CCA’s Carol Schatz On LA’s Downtown Development Boom

In March of 2011 The Planning Report asked Tom Gilmore—one of the first developers to convert Downtown commercial buildings into housing units—to recount the successes of the City of Los Angeles’ Adaptive Reuse Ordinance and to say if the “party was over.” His quick answer was, “Yes, for now.” What’s happened in the last year to refute Tom’s assessment of the market?

Carol Schatz: The recession has eased, in my view. We were the hottest housing market in the whole region before the crash. I expected that when the recession started to abate we would once again see a great demand for housing Downtown, and in fact, that has been the case. I think you know that occupancy rates in the rental units Downtown are close to 98 percent, both in the Historic Core and in the newer developments in South Park, and that is bringing developers to the table. Ten projects are in planning right now. 

Carol, the authors of the Adaptive Reuse Ordinance projected long ago that if Downtown LA’s population grew to 80,000, the neighborhood would be a self-sufficient, vibrant community.  As the population has risen from 20,000 residents to about 50,000, is a synergistic community emerging?

Yes. The Adaptive Reuse Ordinance (ARO), as you know, was an initiative of CCA. It passed in 1999, just a few months before the Staples Center opened. That was the beginning of this synergistic relationship between sports and entertainment and housing. 

After developers took advantage of the ARO we began to see new construction of condos just east of Staples in the South Park area (the first time in almost 30 years). That led to new restaurants, bars, and clubs – over 200 to be exact – that created over 17,000 new jobs. The Downtown Center BID had a hand in almost all of these projects. So the ARO had a profound impact.  Now when I walk down the street at 10 at night, the streets are packed with people who have just left restaurants or who are going to hot night spots. I see people walking their dogs or pushing baby carriages at all hours. It is an entirely different feel than the Downtown I began to work on in 1990.

A recent forecast by the USC Lusk Center for Real Estate suggests that residential rental rates Downtown have jumped a bit more than 18 percent in the last two years and are projected to grow another six percent in 2012. Is that an accurate forecast? And what does it promise with respect to rates in 2013 and 2014?

I think it is an accurate premise. Many developers see the market tightening and rents are continuing to go up. We clearly need more product.  

I think one of the untold stories here is our condo market. We are completely out of product. Actually, we think that is something many developers are going to be looking at because right now we see multiple all-cash offers just on resale units. We know our supply is gone, so I think we’re going to see the construction of condos, which isn’t going on in many other places. 

In a TPR interview with Tom Gilmore done a year ago, he was asked if the dollar per square foot going rate in Downtown had gone low enough to attract buyers and sellers to the market. He said no. Is today’s per-square-foot rate now attracting buyers and motivating sellers?

The pricing of condos is on the upswing due to the lack of inventory in the resale market. In the past, the lower price per square foot did lead to a flood of buyers who purchased units at below the replacement cost.

Your answer is supported by new construction in Downtown Los Angeles. The Downtown News is reporting that there are ten buildings with nearly 2400 apartments either under construction or slated to break ground in the next 16 months. Is that accurate? If so, who are the players, and what’s attracting them to the Downtown housing market?

It is accurate. Buildings are going up, and I think it’s because we’ve created a multiuse Downtown instead of just the dull and dreary nine-to-five Downtown that existed when I began this work. The numbers speak for themselves—when you’re talking about a 98 percent occupancy rate with the rents that I just gave you, that obviously is enticing to developers who see a growing market. In terms of the job-housing ratio we’ve got 50,000 people living here now, up from about 18,000 when we began this work in 1999. We figure there’s about 400,000 to 500,000 jobs in the Downtown area, so we have room for unbelievable growth here just in terms of the jobs-housing balance. 

We also have a community that basically supports growth. People don’t live Downtown unless they can handle commercial activity, noise, and all the things you find in the center of a big city. That all portends very well for development because we’re not seeing the kind of no-growth behavior that you see in other markets in Los Angeles.   

In your opinion, what are the best Downtown housing submarkets—the Historic Core, South Park, the Arts District? 

What’s unique about the Historic Core is the type of unit you get there—the beautiful finishes, the architecture of the older buildings. You can’t get that anywhere else in Los Angeles, and people living in the Historic Core are living with history. The buyers are mostly young, but we’re also seeing some empty-nesters come in. This is the place where the residential movement took root, and we have some fabulous restaurants and nightclubs in the Historic Core. It has turned into an exciting community. 

The Arts District is amazing. It is growing with more activity than we ever could have imagined, and it’s been the ARO that has lead to the resurgence in that area. You get beautiful views of the Downtown skyline, a cool and hip vibe, and great units. 

South Park represents high-end new construction, and it’s very close to Staples and LA Live. That’s where we’re commanding higher rents and prices per square foot for condo sales. It has a different feel, a newer feel, than the other two.

Carol, expand on your answer by sharing a bit more on new development Downtown and the developers—for example, the Hanover Group, Related, Carmel Partners, and the Onni Group—who are now investing in Downtown Los Angeles. 

The Hanover Group built the first high-rise, luxury apartment complex just catty-corner to LA Live. I am delighted to hear that are back in the market. 

The Related Companies are masterful national developers. They are building a 19-story, 271-unit apartment tower next to the Broad Museum after spending a cool $50 million on the new Grand Park. 

Vancouver-based Onni Group is building a 32-story complex with 238 units at 9th and Olive. Carmel Partners is slated to break ground on a 700-unit project at 8th and Grand Avenue. We are delighted to see such robust activity.

Last month’s issue of The Planning Report included an interview of Councilmember José Huizar in which he commented upon his support for a Broadway Street Car and his initiatives to Bring Back Broadway. How do the Councilman’s initiatives complement development in the Central Core?

There will be a vote on the streetcar in the next couple months. Broadway is the spine of the streetcar, and that was done to try to Bring Back Broadway, which is the name of the initiative. It also runs into the South Park area and up into the financial district. Hopefully it will bring new development along the line as it has in other jurisdictions. 

It was heavily debated by the property owners because they are already paying a number of assessments. It wasn’t developed without some conflict about who it’s serving and if the lines really address all the various uses and constituencies, like the commercial property owners. Those concerns were raised, and the property owners did insist that the assessment not go forward unless operational funds for the streetcar are found. 

What are your thoughts on the Downtown Regional Connector and Metro’s impact on Downtown? 

Again, this was a very contentious issue because this job-rich area along Flower Street expected to get its own station at 5th and Flower and did not. It has to accept very significant mitigations that are going to affect commercial leasing, retail leasing, and hotel stays. While all of our property owners along Flower support the concept of the Regional Connector, they felt, and do feel (because lawsuits have been filed), that the proper mitigations to protect their assets have not been offered up by Metro.  

Are you positive about rail impacting the future of Downtown?

Yes we are. Obviously having Downtown as the hub of the rail system is going to be very beneficial to the area, and it’s just unfortunate that this very important project became mired, as somehow these things always do, in the bizarre politics of Los Angeles. But everyone, including the affected property owners, appreciates the long-term benefit of having Downtown as the hub of the rail system.

Let’s close with your take on the Union Station master planning process, the new ownership of the Dodgers, and the status of plans for a Downtown NFL football stadium. What are CCA’s interests in regards to the aforementioned?

Obviously we are delighted by the above as well as the organic growth that we are seeing in all the various sub-districts of Downtown. We do think we will have a stadium in the not-too-distant future. We are involved in the master planning at Union Station. That is a big hunk of property, and having it more closely connected to the Downtown core is going to be beneficial.  As each neighborhood in Downtown comes back to life, Downtown LA’s renaissance continues.