Bloomberg News

L.A. Mixes Grit With Glitz in $7 Billion Downtown Revamp

May 12, 2014

Downtown Los Angeles

Traffic moves along Interstate Highway 110 at dusk through downtown Los Angeles. Since 2011, about $7 billion has been poured into downtown. A decade ago its most prominent residents were the homeless. Now condos sell for a median of $523.36 a square foot -- more than in Beverly Hills. Photographer: Joe Klamar/AFP via Getty Images

(Corrects spelling of Dezzutti in 24th and 25th paragraphs of story published May 7. Click here for a map. For Cities columns, click here.)

Near streets so gritty they were used as the backdrop for a shootout in the next “Fast & Furious” movie, million-dollar condos and $38 racks of lamb beckon the urban pioneers of Los Angeles.

The rehab of warehouses and factories in the Arts District is the latest wave in a revival transforming the core of the second-largest U.S. city. Since 2011, about $7 billion has been poured into downtown. A decade ago its most prominent residents were the homeless. Now condos sell for a median of $523.36 a square foot -- more than in Beverly Hills. Alma, Bon Appetit magazine’s best new U.S. restaurant in 2013, is a few blocks from the convention center the city plans to renovate.

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“All of a sudden, overnight, you have more cranes going up in downtown L.A. than any other neighborhood in Southern California, by far,” said Lew Horne, head of the regional CBRE Real Estate Group Inc. (CBG:US) office.

More than 21,000 residential units and 3,780 hotel rooms are under construction or planned, financed by investors in China, Singapore and Korea and U.S. developers including New York-based Related Cos.

In a famously spread-out city, the center’s reawakening is still a work in progress, as office development lags behind. Its golden age was before World War II, when the region was served by a rail network and Angelenos flocked downtown to shop and see movies in the ornate palaces on Broadway. After the war, L.A. grew to became an archetype of sprawl as the core decayed and areas closer to the coast, such as Century City and Santa Monica, became commercial and residential hubs.

Hollow Center

“I have always been concerned with this region and this city not having a vibrant center,” said Eli Broad, 80, the billionaire arts patron and philanthropist who has lived in the L.A. area for 50 years. “I can think of no great city in the world today or in history that hasn’t had a vibrant center.”

Now downtown is filling in. Broad, in an interview in Bloomberg’s Los Angeles office, said his wife, Edythe, plans to buy a condominium at the Parcel Q mixed-use complex going up across from the Frank Gehry-designed Walt Disney Concert Hall. It’s part of the $2 billion Grand Avenue project of residential, retail and hotel developments Broad has championed.

Timothy Hollingsworth, former chef at the French Laundry in Napa Valley, is part of a team that will open an eatery in the plaza of The Broad, a museum set to open next year to house the couple’s collection of contemporary art.

South Park

Downtown’s awakening started in 1999, with the opening of Staples Center, home of the National Basketball Association’s Lakers and Clippers and the Kings hockey franchise. Staples became the anchor of the South Park district that includes the L.A. Live entertainment center.

The city gave downtown a nudge by making it easier to repurpose old factories and warehouses. A declining crime rate helped: The police station covering downtown reported a 25 percent drop in serious offenses between 2006 and 2011, the most recent data available, even as the population grew.

In addition to private investment, public spending has brought more rail transport with downtown as the hub, and a planned trolley loop will connect various light-rail lines. Broad said it will link downtown’s neighborhoods, allowing visitors to park once and tackle the sights on foot.

‘Walking Dead’

Ringed by freeways and the concrete-encased Los Angeles River, downtown still has rough patches.

“If I didn’t know any better, I’d have thought I had stumbled onto the set of ‘The Walking Dead,’” a Bon Appetit reviewer wrote about the area around Alma.

The most decrepit part is Skid Row, roughly half a square mile near police headquarters with a homeless population of about 3,500. Los Angeles County health authorities in 2012 ordered the city to attend to the “immediate threat to public health” presented by human waste there, and the City Council was asked in April to more than double spending on street cleaning and public toilets.

The homeless often set up camp beside historic Arts District buildings, where actors Diane Keaton and Kevin Spacey own homes and the TV show “New Girl” is set, and where a two-bedroom condo recently sold for $1.25 million. The price for two-bedroom downtown condo resales has climbed more than 60 percent from $322.34 per square foot in 2009, according to John Karevoll,an analyst at DataQuick, a San Diego-based property-research company.

Human ‘Rainbow’

“You have all these different slices of life,” said Halli Kristjansson, 53, a writer from Iceland who moved to an Arts District live-work unit a year ago. “I walk out the door past all these homeless people to go to the Los Angeles Athletic Club for a nice workout. Down here, it’s still a rainbow of humanity.”

The central district developed as a jobs center in the 1980s, its skyline topped by the 73-story U.S. Bank Tower that opened in 1989. By 1999, downtown had about 500,000 jobs and 18,700 residents, the Downtown Center Business Improvement District says. Residents since have tripled to 53,320, while the number of jobs is the same. The city’s unemployment rate in March 2014 was 9.7 percent, compared with 6.7 percent nationally.

The single largest share of investment since 1999 -- $6 billion or about 35 percent of the $17.3 billion spent -- has been residential. Only 5 percent was commercial.

On Fifth Street near Grand Avenue, Singapore-based Overseas Union Enterprise Ltd. is struggling to fill the U.S. Bank Tower, which it bought last June for $367.5 million.

Relatively Cheaper

About 44 percent of its 1.3 million square feet are vacant, and the goal is 80 percent to 90 percent occupancy in the next three to five years, according to Richard Stockton, the company’s chief executive officer for the Americas.

Offices are relatively cheaper than in other major cities. Rents in downtown San Francisco, with a business-vacancy rate of 6.2 percent, reached $2.97 per square foot this year, up from $1.83 in 2009, CBRE data shows. Downtown Los Angeles, where vacancies were 18.5 percent, averages $1.96 per square foot, up from $1.85 in 2009.

This puts downtown L.A. among the “best relative opportunities,” said Sonny Kalsi, co-founder of GreenOak Real Estate LP, a New York investment firm. “I like L.A. and particularly downtown, because it is lagging recovery wise.”

One of the biggest downtown projects is a $1 billion office and hotel tower for Korean Air Lines Co. that will be the tallest building in the western U.S.

Grand Central

Optimists see the influx of residents as a first step. The jobs will follow, said Bert Dezzutti, executive vice president for the western region at Brookfield Office Properties Inc. (BPO:US), downtown’s largest office landlord with 8.5 million square feet.

At some point, potential tenants “will look inward at downtown’s high-rise core,” Dezzutti said. “We’ve seen it in Seattle and in San Francisco. Some of the buildings that are in vogue are not necessarily suitable with amenities for blue-chip and growing firms.”

While long-timers have expressed concern about the newcomers ruining the area’s character, some things aren’t changing. Just go to Grand Central Market, a 30,000-square-foot collection of vendors, one of the few constants since 1917.

Spanish-speaking patrons eat spiced fruit next to visitors sipping $6 Press Brothers raw juices. Potatoes retailing for 25 cents a pound are on sale around the corner from Lincolnshire Poacher cheese for $14.25 per half-pound.

There’s still room for everyone, said Christophe Farber, vice president of the Yellin Co., which runs the market.

“There will always be $2 tacos here,” Farber said. “Legacy tenants are the history and the future.”

(An earlier version of this story was corrected to remove an incorrect reference to restaurateur Thomas Keller.)

To contact the reporters on this story: James Nash in Los Angeles at jnash24@bloomberg.net; Nadja Brandt in Los Angeles at nbrandt@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net Anne Reifenberg

Traffic moves along Interstate Highway 110 at dusk through downtown Los Angeles. Since 2011, about $7 billion has been poured into downtown. A decade ago its most prominent residents were the homeless. Now condos sell for a median of $523.36 a square foot -- more than in Beverly Hills. Photographer: Joe Klamar/AFP via Getty Images Tower cranes stand next to the Wilshire Grand Tower under construction in downtown Los Angeles. More than 21,000 residential units and 3,780 hotel rooms are under construction or planned, financed by investors in China, Singapore and Korea and U.S. developers including New York-based Related Cos. Photographer: Patrick T. Fallon/Bloomberg A woman browses peppers and spices for sale at the Grand Central Market in downtown Los Angeles, one of the few constants since 1917. Photographer: Patrick T. Fallon/Bloomberg May 7 (Bloomberg) -- Billionaire philanthropist Eli Broad talks about the development of downtown Los Angeles. Broad spoke with Bloomberg News reporters and editors in Los Angeles on April 28. (Source: Bloomberg)

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Companies Mentioned

  • CBG
    (CBRE Group Inc)
    • $32.75 USD
    • -0.23
    • -0.7%
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