Southern California Development Forum brings value through educational, networking and philanthropic events around current developments in the A/E/C world. Read all about our recent events here.
Whether you are a native of California or a fresh arrival, the phrase “California dream” is likely one you have heard. However, it’s meaning has changed over time. Today, our state grapples with a multitude of unique issues that affect our economy and industry in a variety of ways. As the most populous state in the nation, and also burdened with a housing shortage, developers must consider certain trends and opportunities when conducting business. Larry Kosmont, president and CEO of Kosmont Companies, partnered up with Lew Horne, division president of Southern California, Arizona, and Hawaii at CBRE, led a panel discussion focusing on these issues.
The Year of the H
Lew Horne kicked off the panel discussion by breaking down the core concepts which he referred to as the year of the “H”, or 4 key elements beginning with the letter “H” that make Los Angeles so unique. The first among them was the historic forum characteristic.
More importantly the historic forum aspect of our city is highlighted in the adaptive reuse category. Horne notes that while Los Angeles is lush with adaptive reuse projects, they are most apparent in Downtown Los Angeles and the Arts District. The Apple Store going into DTLA is a prime example of adaptive reuse. There have also been speculations that Apple’s selection of this space may be a signal that the tech company may venture into becoming a major Hollywood content creator.
The second “H” pointed out by Horne is high density, which is somewhat of a divisive issue among Angelenos. Horne also alluded to the fact that Los Angeles hosted 50 million visitors last year alone. A high demand for space by both the hospitality industry, as well as local residents continues to create issues centered around real estate development in a time where space is at a premium. To put it simply, when talking about Downtown Los Angeles, the only way is up. The region was home to approximately 50,000 residents 2 years ago, present day figures show the number has surged to slightly over 70,000 residents.
High-tech is the third “H” as pointed out by Horne. “Tech quite simply, is changing everything,” he said. “It is changing offices, changing industrial and changing retail. Tech is the new industrial revolution.”
Horne also mentions that tech tenants, which are innovative and forward-thinking in nature, view adaptive reuse as a way to attract and retain talent.
Whether brand new or redeveloped, Los Angeles is the number one target for foreign investment. Horne cited an approximately $170B in foreign investment capital being poured into the metro area over the course of the last 5 years. To the shock of much of the audience, Canada is largest foreign investor in Los Angeles, and the United States as a whole. About 50% of class-A buildings are the result of, or supplemented by Canadian investments.
Homelessness was cited as the final “H” in Horne’s dialogue. Los Angeles a city with approximately 58,000 homeless residents on any given night, has often been described as “ground zero” for homelessness in the United States.
“This situation is here for 2 reasons, we are not passing the correct laws and also it’s a real estate issue, pure NIMBY’ism,” he said. “No one wants to see it.”
Horne has taken this issue on as a corporate social responsibility initiative for CBRE. Regardless of any private efforts, the homelessness crisis must be solved at the legal level through cooperation of local governments.
California’s New Direction
Larry Kosmont, chairman and CEO of Kosmont Companies continued the conversation by noting that many of the trends identified by Horne currently affect decisions made by California real estate and development professionals.
“It’s a very complicated and diverse economy, which is exciting,” said Kosmont. “The reality is that California is looked at as place that seems to want to make changes, and do it right, but doesn’t always get it right, however, this is a common characteristic of any leader.”
Kosmont Companies is a real estate, financial advisory and economic development services firm offering a full range of services for both the public and private sectors.
“We are always at the convergence of public and private transactions, it’s an interesting perspective as to how public and private investment work, whether it be collaboratively or competitively. In our state, there is a little bit of both in the equation,” said Kosmont.
Kosmont pointed out that policy makers in California are taking our state into a green economy.
“As real estate investors, we need to get on board with this idea because these ideas are not going to go away,” said Kosmont.
Much of the sustainability-minded changes are driven by Millennials, who are also having less children, meaning demographics in our state are changing.
“California is also getting older, we don’t have as many children here anymore. We import and we transport,” said Kosmont in reference to California’s youth and workforce
Economically, the middle-class in our state is shrinking as the affordability crisis deepens. Our new governor, Gavin Newsom is prioritizing housing, homelessness and healthcare. Kosmont feels that our current balance is not sustainable to continue growth in our economy.
However, there is no single solution to solving this problem. Our state needs more housing, but housing trends are changing. Urbanization is taking a different form.
“Millennials want an ‘urban suburbia’ where they can walk freely, but also have access to good schools and other suburban comforts,” he said.
While Millennials demands might be a driving force for real estate and development professionals today, they are only one piece of the puzzle in our state’s complex economy. While the California Dream may have changed drastically, the idea persists. As our state struggles to deal with a set of complex issues, real estate and development professionals will be tasked with keeping the California Dream alive.
Bill Feathers Award
Each year, SCDF awards an industry professional with the William Feathers Award of Distinction. This award was created in honor of William (Bill), the founder of SCDF and his influence on our community.
A man of humble beginnings, Bill's greatest desire was to help others succeed. Bill was highly personable, kind, compassionate, & extremely generous with his business knowledge. He loved Los Angeles and all that it had to offer its citizens and visitors.
Each year SCDF honors an individual who, like Bill, shares that same passion for Los Angeles and has made significant contributions in our industry. This year's Bill Feather's Award goes to Dan Rosenfeld.
In addition to the Design Awards, Southern California Development Forum has thoroughly enjoyed hosting monthly events throughout 2018, click here for a one minute recap video. We have been able to bring together members of the development community across all segments of our industry. From architecture to developers to business executives, and more, our events serve as a way to connect passionate and visionary individuals to one another. This year’s 2018 Design & Philanthropy Awards were the perfect sign off to a great year. Held at the beautiful and historic California Club in downtown Los Angeles, we honored a number of exceptional organizations for their work. Most notably, we recognized two philanthropies, New Earth Organization, and USC Veterans Association. We also recognized Gensler with a “development team of the year” award for their work on Banc of California Stadium project.
New Earth Organization
Located in Culver City, New Earth provides youth with mentor-based creative arts and educational programs. Currently, New Earth serves approximately 700 young people on a weekly basis. What makes this philanthropic organization unique is that the youth they serve are incarcerated in Los Angeles County detention facilities, and the Orange County Juvenile Hall. Mentors enrich the lives of incarcerated and at-risk youth through programs including: construction, poetry, music production, gardening, and fitness.
Harry Grammer, founder of New Earth, receiving award (click here for video)
Upon release from incarceration, youth may attend meetings at the New Earth Arts & Leadership center in Culver City. However, the meetings at the philanthropy’s Culver City center vary greatly from the programs they receive while incarcerated. At the central location, program attendees receive career training and jobs. There are also opportunities for youth to obtain a fully accredited high school education, as well as mentorship, case management, and other wrap-around services that equip them for success as they become reintegrated into society after release from incarceration.
Since 2004, New Earth has been dedicated to improving the lives of incarcerated and at-risk youth. From humble beginnings, working out of a coffee shop, to a currently 14-site organization serving nearly 2,000 young adults per year, New Earth has thrived. They have not strayed from their mission of transforming the lives of youth in vulnerable populations.
“These kids get labeled young. And it's hard to pull themselves out of that," said Harry Grammer, founder of New Earth. “We're doing everything we can to keep them out of the adult system. That's what drives us."
USC Veteran’s Association
Since 2008, the University of Southern California has been offering various types of support for student veterans. At its inception, the USCVA was formed due to the influx of veterans of the conflicts in Iraq and Afghanistan. Today, the student organization consists of men and women from all branches and ranks of the Armed Forces, who have served in a variety of military events. The members include undergraduate and graduate students from a rich diversity of majors. Together, the combination of experiences and perspectives – some in common and some strikingly different – all create an environment where student veterans are able to access opportunities and resources.
USC Student Veterans Association (click here for video)
The USCVA provides members with a sense of belonging that is synonymous with the “esprit de corps” that is found among both veterans and Trojans, alike. This feeling of pride and fellowship from being associated with USCVA not only gives USC student veterans a sense of feeling seen and heard, but also a community which they can call their own. Among the many services that USCVA coordinates for members, housing may be the most crucial. Veterans face significantly higher risk and rates of homelessness. This year, the USCVA was able to launch a housing program for student veterans who are in need.
Brandon Wexler, current president of USCVA is no stranger to the challenges faced by veterans as they re-enter civilian life. Having veered close to homelessness, Wexler, a Navy veteran is now a double major in cognitive science and linguistics. His own experiences and commitment to service suit him well in his current position as resident adviser of a USCVA property.
“Now I have the tools to help other veterans at USC,” Wexler said. “I can tell them ‘the university’s providing affordable housing for us. You have a place to stay.’”
Development Team of the Year
We also recognized a new category for Development Team of the Year. Architectural powerhouse, Gensler, along with PCL Construction and Los Angeles Football Club design and construction teams, took the first win for their work in Banc of California Stadium. Located directly off the I-110 Freeway, the sleek, silver design has caught the eyes of many commuters. Covering 15 acres in the shadows of nearby Exposition Park, which is home to L.A. Memorial Coliseum, the structure is home to the Los Angeles Football Club, a new Major League Soccer franchise.
The 22,000-seat stadium is the first open air sports venue to be built in Los Angeles since Dodger Stadium in 1962. Built to foster a personal relationship between players and fans through experiential architecture reminiscent of European stadiums, the stadium also contains a conference center, restaurants and a soccer museum.
All in all, it was a fantastic event and a great display of support by the SoCal A/E/C community to SCDF’s mission and continued efforts to bring together the best minds in Southern California.
The creative media industries have long been synonymous with the Los Angeles metro area. It is estimated that about 1 in 6 citizens in Los Angeles County work in the creative industry in some capacity. More recently, tech has also made a lasting impression on the state of California, in more than one major city. While the bulk of the tech industry remains concentrated in the Silicon Valley and San Francisco metro area, Los Angeles has seen an influx of these companies arriving to conduct business operations. Both the tech and creative media industries attract a talent pool of highly skilled and creatively inclined workers from which to hire.
The effects that these industries have on our real estate market are well documented and often a source of discussion among California residents. The high-paying jobs in the tech industry are often scapegoated as the primary force driving up rents and home prices. On the commercial side, many of the streaming services, most notably Netflix, are buying and leasing large commercial spaces for content creation purposes. Not only do these endeavors require a large amount of space, but they often aim to develop in highly desirable and already densely populated locations.
On November 13, SCDF hosted a Creative Media in Real Estate panel at City Club LA. The panel consisted of 4 real estate and development professionals who weighed in on what it takes to secure a prominent tech or creative media tenant in a commercial space in the Los Angeles market. Moderated by Michael White, AIA, Managing Principal at Gensler, the panel discussion touched on tariffs, construction challenges, and the ripple effects of these industries when they enter a market. Panelists included: Christopher J. Barton, EVP of Development and Capital Investments at Hudson Pacific Partners, Dean B. Rostovsky, Managing Director and Acquisitions Officer at Clarion Partners, and Ryan Smith, EVP of Investments, Western US at Hackman Capital Partners.
The Effect of Tariffs on Development
Dean Rostovsky opened the discussion by touching on the effect of the trade wars on development as a whole. He noted that the first set of tariffs to arrive affected the cost of aluminum and steel, which was about a 20% increase. The second wave of tariffs came in the middle of the year and affected secondary building materials such as tile, granite, and other materials used in the production of household fixtures like countertops and cabinets. The Chinese government subsidized many American companies who were being subjected to these tariffs, so the effects of these taxes have been minimal so far. This offset by the Chinese government has ensured that most negative impacts have remained largely unfelt, especially for those major tech and creative media enterprises who usually have significant construction or real estate budgets. However, labor has also been affected. Certain segments of development are able to pass along higher labor costs to tenants, which is more common in commercial and industrial real estate. This “passing the buck,” so to speak, in labor costs, is far more difficult to do when dealing with residential real estate. While these challenges regarding labor costs are much more difficult to mitigate, Chris J. Barton of Hudson Pacific Partners shared one simple yet highly effective strategy for dealing with tariffs.
“We bought large amounts of material, and stored it for future use,” said Barton. “However, this is not a permanent solution as we will eventually run out of stored material and have to purchase new. The labor shortage is a far more pressing issue for our industry,” he continued.
Creative Media and Tech Tenants
Barton continued the conversation by revealing that much of the new development for Hudson Pacific Partners has been directly associated with the demand for new content by Netflix. He noted that streaming services, or new media companies are spending over $24B in content creation, of which Netflix comprises over 50%. Currently, Netflix is at about 2.1 million square feet total space in their portfolio. May 2015 is when Netflix really began to grow, and in this timeframe, Hudson Pacific Partners was able to strike a 10-year-deal with Netflix for studio and production space. Barton noted that while promising, a deal of this magnitude is highly atypical, especially for the creative media industry, which typically signs one-year leases.
Netflix has an advantage in the eyes of developers due to their unique need for major and diverse property types such as soundstages, creative offices, and support space. The addition of studio lots and content creation space has made them even more enticing to developers. Tech and creative media companies, especially those that are newly built, tend to have more inventive architecture, with a mix of indoor and outdoor spaces, as opposed to a traditional high-rise structure. This requires developers to collaborate with architects for innovative designs. Gensler was noted as being the architect of record for both Icon Venue Group and EPIC, two creative office campuses located in Downtown Los Angeles and Hollywood, respectively. EPIC is currently in the early stages of construction. Digital renderings showcase multiple outdoor terraces, flanked by modestly-sized trees. In addition to Netflix, Dean Rostovsky, of Clarion Partners pointed out that there is a huge demand for commercial space from a mere six or seven companies. Among them are household names like Google, Facebook, Amazon, Apple and Microsoft.
“This demand encompasses both leasing and controlled floor area ratio (FAR), which is happening most prolifically in the Bay Area,” said Rostovsky.
The Ripple Effect on Housing and Development
One negative side effect of the tech and creative media boom, is the housing crisis. However, the actual root causes can vary from city to city. Los Angeles is noted as being much more difficult to build in than other cities, where tech and creative media left not only a large footprint, but a positive impact.
“There can be a supply response in Seattle or San Francisco, but it’s much harder to get that supply response in Los Angeles,” said Rostovsky.
Rostovsky also shared renderings of the upcoming Culver Studios project, which will be different than the usual “live-work” model. This project will exemplify a “work-work and work-play” mixed-use facility. Projects of this magnitude often take up multiple city blocks, which can further limit available housing in the neighborhoods surrounding the development. In some cases, housing will be repurposed for studio, creative or tech office space. The reduction of the housing supply directly affects the value of homes and apartment rentals, which further perpetuates the housing crisis for all residents. The lack of both usable space and housing, has pushed developers to persuade tech and media companies to seek spaces outside of the traditional industry centers. Culver Studios and Sony, both located in Culver City, are prime examples of creative media moving out of Hollywood and into less dense and under-utilized neighborhoods.
Another unique characteristic of many tech and creative media companies seeking new developments is the tendency for them to favor transit-oriented-developments, or TOD, in densely populated urban centers. While this sounds ideal for most large businesses, tech and creative media differ in the sense that they often favor TOD but also demand ample parking spaces due to the nature of their trades. Meeting such demands requires developers and architects to adopt extreme levels of creativity and resourcefulness. This is especially apparent in Southern California, where mass transit has not fully arrived in terms of widespread public usage. Panelists all agreed that while mass transit may be the way of the future, a reluctance on the part of tenants to rent a space without sufficient parking is still a very real obstacle.
“Development is spurred by these transport hubs, but parking is still a requirement, so all of our projects begin with parking structures,” said Michael White of Gensler.
“Whether they remain parking structures in the future is yet to be seen,” he added.
The Public-Private Partnership (P3) model is a complex method of financing construction projects that has many considerations when identifying the variations. This intricate arrangement has been gaining traction in the US as a preferred method for financing, building and operating public sector developments with private sector resources and partners. The model has been used in Canada, Europe, Australia and elsewhere for some time.
A P3 relationship is comprised of several relationships between public clients and the private development community to design, build, finance and maintain projects. There are many different variations of P3 relationships, so navigating this spectrum can often be challenging for organizations who are new to P3. In fact, the complexities of the P3 spectrum can often leave experienced individuals in a state of confusion.
On Oct. 9, SCDF hosted a P3 Spectrum panel at City Club LA in which a number of industry professionals with substantial P3 knowledge and experience shared insights on how these types of relationships can be managed. Moderated by Paula Stamp, Director of Business Development at PCL Construction Services, Inc., the panel discussion addressed planning and approaches related to the P3 spectrum. In addition to Stamp, speakers included: Sam Jung, VP of Balfour Beatty Campus Solutions; Colin Donahue, CFO and VP of Administration and Finance at California State University Northridge, and Michael Owh, Chief Procurement Officer at City of Los Angeles.
Complexities Involved in the P3 Method
All panelists agreed that P3 projects are significantly more complicated than conventionally built projects. Much of this seems to be sourced from the differing worlds of public and private entities and finding a common ground on what success and achievement means to all parties involved.
“Developments that involve collaboration between public and private entities take a lot of planning upfront to examine what the final outcome should be,” said Michael Owh. “There is always a concern about the internal expertise, and there are numerous complexities throughout the life of a project.”
P3 funded projects also tend to have varying cycles of partner involvement, typically around 30 years but sometimes longer. This can present a number of challenges especially for certain projects in which the industry is rapidly changing. Higher education was cited as a sector in which development can be especially tricky due to a rapidly evolving landscape. Colin Donahue of CSUN noted that any P3 funded project he oversees is developed on a 50 to 60-year life cycle, and require arduous planning processes which are a result of heavy investment capital.
“We don’t know what higher ed is going to look like in five years, let alone thirty years, so planning has to be very well thought-out,” said Donahue.
Panelists also noted that the extensive life cycles of these project arrangements can create a knowledge gap. The span of a P3 funded development often sees high employee turnover which can create voids in much needed institutional knowledge.
A True Partnership
Another consensus between all panelists was the absolute need for all P3 funded developments to be authentic partnerships. Trust was mentioned as one of most important factors in establishing lasting relationships.
“It’s very important to trust your partners,” said Sam Jung of Balfour Beatty Campus Solutions. “Having an open discussion about what both parties will gain from the partnership, as well as any incentives that will pave the way for long-term success are also crucial.”
While the need to form an authentic and lasting partnership is paramount, it is also important to understand that not all partnerships are meant to be. An effective P3 partnership is made up of parties who not only have the same goals but also complement one another, just like any other ideal business partnership. The complexities seem to arise when the issue of money is brought into focus.
“A lot of times we won’t find it sensible to consider a project unless it’s at least $100 million,” said Donahue. “However, we occasionally consider projects that are well under this number if there is an opportunity to create a meaningful partnership with an organization that has a project we believe will provide a value to the community.”
Panelists shared examples of what makes for a great partnership in a P3. Creativity, flexibility and total transparency were all noted as vital characteristics that potential partners should seek out from one another.
“Another important thing to remember is that not every partner is a match for a client,” said Jung. “As procurements become more complicated, what clients look for in a partner does too.”
Since P3 developments exist on a spectrum both parties need to have the same understanding of what it means to be in a public-private partnership.
Since the use of P3 methods can be perplexing to many, panelists seemed to agree that there was no “magic formula” for success in using the P3 method. The consensus was that trust, partnership, and flexibility are vital tools to have in order to have success throughout the life of a P3 funded project. Due to the complexities involved in this funding method many small businesses are often reluctant to engage in P3 developments. However, the fear of loss and risks involved were noted as being at the forefront of any developer’s conscience, whether large or small.
All panelists agreed that becoming real estate savvy and having a precise vision before initiating execution are also key components to success. When businesses, large or small, implement these practices, they find greater success in using the P3 method.
California has the largest number of higher education institutions in the United States and a diverse student population that has continued to grow exponentially over the past several years. Real estate developers have taken a significant role in helping colleges and universities prepare for this growing student base.
Our “Higher Education – A Facilities Arms Race?” panel took place on September 25, 2018 at City Club LA and comprised of an esteemed group of individuals from the higher education sector. Moderated by Warren S. Jacobs, Associate Vice President at California State University Los Angeles, panel speakers included leaders from a diverse collection of private universities: Lance Bridgesmith, Associate Vice President of Public Safety and Planning at Pepperdine University; Rollin Homer, Vice President of Facilities and Campus Planning at ArtCenter College of Design; Anne Eisele, Director of Projects and Energy Management at Pomona College and William Marsh, Director of Capital Construction Development at University of Southern California.
Panelists shared insights about how private higher education intuitions are financing renovation and construction projects, commented on sustainable practices and provided a glimpse of what projects are to come.
Building for Future Generations
Among all panel speakers, a common topic of discussion was how universities are effectively designing for future generations. In addition to the building of new structures, there is an added challenge of renovating older campus structures. Bridgesmith acknowledged the need for new facilities as enrollment has significantly increased at Pepperdine University.
“Most of the construction was completed in the early 1970’s, but there is still a need for capital improvements,” said Bridgesmith. “Throughout all the costs incurred, our students are at the heart of our work,” he continued.
Bridgesmith also discussed the new recreation center that is planned for the Pepperdine campus in Malibu. The new recreation center, like all other Pepperdine capital improvement projects is financed through the utilization of smart capital building strategies, corporate funds and private donors. All panelists discussed the need for capital improvements to stand the test of time.
“Every decision we make takes future students into consideration,” said Homer. “We have to make ’50-year decisions’ when mapping out what metrics to anticipate.”
“We really look at the holistic cost of existing at a higher education environment for several years,” said Homer. “We look at costs beyond just tuition.”
Oftentimes there is a popular misconception, particularly among students and parents, that tuition dollars are being used to fund campus renovations. Reasons for rising tuition cost are often due to a variety of factors from inflation to supply and demand.
Despite the heightened concerns among the student population and their families, Homer debunked the popular myth that tuition dollars are allocated to fund campus construction.
“We do not use tuition dollars to fund projects,” he said.
As developers design higher education facilities that cater to current and future generations, availability of student housing is often a primary concern for much of the higher education community. As student populations continue to rise, the panel discussed the importance of developing student housing projects to meet the needs of the growing student base and how their institutions are suppling to this demand.
Marsh commented on how USC, traditionally a commuter school, is undergoing an increase in its on-campus student housing. Marsh mentioned the mixed-use aspects of the new housing complex at University Village, which includes retail on the first floor with units located above. Marsh also shared insights on additional housing projects that are in the works, such as a new on-campus hotel and additional student housing for the university’s science program.
Homer added to the conversation by commenting on ArtCenter College of Design’s recent groundbreaking for the college’s first-ever on-campus housing complex to cater to their growing student population.
Bridgesmith also expressed excitement about Pepperdine’s new Seaside Residence Hall, which opened this fall, just in time for the new school year.
Similar to Pepperdine, Pomona College is undergoing construction for a new athletic center. Eisele mentioned how her team is being mindful about building the center for the future and planning for changes. She expressed the exciting challenges of efficiently and effectively designing a new facility with sustainable practices in mind.
Eisele’s main goal has been implementing Pomona College’s path to carbon neutrality, which she hopes the college will reach by 2030. Rather than looking at sustainability from a cost perspective, Eisele states the payback comes from what exactly is being tracked.
“Some of this is just minor, new ways of thinking, and how resources are used,” she said. “It’s amazing what you can do when you look at how you’re using the resources you’re given how you use energy.”
Pomona College is a great example of a college that has been growing in student population while effectively shrinking their carbon footprint. Eisele cites the creative uses of the favorable climate in Southern California, which has aided engineers greatly.
Rollin Homer of ArtCenter agrees that sustainability, like affordability, is at the forefront of the conversations surrounding capital improvements.
The panel also discussed the ways in which smart capital is being used to find higher education projects. Smart capital has a value-add when working with a sophisticated network of investors that have experience, knowledge of the industry and contacts. Normally, smart capital investors are not involved in the daily business but can help with insights that will make a difference in key areas. To put it simply, these are donors with experience, not just money. Utilizing their experience is pertinent when planning for a university’s capital improvements. However, as with all donors, university officials must tread carefully. All panelists commented on the fine line between maintaining relations with donors while also ensuring the design doesn’t reflect too much of the donor’s influence.
“Most donors respect this process,” said Marsh. “They will usually just request their name to be on something.”
As one of the largest travel destinations in the world, Los Angeles is a premier target for hospitality development. Some may argue that with the surge in short-term rental services, such as Airbnb, the need for hotel development is obsolete. However, not only is the hospitality sector thriving, but there is a shortage of hotel rooms throughout various sub-markets of the greater Los Angeles region.
Our State of the Los Angeles Hospitality Market panel on August 7, 2018 was a lively discussion comprised of speakers from various arenas within the hospitality industry. Moderated by Steven Sharp, editor and co-founder of Urbanize L.A., the panel included: real estate developer Ricardo Pagan, CEO of Claridge Properties; Hari Jun, director of development at Kimpton Hotels & Restaurants, and Jessica White, vice president of HVS, a hospitality-focused consulting firm.
Panelists discussed a range of hospitality-focused topics, such as challenges associated with the Los Angeles hospitality market, how the Los Angeles hospitality market compares to other markets, the shortage of hotel room options in certain sub-markets, what hotel guests are looking for in their experience and Los Angeles’ Transient Occupancy Tax (TOT).
Challenges Associated with the Los Angeles Market
Several of the most notable questions asked by the audience centered on the lack of hotel developments in Los Angeles. All panelists agreed the largest factor contributing to the scarcity of new hotels boils down to costs. The cost per square foot to build a new commercial development is simply too high for many developers and investors. The Los Angeles market was compared to its East Coast counterpart, New York City, which is also burdened with sky-high construction costs. New York City has seen a steady decrease in new developments of any kind, simply because the cost is significant. Construction costs, the price of building materials and labor, as well as recent tariffs, have all contributed to the decline in new hospitality-related developments in both Los Angeles and New York City in recent years.
Panelists noted the reluctance of the metro area to catch up to speed with the rest of the nation in terms of facilities and development practices.
“The city of Los Angeles has a hole in the sophistication of its development practices,” said Pagan, referring to his experience working in New York.
Pagan commented on his latest development, Angel’s Landing, and how the public has responded to the new development’s lack of parking spaces. The development will contain just 465 parking spaces for 675 residential units, two hotels, dining locations, an elementary school, plus an additional 45,000 square feet of retail space.
“The square footage that would have been used for parking would be better served as commercial or retail use,” Pagan said. “The development team and possibly the city may be looking for a way to encourage people to use public transit or ridesharing.”
Shortages across Greater Los Angeles Area Sub-Markets
Panelists agreed that while the metro-area has been able to adapt to taxes and rate increases, it has created a gap in the market. Many current hotels cater to either a higher-end and luxury-oriented consumer, while most others serve no-frills budget travelers, with not much in between.
“There is definitely a gap in the market,” said Jun. “We at Kimpton have identified this gap and we are working to fill it,” she continued.
Jun highlighted the recent completion of the Kimpton Everly Hotel in the Hollywood Hills, what she describes as a casual, yet sophisticated establishment that is designed to meet the vibe of the surrounding neighborhood and environment. With a light and airy ambience, modern décor and “upscale-casual” dining options such as Jane Q, the hotel provides guests a chance to feel what it would be like to be a resident of Hollywood Hills, rather than just as the typical hotel guest experience.
While the addition of hotels such as Kimpton Everly are meeting needs of hotel guests, there is still a shortage of hotels at the mid-level price point and a shortage of rooms in general.
“There are several pockets in Los Angeles County and Orange County that are simply under-utilized,” said White. “The area between Huntington Beach to Redondo Beach, which encompasses many square miles, is lacking in hotel options and has great potential.”
The panel touched on the upcoming Los Angeles 2028 Summer Olympics. White mentioned neighborhoods in Los Angeles such as Long Beach that have the potential to become hotel meccas. She said developers are already preparing Long Beach for the upcoming Olympic Games since the majority of the water sports will be hosted in the area.
Pagan addressed the fact that developers must be cautious when preparing for Olympic Games and not overbuild, leading to an oversupply of developed properties that could potentially lead to “ghost towns.”
Designing For Guest Satisfaction
The panel discussed what the most important factors are when designing hotels for guest satisfaction. Although the panel touched on the fact that no hotel is built for the same guest, they agreed that convenience is key.
“Room design is the bottom line when it comes to a successful hotel development,” said White. “This can be as simple as designing a hotel room that has charging outlets in convenient locations.”
The panel discussed the rise in mixed-use hotel developments and the importance of integrating amenities such as rooftops, bars and restaurants that all cater to a successful hotel development. The panel mentioned how 24/7 operations such as JW Marriott in Koreatown are becoming the norm, with condos and hotel rooms all under one roof.
“Being thoughtful about the programming behind hotel rooftops is important,” said Jun. “It is crucial that developers be creative in amenity choices to ensure guests actually come and utilize these spaces.”
Another topic the panel touched on was the issue of transient-occupancy-tax (TOT). According to the Los Angeles Office of Finance, this tax is best described as a rental tax that is paid by the hotel guest for short-term rentals up to 30 days. Contrary to popular belief, this is not a tax on the business operator. Rather, this tax is passed down to the consumer and also applies to all internet-rental services such as Airbnb, HomeAway and VRBO.
“Many people are misunderstanding this,” said Pagan. “Essentially it is revenue you are creating through the sale and usage of rooms.”
Currently, the TOT rate in the city of Los Angeles is 14 percent and is applicable to all properties rented to transients. By this legal statute, transients are defined as any person who exercises occupancy or is entitled to occupancy for 30 days or less. Surely, this added 14 percent tax will drive up the total cost of staying in a Los Angeles hotel, which might seem problematic to the untrained eye.
On Thursday, July 19, leaders in the Southern California real estate industry gathered to mix and mingle at our 2018 Annual Night Under the Stars Cocktail Mixer. We enjoyed stunning views from the rooftop terrace of the California Club in downtown Los Angeles.
In attendance were this year’s 2018 Philanthropic Award recipients, Brandon Wexler, President of the USC Veterans Association, as well as New Earth’s Founder & President, Harry Grammer and Executive Director, Yana Simone.
USC has a long history of supporting the United States military, veterans and their families. With over 1,200 enrolled veterans per semester, USC supports the return of veterans to civilian life through the assistance of the USC Veterans Association, among other programs.
New Earth is a nonprofit that provides mentor-based arts, educational, and vocational programs that empower juvenile justice and system involved youth ages 13-25 to transform their lives. The organization is committed to significantly reducing the youth recidivism rate in Los Angeles (Los Angeles County locks up more kids than any other metropolitan area in the world), by providing transformative programs and enrichment opportunities for incarcerated and formerly incarcerated youth that nurture self-expression, stimulate positive growth and address emotional barriers. New Earth serves 700 people a week in youth detention camps, juvenile halls and placements throughout Los Angeles and Orange County.
“We are honored to support the USC Veterans Association and New Earth in their mission to provide a welcoming and inclusive environment for underserved communities in the Southern California region,” says SCDF President, Carolina Tombolesi. “Organizations such as these are not only making a difference by providing robust programs for the community, but are spurring long-term growth and generating future leaders.”
We will be honoring the 2018 Award Recipients at the Annual Design & Philanthropy Awards, which will be hosted at City Club LA in December 2018.
Cultural districts are catalysts for the revitalization of communities. Museums, performing arts centers and universities, among other cultural establishments, provide continuous revenue, making them not only a great return on investment for developers and lenders, but also benefit the city as a whole. These districts also increase financial, educational and recreational opportunities to residents of the surrounding area.
The Cultural Districts panel included a diverse range of leaders in the Southern California arts industry, including Rob Creighton, Principal at Red Cape Studio; Brian Pratt, Assistant Vice Chancellor & Campus Architect at UC Irvine speaking about the Institute and Museum for California Art; Sel Kardan, President of The Colburn School; Judy Kim, Deputy Director of Lucas Museum of Narrative Art and Diana Vesga, Chief Operating Officer of Los Angeles County Museum of Art (LACMA).
Some of the hot topics that were addressed by the panel included accessibility, community outreach and green building practices of cultural facilities.
The panel discussed various challenges cultural districts face, such as accessibility. “One of the biggest impediments to bringing people to cultural institutions is access,” said Creighton.
Since transportation is such a hot button issue in Los Angeles, panelists explained how they are approaching this issue for cultural institutions. Kim mentioned that The Lucas Museum will be located off Vermont Avenue, just south of Exposition Boulevard, and will be a short walk from the Expo/Vermont Station of the Metro Expo Line.
Vesga mentioned that LACMA purposefully places a lot of their major sculptures, such as Urban Light and Levitated Mass, outdoors as a magnet for engagement. Placing artwork outdoors makes the museum more accessible and approachable and provides an opportunity for the general public to enjoy art without having to step inside a museum.
Vesga also shared how the LACMA team took into consideration the surrounding community when expanding into South Los Angeles. The South Los Angeles region is in need of access to cultural institutions, so the museum is hopeful the presence of a new LACMA building in the region will encourage further revitalization of the area.
Pratt explained how UC Irvine is creating strategic partnerships to connect better with the community and to collaborate with other nearby institutions such as the Orange County Museum of Art.
Involving members of the community is a critical component to the design and construction process and having a positive impact on the community is key to the success of cultural institutions. Panelists discussed the ways in which they take into consideration the needs of the surrounding community, as well as the entire Los Angeles population, when undertaking expansions and construction projects, among other ventures that may have an impact.
The audience asked how the panel is creating ways to bring people into their spaces. Vesga mentioned how LACMA is creating ways the museum has incorporated Friday Night Jazz and Saturday Night Latin Sounds as public events to expand the museum’s reach and draw new crowds into the space. “We’re LA’s living room, a place to hang out,” proclaimed Vesga.
Kim explained how her and her team incorporated community outreach. “We performed months of community outreach to learn about what people are looking for from the new museum and to truly be mindful about the surrounding community.”
Kim also explained how the Lucas Museum of Narrative Art is joining Expo Park as a valuable addition to an already existing cultural district. “We considered placing the museum in Treasure Island in San Francisco, but given the established museum environment in Expo Park, we decided it was where we could build the quickest and could plug into an already existing ecosystem and have the most impact in the community,” Kim stated.
Pratt talked about the new theater being a hub for the entire campus and mobilizing the university professors to get involved. “It’s a very campus-driven initiative,” said Pratt. “Most universities are seeking to connect with the community, whether it be through incubators or partnerships.”
Kim shared her team’s approach to making green spaces at the Lucas Museum of Narrative Art. “There is a very small percentage of green space in Expo Park, so we are making sure to fill this need by creating communal, natural spaces for people to gather at the museum.”
More cultural facilities are emphasizing the importance of designing a building that has a connection to the world outside the space to establish a more humane environment. Kardan addressed the challenges that come along with incorporating natural, outdoor lighting into performance venues, which are typically dark and windowless. He explained how it is an intricate process to create a balance. Many issues arise when attempting to achieve this balance, including the issue of being able to control the lighting and avoid distractions during performances that require specific lighting and visual effects.
Kardan mentioned what a pleasure it has been to work alongside Frank Gehry in the Colburn School’s expansion due to his depth of knowledge, particularly when it comes to designing interactive spaces.
Vesga commented on how LACMA utilized glass in the museum’s expansion project as a strategy to create a more inviting atmosphere with a connection of the indoor and outdoor.
The U.S. Department of Housing and Urban Development estimated that over half a million people living in LA are in danger of falling into homelessness.
On May 8, 2018, city officials and developers, among others, met at City Club LA to discuss how to cultivate developments that mitigate the housing drought across multiple demographics.
The panel, moderated by Otis Odell, AIA, LEED AP, Associate Principal at HED, spoke about a variety of housing types, including: homeless, seniors, veterans, special needs, mixed-income, mixed-use, cohousing and more.
Panelists discussed Measure HHH, which recently passed with more than a 76 percent vote. The measure authorized $1.2 billion in bond funds, allocated to homeless housing in LA. Sean Spear, Assistant General Manager for the City of Los Angeles, discussed how wonderful it is that the initiative is underway and discussed how it is aiding to solving the homeless crisis in LA.
“The first thing I should say about HHH is: thank you voters,” said Spear. “Because HHH is a bond, we can access those funds immediately. We’re already looking at providing 2,700 units by the end of the year at about $220,000 per unit. At this rate, the funding will be used within about five years.”
Dora Gallo, CEO of A Community of Friends, addressed the current lack of veteran (VA) only housing.
When asked what some of the unique design elements are for VA housing, Gallo mentioned that “the main things veterans desire in their housing spaces are open, social spaces such as clubhouses, as well as gyms.”
She spoke about the passing of California Proposition 41, Veterans Housing and Homeless Prevention Bond, a few years ago and how helpful it has been. The measure authorized the state to provide local governments, nonprofit organizations and private developers with financial assistance, such as low-interest loans, so they can construct, renovate and attain affordable multifamily housing for low-income veterans and their families.
Gallo discussed what the qualifications are for getting accepted to low-income VA housing.
Gallo also expressed how excited she is about November, 2018’s Legislative Housing Package, which places a $4 billion general obligation bond on the ballot. If approved, it will allocate $1.5 billion to low-income multifamily housing and $1 billion to veteran’s housing assistance.
Senior Housing/Assisted Living
Craig T. Fukushima, Partner at The Fox Group, LLC, spoke about how the senior housing market has faced many challenges recently and addressed the significant lack of affordable senior housing facilities, with emphasis on the LA region.
Fukushima explained that “the strategy for delivering effective assisted living, which must be driven by the needs in the market.” He raised spoke about how to program assisted living in addition to the cost of assisted living units, which The Fox Group, LLC’s typically sees as $170-210 per square foot.
Tony Salazar, President of McCormack Baron Salazar, Inc., says “we’ve got too many people and too many cars in LA, so we either have to increase the density around transit stops or build outside of LA.”
Salazar believes there is no clear, separate concentration of income. When it comes to financing developments, there are varied levels. While the government contributes 100 percent to homeless housing, the other housing classes have very in-depth and diverse financing processes.
Salazar also explained the variation in inclusionary requirements for each city and state. “Each city has different initiatives, so we have to adjust our developments accordingly,” said Salazar. “Affordable housing is done through the private sector. Each state has the right to layer different requirements for the development. And when it comes to developing in San Francisco, you must have fortitude.”
Gallo emphasized the importance for architects to understand the wide-range of requirements and regulations for each city they plan to develop in and the entire panel and room agreed how vital this is.
The panel also commented on cohousing spaces, which are communities of private homes, clustered around a shared space. The attached or single-family homes have standard amenities, including private kitchens as well as shared spaces, which typically include a common house that may include a large kitchen and dining area, laundry room and recreational spaces. The panel and the audience expressed how exciting this newer market is and the great potential it has, however, they also discussed the challenges of finding the right model for this type of housing, especially in the LA region.
With rapid urbanization and population growth in Los Angeles, there is an increased strain on the public infrastructure and transportation.
At our Transportation panel on April 10, 2018, leaders from three different agencies convened to share insights as to how they are implementing creative finance strategies to plan and build the future of transportation in Los Angeles. Panelists raised the question – can Los Angeles catch up with its transportation needs to improve urban mobility?
“Among housing and employment, transportation is one of the biggest challenges Los Angeles is currently facing,” says Stephen Polechronis, Regional Business Line Leader, Transportation at AECOM, who moderated the panel discussion.
From left to right: Stephen Polechronis, AECOM; Jenna Hornstock, Metro; Samantha Bricker, Los Angeles World Airports; Darin Chidsey, Southern California Association of Governments
Darin Chidsey, Chief Operating Officer of Southern California Association of Governments (SCAG), an organization that undertakes a variety of planning and policy initiatives to build a more sustainable Southern California, believes “we have a responsibility to look ahead at the next 20 years of transportation and to consider the foundation of what the demographics will look like.” He recognized the fact that no one wants to sit in traffic concluding that if we don’t come together to solve transportation issues now, we’ll have bigger problems in the future.
Fortunately, things are looking up for Los Angeles as Measure M, a half-cent sales tax that will fund an unprecedented $120 billion in transit projects in the next 40 years, recently passed in the county. This measure will allow the Metro Board of Directors to improve the traffic in Los Angeles, repair potholes and sidewalks, repave local streets, improve connections and more.
Jenna Hornstock, Executive Officer at Metro, expressed how excited her team is about the current opportunities. She provided insights on current projects throughout the county and highlighted Metro’s purchase of Union Station in 2011, for which they have done some major restoration, preserving its historic characteristics while also improving its functionality.
Chidsey reemphasized that, because voters have set the stage and funding is now available, the time to act is now.
Another way to be mindful of spending is to consider public-private partnerships (P3s). P3s can be an effective way to build and implement transportation infrastructure for multiple decades. In both the public and private arenas, P3s can be a mutually beneficial way to resolve important transportation issues without the financial strain on the public.
Samantha Bricker, Deputy Executive Director of Project Development, Coordination and Environmental Programs Group at Los Angeles World Airports (LAWA) acknowledged that pursuing P3s for the current LAX LAMP project has allowed her and her team to maintain their design aesthetic and keep costs to a minimum. Although P3s are not ideal for all transportation projects, they often reduce upfront public costs through fast-tracked, efficient delivery methods. That is because with P3s, all stakeholders collaborate early in the process, allowing each team member to provide valuable insight which ultimately results in savings and a longer project lifespan.
According to Hornstock, we are the local advocates and, as a result, “we have to go out and fight for this new image of Los Angeles. We have to take the fear of change and turn it into excitement for the future.”
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