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New Projects Fuel Downtown L.A.'s Transformation

New Projects Fuel Downtown L.A.'s Transformation

For decades, Los Angeles has been derided as a city without a downtown.

Notorious for its smog, lack of a distinctive skyline, and traffic-snarled interstates, Los Angeles has been described as a place with no sense of place. And rather than having one massive memorable focal point, it was seen as a sprawling city with lots of little pockets of activity.

But after years of work—and with only a little hiccup during the Great Recession—that distinctive downtown is now beginning to emerge in the area bounded by the 110 freeway, the Los Angeles River, the 101 freeway and Interstate 10.

“In the old days, it wasn’t cool to be downtown,” says Chris Cooper, CEO of Los Angeles-based full-service real estate firm Charles Dunn Co. “It was old and stodgy. .. And most people thought it was a pain to get there. Today, more and more people are saying downtown is a very cool place.”

The potential coup de grace in Los Angeles’ transformation that has much of the city buzzing is a proposal from AEG to develop a new professional football stadium in conjunction with the redevelopment of a portion of the Los Angeles Convention Center. That’s all happening in the same district of the city that has also seen the rise of two other AEG works: the Staples Center and L.A. Live!

There’s been talk of bringing pro football back to the city ever since its two former franchises—the Rams and Raiders—both bolted town following the 1994 season. What’s different this time around is the fact that AEG, a Los Angeles-based company, a wholly-owned subsidiary of the Anschutz Co., already has inked a $600 million naming rights agreement with Farmers Insurance to call the project Farmers Field (See sidebar below).

While the project still has several hurdles to overcome to become reality (the least of which is getting an actual NFL team), it has thrown fuel on the already-burning fire for the future of downtown Los Angeles. “There are all these things that are coming together at once—residential residential, retail, culture and entertainment—that are truly transformational,” says Ed Hogan, national director of leasing for Brookfield Properties, a New York-based commercial real estate firm that is one of the largest landlords in Los Angeles.

Bringing people back

Today, downtown Los Angeles houses nearly 50,000 residents, boasts a weekday population of about 500,000 people and attracts 10 million annual visitors. Those numbers are impressive considering where the city was 15 years ago, says Hal Bastian, senior vice president and director of economic development for the Downtown Center Business Improvement District (DCBID).

“I always joke that downtown is an overnight wonder that I’ve been working on for 17 years,” Bastian quips. He is responsible for generating investment interest in downtown and recruiting businesses to the area.

Much of downtown L.A.’s revitalization can be attributed to the Staples Center, which opened in 1999. Developed by AEG, the arena is home to four professional sports franchises: the NBA’s Los Angeles Lakers and Los Angeles Clippers; the NHL’s Los Angeles Kings; and the WNBA’s Los Angeles Sparks.

Adjacent to Staples Center and the Los Angeles Convention Center, AEG also developed L.A. Live, a $2.5 billion, 4-million-square-foot entertainment complex anchored by the 7,100-seat NOKIA Theater.

“When Staples Center opened, people who had not been downtown in 20 years started coming back to catch a Lakers game,” Bastian says. “It wasn’t an easy thing to get Staples Center, but it was a catalyst.”

The city also passed an adaptive reuse ordinance in 1999, which allowed for the conversion of commercially-zoned buildings into residential structures. The ordinance encouraged developers to build both rental and for-sale multifamily in downtown.

The shift from a nine-to-five CBD to a 24-7 environment gained momentum throughout the 2000s. For example, in 1998, downtown L.A. was home to just 18,000 people and offered only 2,426 market-rate residential units (including condos) and 8,371 affordable housing units. A decade later the area features 26,011 residential units including 15,524 market-rate units and 10,487 affordable units, according to DCBID’s 2008 study.

“When we started adding bodies to downtown, they started demanding retail services, specifically a full-service grocery store,” Bastian notes. He tried to convince Ralph’s, a grocery store chain based in Southern California, to open a store downtown, but the retailer wasn’t interested.

DCBID then conducted a study that showed the overall median household income downtown was nearly $100,000. That not only helped change Ralph’s answer from “no” to “yes,” but also got the chain to change its sights from bringing in its low-end concept, Food 4 Less, to instead opening a higher-end Fresh Fare.

And it’s had nothing but success, Bastian says. “It’s one of the top performing stores in the chain,” he says. “It was a game changer.”

Talk of the town

One hitch in the progress of downtown Los Angeles was the recession. DCBID is currently conducting a new study to determine the regions current demographics, but market experts believe that the housing bust has slowed the momentum.

“The recession could not have happened at a worse time because there was tremendous momentum,” Cooper says. “We had 45,000 downtown residents, and absorption from residential was tremendous. It was like being at a party and suddenly the cops showed up and it was over.”

But in recent months, there are signs that things are beginning to heat up again. For example, in April Brookfield unveiled plans to redevelop a 25-year-old shopping complex at the corners of 7th and Figueroa as a 330,000-square-foot project called FIGat7th. The plan includes a $40 million redesign, renovation and re-leasing strategy. Notably, the project will be anchored by one of the nation’s first CityTarget stores, a new urban format from the Minneapolis-based chain.

Brookfield gained control of the site as part of the $8.9 billion joint venture acquisition of Trizec Properties the firm completed with Blackstone Group in 2006. “We had been studying California as an office play, and we were … not looking to own retail,” Hogan recalls. “My initial thought was that [7+Fig] was going to be a property that we would sell.”

But Brookfield did its due diligence before making that decision, and the results were surprising. the company was impressed with the residential growth in the area and the burgeoning demographics. “You can argue that the people who work in the urban core shop there, but retailers are looking at venues that will attract people seven days a week,” Hogan says. “They need to know the stores are going to perform every day, and downtown L.A. offers that now.”

In addition to the burgeoning residential base, Brookfield was impressed with the amount of public investment occurring in downtown L.A., from infrastructure and transportation improvements to new cultural, sporting and entertainment venues.

For example, the city is expanding its subway system, MetroLink, and its busiest stop is located directly across the street from Brookfield’s FIGat7TH. “Given the position of our project, which is the 50-yard line in downtown retail, it just seemed like such a great opportunity,” Hogan says.

Target’s commitment to the project has also generated some buzz. The CityTarget location is slated to open in fall 2012 and the retailer says it will offer the convenience of one-stop shopping with “affordable fresh food, apartment essentials, on-trend fashions and exclusive designer collections.” The Los Angeles store is just one of a handful that the chain has announced nationally.

“It’s significant because it’s the first anchor retail tenant in recent years that has taken a stake in the downtown market,” says Rachel Rosenberg, executive vice president with RKF’s Southern California office, who likens the significance of Target’s decision to the one Ralph’s made a few years ago.

“Some retailers were hesitant to go into downtown because they couldn’t find the co-tenancy they desired,” Rosenberg says. “But knowing the type of volume and attraction a tenant like Target possesses has caused retailers to reconsider downtown L.A.”

And overall, the retail scene is in good shape. As of the second quarter of 2011, the downtown vacancy retail rate was 6.6 percent, according to CBRE.

Show-me mentality

Still, retailers do have nagging questions about downtown. “It’s intriguing now, but you’ve got a stigma that needs to be overcome,” Rosenberg says.

Patrick Spillane, senior vice president of IDS Real Estate Group, adds, “There is still a ‘show me’ mentality from national retailers. They need to be convinced downtown offers a real opportunity.”

IDS is confronting skeptical retailers daily. The local firm, working with Fort Lauderdale, Fla.-based Collarmele Partners, is planning a six-acre, mixed-use project near Staples Center and is actively talking to national retail chains, Spillane says.

Dubbed Metropolis, the multi-phase project is tentatively designed to consist of up to 300,000 square feet of retail, 836 residential units and 480 hotel rooms.

IDS has received approvals for the project and is targeting 2012 for ground breaking and an opening in 2014. “The hotel has become critical because of AEG’s plan for the convention center, which would have a huge impact on tourism and hospitality demand,” Spillane says. In particular, IDS is looking to integrate larger box formats into its project, adding that Metropolis could accommodate six to eight big boxes ranging from 15,000 square feet to 50,000 square feet.

“Sixty years ago, retail was huge in downtown, but as people moved out of downtown, retail was decimated, and it was slow to come back,” notes Ayahlushim Getachew, senior vice president of Thomas Properties Group, one of the largest downtown landlords. “Now that residents have returned to downtown, retail options are returning. It’s really exciting to see.”

Farmers Field Plan Generates Support

Los Angeles may be the second largest city in the nation and one of the world’s most popular travel destinations, but it’s lacking two very important components: an NFL team and a large, modern convention center. A new, yet-to-be approved plan from AEG looks to tackle those shortcomings with a new event center and football stadium.

AEG, a wholly-owned subsidiary of the Anschutz Co., developed Staples Center and LA Live!—two projects that are credited with sparking downtown LA’s renaissance. The company’s plan involves tearing down a portion of the existing Los Angeles Convention Center (LACC) to make room for the football stadium, adding a new hall to LACC and renovating the remainder of the space.

The proposed project, which has a price tag of roughly $1 billion, already has an official name: Farmers Field. AEG nailed down an agreement with Farmers Insurance to pay $600 million for naming rights to the stadium for 30 years.

The project, however, must overcome several hurdles, including city approvals and obtaining an NFL team. AEG and Farmers Field are competing with another proposed stadium in the City of Industry. Majestic Realty is driving that project, which is situated on a site located within a one-hour drive of 15.5 million people in a four-county region.

“Everyone is waiting with baited breath on Farmers Field,” says Chris Cooper, CEO of Charles Dunn Co., a local commercial real estate services firm. “This is a situation where the stadium is designed tastefully and the multi-functionality is ingenious to replace West Hall of the convention center.”

Currently, Los Angeles ranks 15th in the nation for convention center size, and many conventions won't even consider the facility because it is too small and has outdated electric and data connections. With the addition of Farmers Field and the new hall, LACC would be in the top five cities in the US for convention center space.

The new event center would have a total of 1.7 million gross square feet, making it one of the five largest in the country. The plan includes remodeling Pico Hall first and then replacing the 210,000 square-foot West Hall. The new hall would provide contiguous convention space to Pico Hall.

The stadium would be modest by today’s standards, with 68,000 seats and the ability to expand to 78,000 for special events like the Super Bowl or NCAA Final Four. Featuring a retractable roof, the stadium will be connected to the LACC and could be used for conventions, as well. AEG says the complex can serve as the home field for four teams simultaneously.

AEG says an expanded convention center could mean at least 80 annual booked event days in downtown LA, representing $378 million in annual revenues for the LA economy. Moreover, the firm forecasts that Farmers Field would spur another $3 billion in downtown development

A number of hotels have already been announced, although many of them were in the works prior to AEG’s Farmers Field plan. For example, Hanjin International Corporation and Korean Air, working with developer Thomas Properties Group, are working on the redevelopment of the Wilshire Grand Hotel and Centre.

The project will transform a full city block at the corner of Wilshire Boulevard and Figueroa Street in downtown LA by replacing the existing, aging Wilshire Grand hotel and office building with a new mixed-use development.

The Wilshire Grand project, located adjacent to the 7th Street/Metro Center station, where the Blue Line meets the Red and Purple Lines, represents $1 billion of direct investment. It will include the first new class-A office building in downtown LA in more than 20 years, with as much as 1.5 million square feet of office space.

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