Millennial mindset looking to live downtown found a game-changer in the city’s 1999 Adaptive Reuse Ordinance (ARO), a rule facilitating the conversion of dozens of historic and under-utilized structures into new housing. “It exempted developers from a rule requiring the addition of 200 parking spaces into any adaptive reuse project,” explained Barrow. Over time, the ordinance grew to establish synergies among sports, entertainment, housing and offices, he added.

Following ARO, developers engaged in conversions of older historic buildings, including structures that had once been sweat shops. “Given their historic status, developers found their projects were eligible for very attractive tax credits,” noted McRitchie. “We really had two growth periods — pre- and post-recession — representing $20 billion in investment.”

Prior to late 2008, “we were the hottest market [in the country] before the crash,” said DTLA’s Schatz. Once economic conditions improved, development resumed. By 2016, downtown population had nearly tripled, from 20,000 to 58,592, with an average rental occupancy rate of 97%, according to EY. Authors of the ARO claim the downtown won’t be “self-sufficient” until its population reaches 80,000.

The question isn’t if, but when. In the past year, Los Angeles County added more than 100,000 positions to its job base, more than San Jose and San Francisco metro markets combined.

Of course, apart from the city’s own population growth, the traditional influence of tourists and business travelers is still strong. Near the downtown LA Convention Center, the area’s hospitality market is growing more robust, with no fewer than 15 projects set to add 4,385 guest rooms to the 3,000 already within walking distance of the facility, according to EY. And the 45-year-old, 720,000-sq-ft convention center, itself, also is in the midst of a $470-million facelift. Such major cosmetic surgery, albeit structural, even has the city exploring a public-private partnership to finance the ambitious overhaul.

Ironically, the weak link in the recovery is office construction, the area’s initial draw. The market has yet to fully rebound from the downsizing and consolidations prompted by the recession, though properties have been achieving year-over-year rental increases since 2011. Nevertheless, investors from NYC to Beijing believe the market is “poised for a breakthrough,” according to the EY report. “They are investing in the downtown office market, with an emphasis on ‘office of the future’ workspaces, especially in South Park, City West, and [downtown’s] financial district.”

“The more vibrant downtown becomes, the more it will attract office users,” added Schatz. “People like to be in an area that is exploding. There’s a dynamism you feel. It’s palpable.”

In a land known for manufacturing make-believe, such confidence can be highly infectious.

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Rob McManamy also contributed to this story.