November 10, 2005 - From the November, 2005 issue

Kor Group Revives Treasures of L.A.'s Architectural Past for Urban Residential Living

The trend of urban renewal in Los Angeles continues to re-discover architectural gems, and developers have embraced the process of restoring seemingly moribund properties. The Kor Group is currently at work on two such projects, the Broadway Hollywood and downtown L.A.'s art deco masterpiece, the Eastern Columbia. TPR spoke with Kor's Senior VP of Development Kate Bartolo about the risks, rewards, and motivation behind historic re-use.


Eastern Columbia Building

The Kor Group has extensive experience rehabbing and updating historic buildings. Give our readers a sense of the array of challenges a developer faces in the L.A. area doing urban infill with historic resources?

The marketplace has become so overheated that increasingly few deals make sense. Today, the acquisition costs for historic and non-historic buildings alike have increased so significantly that today's acquisition costs mirror project costs of one or two years ago after project entitlements and construction completion.

The greatest challenge of historic renovation is no matter how well you plan, there will always be surprises along the way in the renovation process of an existing building. This is especially true of a historic building because the developer assumes an additional responsibility to preserve certain defining historic characteristics of the building. Secondly, historic buildings require an additional overlay of public discretionary approvals, via the City's Cultural Heritage Department. The key in both instances is strategic planning that seeks to identify hurdles early in the process so that delays are averted and a relationship of cooperation is achieved with the city department charged with historic preservation.

Have there been any specific regulations or zoning laws that have either helped or hindered your work, especially in terms of laws that might be intended to promote historic preservation?

On the "help" side: The Adaptive Reuse Ordinance (ARO), as most of your readers know, is one of the best programs ever devised to encourage restoration. Also and not incidentally, Historic Tax Credits for rental housing can offer a huge financial incentive toward historic restoration.

And the Mills Act can also reduce property taxes. And if you keep it as rental you're the landlord reaping the benefits, and theoretically you can pass that on to the renters. Or if you are the condo developer, you can pass all of the discounts on property taxes on a pro rata basis to the new unit owners.

On the "hinder" side: Regarding ARO, even with the benefit of its bundled "by-right" entitlement approvals, the city's approval process remains Balkanized. This is by no means limited to historic projects but there remain significant challenges in working with multiple city departments, each of whose missions varies and sometimes conflicts with the other departments. The greater difficulty is that even within individual departments code interpretation can vary significantly. Sometimes, two staff people within the same department can take vastly different positions. This becomes especially difficult when a developer is proceeding ahead with assurances received early in the process by one department staff person, then gets to Plan Check and finds that the plan checker and/or another department staffer is unwilling to accept the code standard previously approved.

As it relates to historic, the bottom line is that questions will always arise relating to restoration. We have learned through experience to do some very careful tracking to answer questions up-front such as: Are the corridors historic? Can you remove the elevator banks and relocate them? Can you keep the existing windows to satisfy historic requirements but at the same time ensure that the windows will not subsequently cause noise or water problems. If it's a historic building if new windows are needed, they need to be replaced with a like-minded window. That cost – a new sash, for example – is prohibitively expensive.

One always has to remember that at the end of the day, a developer has lenders and equity partners to answer to and costs must, of necessity, and to the extent possible, be passed on to the consumer.

How would you compare the process of a historic conversion to that of new construction, and what are the benefits of going through the labor of preserving an historic building from the sales and marketing perspective?

The benefits of restoration: That's a really important question. There's a gentleman who was a big landowner on the Westside, and he once exhorted me to "Buy on the Westside! Because there's only so much of it!" I think that truism applies to historic buildings. In Los Angeles, there's only so much of it, i.e. only so many historic buildings that represent a true renovation opportunity. I believe "historic sells." I believe that buyers and renters are hungry for architecturally significant buildings with features that, by virtue of materials scarcity and/or expense, simply could not be replicated today. The challenge remains in delicately balancing the need to painstakingly restore or provide like-minded replacement of important historic elements, without incurring costs that make the project economically unfeasible.

One of the most significant differences between new construction and historic building renovation is entitlements: if the existing building does not require any variances, the developer can literally obtain the building permit at the Building and Safety Counter, roughly akin to a single family homeowner's permitting for a remodel. With new construction, land use and zoning rights trigger higher parking standards and review of environmental impacts can be significant.

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New construction of a major project can trigger an environmental impact report, which costs low six figures to process and can result in one year, sometimes more, in project delays and unexpected project mitigation costs. Since ground-up projects' entitlement rights are not "grand fathered", the neighbors and surrounding community can be powerful opponents at each step in the discretionary approval process.

So for all those reasons, there's a lot of benefit to developing historic. But it is not a process for the faint of heart: entitlements aside, it is more difficult and more complicated working within an existing building envelope. It should be a labor of love, with a careful eye to the bottom line.

Let's talk a bit about the neighborhoods you're dealing with. Obviously old buildings are in older neighborhoods, in this case, Hollywood, Silver Lake, and downtown L.A. How do you attract upscale residents to a downtown neighborhood that they might not be familiar with?

First, the uniqueness and quality of product. Outside of Venice, I really don't know of many other areas in the city that outside of downtown and Hollywood, that offer live-work loft product. Older buildings in particular tend to have higher ceilings, bigger windows that let in more light, and expansive floor plans that offer renters or buyers several choices within the same building. Second, the very fact that these areas are edgy is part of the appeal. Our buyers are "anti-suburbanites." The not-quite-pristine aura of these neighborhoods is part of the attraction. Our buyers want to be in the thick of urban life, not retreat from it. They want to be near nightlife, where the sidewalks aren't rolled up at 9 p.m., and they can get in on the ground floor of community and neighborhood building.

The single most important challenge that faces everybody in the neighborhood-and community-building effort is the need to offer retail and other service amenities within easy walking distance. But even one new retail or restaurant locating in the neighborhood can make a huge difference. When developer Tom Gilmore bankrolled the building's restaurant, Pete's Café, at Main and 3rd he didn't just offer loft dwellers a place to eat and drink. He activated a corner and helped create a neighborhood. That's pretty exciting to a lot of people.

The Eastern Columbia and Tom Gilmore's buildings are on the leading edge of what is, by some accounts, going to be 150 new developments in downtown. Do you see those upcoming 150 new developments as complements to your project, or are they competition?

That's a really good question. One building does not make a community. It takes a certain level of critical mass of new like-minded developments to create a community where people will want to live, work and play. So we view other developments not as competition but as complementary, in fact, vital partners in our shared vision of the new downtown.

One tough question that downtown developers are dealing with is the homeless issue. Many homeless people live downtown, and they may start to compete with new residents. Do you see a way to humanely solve that issue? Is there anything the city can or should be doing?

Yes, and I feel very strongly about it. A very close relative of mine is paranoid schizophrenic. I think about her every time I cross paths with a mentally ill homeless person and how very easy it is for people with mental illness to become isolated, fall through the societal safety net and land on the street. But it is also essential that we not characterize loft-dwellers as encroachers and developers as heartless facilitators of a process that is pushing people to the streets.

What is missing from this important public debate is that Los Angelenos should not and, I would argue, cannot apply different standards of urban revitalization and our shared goals of the need to create mixed income housing in Downtown than we do in other low income communities, from Watts to Pacoima. Slum conditions of severe overcrowding and over-concentration of poor quality housing, and unsafe living conditions are bad wherever they exist. It is vital that we not seek to confine existing slum conditions in downtown L.A., where 74 percent of all SRO housing exists because we as a city cannot amass the collective will to overcome the hurdles in building new SRO housing that is safe and affordable. I do not want another year to pass before we collectively address the problem: not by preserving that which is substandard, even dangerous for the very homeless the city is trying to protect, but by finding the money and building new housing with support services for downtown's homeless. The development community's vision of downtown as a place to live, work and play, does not release us from an obligation to be part of the homeless solution. Developers like Jeff Lee, Central City Association and several other city business trade associations are spearheading efforts to place a bond measure on the 2006 ballot that will raise additional capital for affordable housing, and not incidentally target downtown's special needs population. When this effort is embraced by affordable housing advocates and city political leaders alike, it will represent a long overdue start to make real headway in reducing downtown's homeless human misery index.

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