With Bradbury Building, Goodwin Gaw Adds To His Portfolio Of Historic Downtown Properties

Goodwin, your firm recently purchased the landmark Bradbury Building. Tell our readers how that purchase both fits with your other real estate holdings and your current investment strategy with respect to downtown Los Angeles?

I am a big fan of these historical buildings. I believe there is always a group of people out there who appreciate these historical buildings versus a nondescript high rise. There is always a market for historic buildings; you just have to direct your marketing towards the right type of tenant.

I own a fair number of these buildings. One Bunker Hill is another great example of that era. We market it as a boutique building, towards the more creative shades – advertising agencies, architecture firms, and smaller law firms – and we've been very successful. That building is 100% occupied right now. The old Barker Brothers Building, 818 Seventh St., is also an historical building with a lot of character. That building is currently about 90% occupied.

How attractive, in general, is the downtown L.A. real estate market? What makes it attractive to you and your investors?

I've always been bullish on downtown. It's impossible to replicate anywhere else in L.A. the access to transportation infrastructure that you have downtown. For companies that employ large amounts of people, where the employees come from different walks of life and demographics, downtown will always be the place to be. The access to Metro Rail, the highway system, and railroad lines is extremely valuable for these companies

One thing that has always been very important but that's lacking historically is a residential component to downtown. Of all the years I've been in L.A., I've been a big believer in that, but I didn't think it was happening fast enough. With the residential development activity we've seen in the last three years, it seems like it's happening for real this time. As a result, I've jumped in with two feet on the residential aspect.

The office buildings I currently own were my initial foray into downtown, but a lot of my focus going forward is going to be in residential conversion. We're currently working on a conversion of the Douglas Building, which is right across from the Bradbury Building, into 50 high-end loft units.

Real estate prices downtown continue to rise. Some feel escalating square foot costs will slow new development. Do you agree? Is paying over $150/square foot a reasonable price for downtown office space?

I believe so. It's still probably one of the better bargains in the office market nationwide. These days, a lot of big towers are going for well over $200/square foot. Even at that price, you're still well below replacement costs-you're still buying well-occupied high-rises for less than what it cost to build.

Talk about the attractiveness of the office to residential conversion market. What's the right price above which it doesn't pay to undertake the conversion of these historical buildings?

It all depends on the condition of the building and what it costs you to fix it up. Depending on the condition of the building, the cost to fix it up could vary by $40-50/square foot. In general, I think anything over $60-70/square foot will become extremely difficult. Projections of people going forward with anything above that would be highly optimistic. It could work for the condo market, but it definitely will not work for apartments.

Goodwin, how is the L.A. and downtown's real estate market viewed from abroad. What's the relative level of interest for new investment?

The institutional investors I know are, all of a sudden, showing an interest in and around downtown. Beacon Capital has been aggressive in buying big towers in downtown and Walton Street Capital bought the Union Bank Plaza a couple years ago, but it is now putting it back on the market. There is a lot of institutional interest now in downtown because many people see it as the last place for a bargain in a major metropolitan area in the U.S.

As real estate investment firms approach opportunities in historical urban cores, what's the economic value of city adaptive reuse ordinances?

Adaptive reuse has been tremendous in bringing back to life a lot of these spectacular historical buildings in the more derelict areas of downtown. Without the adaptive reuse ordinance, a lot of these building would never be able to be developed. The ordinance really allows developers to go through the city at a much quicker pace with slightly looser standards. Some of these buildings are great heritage buildings, and many have architectural details that you could never replicate with today's craftsmanship. The Douglas Building sat empty for 20 years and we would not have been able to restore it without the adaptive reuse ordinance.

As a developer, what else could municipalities do in the way of ordinances to incentivize more and better infill, mixed-use residential development?

I'd like to see the various city agencies and departments responsible for approval and code enforcement streamline their procedures and work in a more cohesive manner. Even with the adaptive reuse ordinance, a lot of people in these agencies and departments don't understand what's involved. They all have their own areas of expertise and interest, but they do not seem to communicate enough with each other. Sometimes one agency tells us to do one thing and another tells you to do something else. Then at the end of the day, you end up having to rely on a councilmember or mayor's office to come in and act as a mediator to push these projects through. It's tough-it wastes a lot of time. But I think it's so new that maybe this is how it needs to get started. I'm hopeful that eventually these different departments will get together to promote good developments and see adaptive reuse as a good thing.

Los Angeles' historic preservation movement over the years grown substantially in civic influence. How today do investor/developers, such as yourself, value preservation in a region and city that historically hasn't paid much attention to the "old?"

I think it's a fine balance. Obviously, I'm a big fan of historic preservation. Historic buildings have tremendous character and quality that you cannot get today. But, I think the people who oversee the preservation need to understand the economic aspects of redeveloping these buildings. When you do conversions on some of these buildings, certain aspects need to be preserved, but certain aspects of it need to be altered to achieve economic and financial goals. If you stick too much by the book, with no interpretation or alteration whatsoever, the projects cannot be done. When that happens, then you've got a building that will continue to sit empty for the next 20 years, or will be torn down eventually.

An inclusionary zoning ordinance, which would mandate the number of affordable units in developments above a certain size, is currently winding its way through the L.A. City Council. Your thoughts on that ordinance?

From what I've heard, an inclusionary zoning ordinance seems like five steps backwards from the changes we're trying to make downtown. There's a lot of demand for market rate units in this market. With inclusionary zoning, you are forcing affordable housing into the market. A lot of private money and developers will stop investing here because the inclusion of affordable will make the projects unprofitable. Right now we're just getting some momentum. You don't want to stop it in its tracks.

Let's close with your educated take on what downtown Los Angeles might be like a decade from now. What should we all expect?

Hopefully, we'll see something similar to what happened to Denver-with Coors Field, with the Loft District, and with a retail and restaurant component emerging around the previous development. Or, we may see something like what's occurred in the South of Market (SOMA) area in San Francisco, where they have Pac Bell Park surrounded by restaurants and residences to support the neighborhood. It think those are good examples, and I think this type of vibrancy could be achieved in downtown Los Angeles. These days we're seeing people who work in Burbank in the creative field doing a reverse commute-living in downtown and driving to Burbank to work. I think downtown, being really the only market in L.A. where you have a lot of these attractive historical buildings, holds a certain attractiveness that other submarkets in the region simply cannot offer.