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2 . t;'*!~~" lll ;':'t,jl~tû\":':'':'":"',~h\!~~::~~~,~",~2j.;=.o..~,;"~,.,,-."_. A REA. REV tew~to SANGELESJ n Ths Star- tudded Cty, Mxed-Use S nes rghtly No longer avant-garde, hybrd developments are changng the face of downtown Los Angeles. By Morrs Newman ty of a museum or other cultural uses. runaway popularty of mxed- Stl n the conceptual stage, the frst use seekng development n Los Angeles Anyone evdence of the phase of the project could be complete by 2009, accordng to the developer. need look no further than the $3 blgrand Avenue. Spread over four cty What's partcularly unque about Grand Avenue s that t s far denser blocks and spannng 3 mlon sq. ft., ths than most projects bult heretofore n ths lon extravaganza downtown known as ambtous project of the Related Coso makes all other n-town development pale by comparson. ndeed, Grand Avenue combnes 1,200 unts of housng wth a hgh-rse hotel, an offce buldng, 400,000 sq. ft. of retal and the possbwww.nreonlne.com The developers are devotng much! attenton to what s happenng at street. level, where vstors are exected to stroll ì through outdoor shoppng streets on! ther way to and from exstng destna-. tons on Grand Avenue, ncludng the new Cathedral of Our Lady of the Angels, the tradtonally low-densty cty. Another Los Angeles Museum of Contemporary dstngushng feature s that the development s desgned for people on foot, not automobles, whch suggests a lfestyle change n Los Angeles, a cty famous for ts love of cars and ts teemng freeways. Art, a performng-arts school and arch- : NRE September 2005 tect Frank O. Gehry's Walt Dsney Concert Hal. (Related has hred the fa~ed Santa: Monca archtect to desgn one of ts! hgh-rse towers, whch would be a feat _.- ~

3 H.1. t.~-.._.lår 1LRD11EW_'.LS..A'.GELES.._ for Gehry, who has yet to see one of hs hgh-rse schemes actualy bult.) Whle Grand Avenue truly has desgns on becomng a model urban development, nf s hardly new to Los Angeles or any other bg cty. The dfference here s emphass. Developers are scourng the cty n search of under-utlzed stes as never before, and are often jonng forces wth publc agences - ncludng redevelopment offcals and the local transt authorty - to help them assemble mult-acre parcels. Changng culture, lfestyle patterns Several factors are sparkg mxed-use mana n Amerca's second-largest cty, accordng to Ncole McAlster, drector of development for the Lusk Center for. Real Estate at the Unversty of Southern Calforna. One bg factor s that an ncreasng number of resdents are seekng a more urban way of le - partcularly f that change means more tme wth ther famles and less tme spent commutng on Calforna freeways. "Culture and lfestyle patterns have changed, even n the past fve years:' McAlster says. "Many people are now tryg to move back nto the actve centers of metropoltan lfe. They don't want to. be solated n the suburbs anymore:' n a Cty wth a very lmted masstranst system, traffc s fast approachng perpetual grdlock and people want to get out of ther cars, accordg to Clfford Goldsten, a partner n.h. Snyder Co., a Los Angeles-based developer wth several mxed-use developments currently under constructon. "There s a smal group of people who are electg to sacrfce the large homestead for the smaler house and convenent transportaton:' he says. "There's a new, enlghtened homeowner consumer who wants to have an alteratve to beng beholden to the automoble," accordng to Mchael POPULATON OF METRO AREA: 10 mlon (Los Angeles and Orange County) UNEMPLOYMENT RATE: 5.2% (Los Angeles) LARGEST EMPLOYERS: 1. Kaser Permanente 27,635 employees 2. Boeng Co. 23,468 employees 3. Ralph's Grocery Co. 17,211 employees Source: Los Angeles Economc Development Department METRO AREA STATS OFFCE: 15.9% vacancy (CBD), 2Q %, vacangy. (CBD) 2Q 2004 Source: Cushman & Wakefeld NDUSTRAL: 5.3% vacancy, 2Q % vacancy, 2Q 2004 Source: Delta AssocateslTranswestern HOTEL 79.39% occupancy, June % occupancy, June 2004 Source: PKF Consultng MUll1fAMlY 3.3% vacancy, 2Q % vacancy, 2Q 2004 Source: Marcus & Mllchap RETAl 4.1 % vacancy, 2Q % vacancy, 2Q 2004 Source: Marcus & Mllchap UNDER CONSTRUCTON: Grand Avenue s spread out cty blocks and spans 3 mllon combnes,200 unts of hous a hgh-rse hotel, an offce buldn 400,000 sq. ft. of retal. Cost: $1.8 bllon Developer: The Related Coso Completon: Phase 1,2009 NoHo Commons s a transt mxed-use project n North Holl a Red Lne subway staton, deve J.H. Snyder of Los Angeles. Cost: $200 mllon Developer: J.H. Snyder Co. Completon: Phase, 2005 Hollywood and Vne has more 700 resdental unts under canst and s the largest project yet to be the Metro Ral Lne. Cost: $325 mllon Developer: Legacy Partners Completon: NRE September 2005

4 -_..._-~-"- ---~--~~_.,".._-~--~' _.._~ AJ8LlEjN~ANJELE_~._----_._ _._--_._- "There's a new, enlghtened homeowner consumer who wants to have an alternatve to beng beholden to the automoble." - Mchael Deden, developer, Creatve Housng Assocates Deden, prncpal of Creatve Housng Assocates, a Santa Monca-based developer. "They don't want to drve the car to go to the vdeo store, the dry cleaner and other neghborhood servces:' The success of mxed-use developments has emboldened the lendng communty, whch hstorcaly steered clear of hybrd projects. "Tradtonal sources of captal feel ths s a way to dversfy rsk:' says McAllster of USe. Developers that formerly specalzed n one type of development, now want to expand ther palette and "cash n on strong real estate segments" such as housng and retal, she adds. The support of local government, ncludg redevelopment agences, also s spurrng mxed-use development, accordng to McAlster. "A lot of publc agences have made these tyes of development a prorty, -and that creates demand:' she says. n fact, Grand Avenue, whch s beng bult on land owned by the Cty and County of Los Angeles, s one such publc-prvate project. Why mxed-use now? Downtown Los Angeles, ablaze wth apartment constructon and condomnum conversons, s arguably an deal place for mxed-use development - partcularly because downtown s largely lackng n neghborhood retal. The lack of a supermarket, due to a hstorcally low populaton, has been a long-tme frus- traton for the Los Angeles Communty Redevelopment Agency, whch has sought to create resdental unts downtown for 30 years. However, the populaton s rapdly ncreasng n the cty center, wth 3,500 housng unts completed snce 1999, and up to another 8,500 ether under constructon or planned, accordng to the Los Angeles Busness mprovement Dstrct, a non-proft group of downtown busness owners. n February, CM Group of Los Angeles and The Lee Group of Santa Monca began work on the $110 mlon Market Lofts, an unusual project that combnes a 56,000 sq. ft. supermarket at ground level wth 267 resdental unts on upper stores, as part of the developer's South Vlage mxed-use scheme that covers a fu cty block. Among the tenants that have leased space along the sdes of the supermarket are UPS, a Coldstone ce cream parlor and a coffee shop. "f the market s strong enough and retalers' need to compete n that market s great enough, they wl do just about anytng to get n," says CM prncpal John Gven. Another CM - Lee collaboraton, a 476,000 sq. ft. offce buldng, 801 S. Grand, s a layer cake of offce space on the bottom and condomnums on the top. CM Group w provde the new ground floor retal and the fst 10 floors of offce space, whle the Lee Group plans to spend $40 mlon turnng the top 11 floors nto luxry condomums. Completon of the 132 condos s expected by January NRE September 2005 Mxed-use s a mxed blessng, however, for developers provdg retal n locawww.nreonlne.com

5 Î tons where foot traffc s comparatvely Angeles n a jont venture wth equty thn. At 801 S. Grand, CM must sette for partner Blackstone Real Estate Advsors. an elevated vew of Wlshre. The project s beleved to be the frst mxed-use proj- modest rents and wat for the market to The new student housng s the largest ect combnng retal and offce space n mature, accordng to Gven. "t's a wash at project yet on Fgueroa Boulevard, the Beverly Hlls, as well as the frst new rental best on your balance sheet; he says, "but you go ahead because you know rentng the retal space s ultmately the best way corrdor connectng downtown wth the Unversty of Southern Calforna, the largest employer n the downtown area, to create value n the real estate." Retal whch les a few mles south of the Central Few projects demonstrate the appeal of rents at 801 S. Grand are n the range of $2 to 2.50 per sq. ft. monthly, as opposed Busness Dstrct. multfamly constructon more than the to rents up to $4 per sq. ft. n downtown's downtown, however. The craze for hybrd Place, a conventonal regonal mall. market s student housng. The $135 buldngs has spread to the suburbs, and to affuent ctes lke Santa Monca and Beverly Hls. Although Beverly Hls has strngent standards -for desgn and use, developer J.H. Snyder managed to buld a resdental mxed-use neghborhood Although the portfolo of the owner, mlon, eght -story Unversty Gateway combnes 421 unts of student housng n one of the smal, coveted nf stes remanng on Wlshre Boulevard, the 21-year-old mall, whch generated only $200 of sales per sq. ft. last year, accordng to cty fgures, compared wth $391 wth about 70,000 sq. ft. of neghborhood cty's man commercal drag. sales per sq. ft. on average by Macerch's best retal space. New student housng emerges Wth captal lookg hgh and low for multfamly opportuntes, one growng nf and mxed-use s not lmted to unts n the cty n nearly 25 years. Mall owner eyes hot housng market proposed demallng of Santa Monca The Macerch Co., s almost entrely composed of malls, housng s so expensve and so popular n Santa Monca that the developer wants to scrap the retal portfolo 10 years ago. The developer now wants to replace the mall wth retal, ncludng a bookstore and restau- The cty dscourages resdental devel- rant. Each unt wl accommodate four opment on Wlshre, so the developer students and s expected to rent for about $2,800 monthly. solved the problem by frontng the project wth 40,000 sq. ft. of offce space on the 300 luxury condomnums as well as another 560,000 sq. ft. of retal and a n Juu, the Unversty of Southern boulevard, whe orentg the front doors seven-story offce buldng. Calforna took out a master lease on the entre buldng, whch has been desgned of the townhouses n the opposte drec- Macerch's orgnal proposal to buld ton, facng a resdental neghborhood. three, 300-foot-hgh resdental towers n consultaton wth the unversty. The Cleverly, the archtects alow the town- developers are Urban Partners of Los houses to peek over the offce space for was not well receved n ths low-lyg cty, whch przes ts ocean vews. The 34 NRE September

6 !r~rarea..lv.lew,uu..ngeles._m..._--_m._.._.m_ ,, H l, ;"!,,. ì! ~ ; 1 "Tradtonal sources of captal feel ths (mxed-use actvty) s a way to dversfy rsk." developer s currently hostng communty workshops on a redesgn. Yet another example of mxed-use n non-tradtonal places nvolves a proposal by reta developer and Los Angeles Polce Commsson Presdent Rck Caruso, who s proposng up to 1 mlon sq. ft. on 85 acres of the Santa Anta racetrack n suburban Arcada. plannng and envonmental revew stages, could be worth up to $400 mon, Caruso's project, whch s stl n the and s expected to nclude up to 800,000 sq. ft. of retal restaurant and entertanment uses, and possbly housng. A Caruso spokesperson descrbes the project as "desgned to celebrate the track's exquste grounds and hstorc facltes:' Hybrd projects are parahs no more Today's acceptance of mxed-use development s a far cry from the negatve response that greeted the hybrds of resdental, retal and offce space just a few years ago. " can remember back n the early 1990s, when we would talk about mxed-use and people would look at us lke we were crazy:' recalls developer Deden, a longtme advocate. Multamly broker Ktt Walace of brokerage Sperry Van Ness agrees. "f you mentoned you had a mxed-use project for sale, the nose crnkle would come:' Back then, of every 10 multfamly nvestors, perhaps one would be nterested n buyg a mxed-use project, says Walace. The few mxed-use projects that ht the Walace, "because the apartment nves- market had to be sold at a dscount, says tors dd not want the reta, and the reta nvestors dd not want the apartments, and offce nvestors dd not want ether:' Now, the success of mxed-use projects lke Thrd Street Promenade, an open-ar Ncole McAllster, drector of development, use shoppng street n Santa Monca where developers nstaled rental unts above retal sp ce, has helped changed ther mnds. "Far from a dscount:' Walace explans, "mxed-use s gettng a premum:' She declnes to dscuss prces or cap rates, however, because very few projects are currently on the market. nvestng near transt statons Access to large stes thãt are otherwse unavalable has persuaded manstream developers to work wth publc agences wth plentfu land holdngs, such as the Metropoltan Transportaton Authorty of Los Angeles County (MTA). Perhaps the largest transt-orented development s NoHo Common, a retal and resdental complex under constructon at the subway staton n North Hollywood, located north of downtown Los Angeles. Wth more than 700 resdental unts under constructon, the $200 mlon project s the largest resdental project yet to be bult on the Metro Ral lne, accordng to the developer, J.H. Snyder. A phased project, the frst resdental unts open later ths year, whle a second phase wl feature 300 loft resdental unts, 20,000 sq. ft. af lve-work space and 60,000 sq. ft. of retal. A thrd phase wl provde a 200,000 sq. ft. offce buldng, and a gourmet food market and other neghborhood-orented shops. The developer beleves that NoHo Commons should appeal to people workng n strongholds of the entertanment ndustry, such as Unversal Studos a mle to the south, and Burbank, whch les two mles east. The headquarters of The Walt Dsney Co., NBC televson, and the West Coast operatons of both ABC and Warner Bros. are located n Burbank. Another large-scale collaboraton wth thetranstauthortys located at Hollywood and Vne n Hollywood, where a venture of Legacy Partners and Gatehouse Captal of Dalas plans a 300-room hotel, 140 condomnums and about 60,000 sq. ft. of reta on a ste occuped mostly by asphalt parkg lots and a bus layover; the hstorc Taft Budng w reman on the corner. The developers envson the project as "the eastern gateway to Hollywood:' says archtect John Waldron, project archtect wth McLarand Vasquez Emsek & Parters, whch s desgnng the project. Densty comes to small towns A very dfferent project, conceved on a small-town scale, s Msson-Merdan Staton n South Pasadena, a project of Creatve Housng Assocates. The Craftsman-style project s lterally nserted nto an exstng neghborhood of sngle-famly bungalows, and creates a mx of new hgh-densty housng and retal. Stuated on a 1.65-acre ste, the developer has managed to ft 4,000 sq. ft. of new retal space, two levels of underground parkg, 67 condomnums and three new sngle-famly houses. Many condos are arranged n courtyards, hdden behnd mposng, hstorc-lookg facades. The condomnums were sold out n 2003 before constructon began, accordng to Deden, the developer. " would have made a lot more f were sellg them at 2005 prces:' he says wstfuy. n derent ways, project le Msson- Merdan Staton and Hollywood and Vne are a sgn that greater Los Angeles, the archetyal ca-centered metropols, s "becomg more urban, more compact;' says Waldron. "Densfcaton:' he adds, "s par of the natual evoluton of the cty:' Morrs Newman s an L.A.-based wrter. 36 NREl September