The gleaming office towers that dominate the downtown Los Angeles skyline hide a harsh truth. Most of the space is vacant land.
In the years since the pandemic that upended workplace norms and evaporated demand for office space, downtown landlords have watched in frustration as the values of their office buildings have plummeted. A number of properties are facing foreclosure, leaving owners worried about the need to bring tenants back into their buildings or find other uses for millions of unused square feet.
Some hope that the office rental market has bottomed out after an increase in office rentals, but some, like landlord and developer Garrett Lee, are more concerned about selling their offices than persuading tenants to come back. Some believe there is a more reliable path: converting them into apartments.
The initiative comes as wildfires destroyed thousands of homes this month in Los Angeles’ Pacific Palisades neighborhood and Altadena, a hilly community just north of the city, exacerbating the region’s longstanding housing shortage. has taken on new urgency. Downtown is designated as the densest residential development area in Los Angeles County.
“We have unprecedented demand for housing right now,” Lee said. “It will take more effort than ever to build housing of all types and rent levels.”
Mr. Lee is president of Jamison Properties, a prolific company that converts mid-sized older office buildings into apartment buildings in LA. Now, Mr. Jamison is cultivating new ground by converting a shiny 32-story office tower built on the edge of downtown in 1987 into housing.
Efforts to build a second act for a little-utilized office tower that a generation ago boasted a prestigious name are part of a larger drama unfolding in a financial center that has lost much of its luster in the years since the pandemic. Part of it. Restaurants and stores are struggling to keep many employees from leaving, while growing awareness of homelessness and unsafe sidewalks is causing some office tenants to leave.
“Downtown is torn between believers in downtown and non-believers who say the economy is going downhill and not coming back,” Lee said. “You can see that there is a huge gulf between the two.”
Many of the downtown office buildings built before World War II have already been converted to housing and hotels, but the eye-catching skyscrapers built in the late 1980s and early 1990s are mostly office buildings. It remains. If successful, the renovation of Jamison’s LA Care tower at 1055 W. 7th St. would be an example of repurposing a prominent office tower built relatively recently and designed to house corporate business for decades to come. There is a possibility that
The city is close to adopting new building codes that will make it easier for developers to get approval to repurpose offices built after 1975. Previous conversion standards focused on buildings built before that year, when building codes were less stringent, resulting in a boom in office, apartment, condo, and hotel renovations that began in the early 2000s.
Jamison is close to winning city approval to convert 1055 W. 7th St. “with very little structural modification.” This will reduce construction costs by about 10% and save significant time compared to the company’s previous conversion of midcentury-era offices, Lee said. Buildings that require significant improvements to meet city seismic standards.
The ability to convert some office buildings to residential use without complete structural renovations is a game-changer for developers in another way, Lee said. Instead of emptying an entire building for renovation, rent-paying office tenants can remain in place while empty floors are converted into apartments.
“You can skip floors, you can go around floors,” he said of office tenants. “This really opens the door to retrofitting 30-year-old buildings, like the ones that dominate the downtown skyline.”
Lee plans to begin construction this year on 1055 W. 7th St., converting it into 686 apartments. He said such new office towers would be more attractive for residential conversion “day and night” than mid-century buildings from the 1950s and 1960s, and should command higher rents. said.
It has floor-to-ceiling windows with panoramic views, and “the bones are in much better shape,” he said. Many of the mechanical, electrical and plumbing systems are “well-suited to today’s standards” and can be reused.
However, the building will be completely redecorated floor by floor.
“We completely gutted the interior,” Lee said, removing walls, lights and plumbing that served the office’s occupants. Once the floors are stripped and concrete, developers are ready to rebuild them as apartments.
After 24 years, Wedbush Securities is leaving its Wedbush Center offices in downtown Los Angeles and moving to a small neighborhood in Pasadena.
(Michael Blacksher/Los Angeles Times)
1055 W. 7th St. has room for amenities like a gym and co-working space so tenants have a place to work outside of their apartments. Other tenant attractions could include a theater, golf simulator, karaoke room, and card room. These amenities were added by Jamison in a previous renovation of Koreatown.
Mr. Jamison has preliminary plans to convert another downtown office building, the 1975-built 10-story World Trade Center at Figueroa and Third Streets, into housing. It’s unclear how many other office buildings are candidates for residential conversion, but there are a lot of them. Unused space — CBRE estimates that more than one-third of the 32.4 million square feet in 70 buildings in the downtown central business district is available. This is more than three times the amount considered a healthy balance between tenant and landlord interests. Taking into account “shadow” office space that is leased but not occupied, the overall availability is closer to 37%.
The downtown apartment market has rebounded from the pandemic and remained resilient despite a downturn in the office market. The area has about 90,000 residents, slightly more than Santa Monica or Santa Barbara, said Jessica Lal, head of the real estate brokerage’s downtown office at CBRE. They live in 47,000 housing units, most of which are market-rate rented apartments.
Adding more residents through renovations and new construction could help reinvigorate the financial district.
Before the pandemic, downtown sidewalks were often crowded with office workers heading out to eat, shop or attend meetings in other buildings. Although some people were homeless, a sense of order prevailed in the downtown area, where thousands of people were employed by law firms, financial institutions, and other white-collar businesses.
John Cicho, an office investor who has worked in real estate downtown since the 1980s, said the sense of order has not returned.
As employees stay home and continue to work remotely during the pandemic, pedestrian traffic has declined, hurting the vibrancy and sense of security in the Financial District, which has depressed office rentals and hindered the district’s revival. said Mr. Cicho.
A 32-story office building in the 1000 block of West 7th Street will be converted into 686 apartments.
(William Liang/For the Times)
“Homelessness is out of control,” he said. “People don’t feel safe coming downtown, and all the momentum associated with wanting to live here has been lost.”
President Gary Wedbush said the changing nature of downtown is one reason Wedbush Securities is moving to Pasadena’s Lake Avenue, which has “more fully recovered from the pandemic.”
Wedbush announced in October that it would leave its Wedbush Center office building overlooking the Harbor Freeway and move to a smaller office in Pasadena to accommodate employees who spend much of their time working remotely. did.
The drop in rentals has also led to a plunge in the value of office buildings and the sale of high-profile skyscrapers at deep discounts. That includes a 55-story gas utility tower that was sold to Los Angeles County last year for $200 million, far below its 2020 appraised value of $632 million.
Although converting distressed office buildings into housing is considered environmentally desirable and can be much cheaper than building new apartments or condominiums from scratch, most landlords I’m hopeful that the rental market has bottomed out and will begin to recover this year.
More than 600,000 square feet of office space was leased in the fourth quarter ended Dec. 21, an increase of 21.7% from the previous quarter. More than half of these involve renewals of existing leases, with some companies expanding their offices despite other companies having contracts in place.
The gains are just a small step forward for a downtown that has struggled with an overabundance of office space since the building boom of the 1980s and early ’90s.
Olympic organizer LA28 leased 160,000 square feet in the 32-story office building in the 1100 block of South Olive Street.
(William Liang/For the Times)
The largest office lease deal in all of Los Angeles in the fourth quarter was with LA28, the private organization planning and operating the Los Angeles 2028 Summer Olympic and Paralympic Games. According to CBRE, LA28 leased 160,000 square feet at USC Tower, a high-rise building on Olive Street a few blocks from the Los Angeles Convention Center, Crypto.com Arena and LA Live. LA28 is scheduled to move from Westwood to downtown later this year.
Other new rental properties downtown are also in the works, said CBRE broker John Zanetos. Trends in rental growth in other cities are promising for Los Angeles, he added.
“What we’re experiencing in downtown Los Angeles is similar to what’s happening in Seattle, San Francisco, and other cities, and these cities will recover before Los Angeles in a historic real estate cycle. There is a trend,” Zanetos said. “We’re seeing urban areas start to recover in the third or fourth quarter, and we think that bodes well for Los Angeles.”
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