Just a few blocks away from the Biltmore Hotel, where SCDF hosted its panel on "Adaptive Reuse – Vacant Retail, Vacant Office and the Housing Crisis: LA at an Adaptive Reuse Crossroads,” stands over 100 vacant floors, many of which have remained empty for more than five years. The title was aptly descriptive of the next chapter of our city’s growth path.
"LA currently has nine million square feet of subleased office space sitting on the market, and this number continues to grow daily," revealed panel moderator Carl Muhlstein, executive managing director at JLL Los Angeles. It's no surprise that vacant office space has been a persistent issue in the city, with LA's office space utilization currently at a mere 55%.
Muhlstein instilled confidence in attendees by emphasizing the crucial role of housing in solving this problem. "We've survived the '.com' bubble, the great recession, the COVID-19 pandemic, but now we're ready for the great reset, and housing is a key part of that," he added.
The need to address the challenges impeding adaptive reuse development was evident to everyone at the panel.
The speakers consisted of notable individuals such as Nella McOsker from the Central City Association of Los Angeles (CCA), Simon Muir from NBP Capital, Jackson Brissette from BARDAS Investment Group, Vince Bertoni from the City of Los Angeles, Kyle Burnham from Swinerton, and Bea Hsu from Brookfield Properties Development. These experts delved into various aspects of adaptive reuse, including city and state-wide legislation, and provided insights into the challenges faced by different sectors of the industry.
Adaptive Reuse: The Old Ordinance vs. The New
Office-to-residential conversions are not a novel concept in LA. So why are we revisiting adaptive reuse as a solution to LA's office vacancy issue now? McOsker highlighted the transformative impact of the late 90s adaptive reuse ordinance:
“Twelve thousand units came online, about one third of all new housing, within that 20-year period. I think trends that we are aware of, in the last few years, are part of the reason that there’s a pause, but I think it's precisely the right moment to be asking this question. When the pandemic hit, CCA looked at this and authored a report because we saw changes in the office market once again creating an opportunity to help downtown recover.”
She further emphasized that even a small fraction of converted space can create remarkable opportunities, as approximately 5% of office space can be converted into around 8,000 rooms.
Hsu acknowledged the progress made by the 1999 adaptive reuse ordinance in unlocking development possibilities through office conversions but stated, "We're not there yet."
Vince Bertoni, the Director of Planning for the City of Los Angeles, shed light on the proposals of the new ordinance, saying, "The new ordinance aims to remove all zoning barriers... and it includes a few key components." He explained that the downtown adaptive reuse ordinance has already paved the way for the complete elimination of design barriers. Here are some of the eligibility requirements outlined in the new proposal:
In simple terms, if the proposal is confirmed today, adaptive reuse can be initiated for buildings constructed in 2008 or earlier. Additionally, buildings that are at least five years old can undergo a discretionary approval process for potential early conversion. "We believe that this will hopefully ignite housing development throughout the city," added Bertoni.
Adaptive Reuse: Incentives and Hurdles
The panel also discussed the future of LA's workforce and its impact on the need for both office and residential space in downtown LA. McOsker shared survey results indicating that 81% of employees are expected to spend at least half of their time in the office, with half of them likely to be in the office almost full-time. She stressed the importance of considering the employees who commute downtown, as the area has already become a thriving residential community with over 90,000 residents. Moreover, McOsker emphasized that accessible public transit, a wide range of housing options, vibrant restaurants, childcare facilities, and more all contribute to incentivizing a return to downtown. Creating a safe and exciting environment for employees, residents, and visitors is pivotal for driving development in LA's downtown.
Muir and Brissette highlighted the significance of design in attracting people back to the office and enticing tenants to sign leases. Muir stated that investment firms with substantial funds have limited equity for new projects, which necessitates careful selection. Brissette expanded on the factors investment groups consider, emphasizing the value of design. He said, "We prioritize design first and amenities second... People don't go to work because they want to use a bocce ball court. They wake up and feel that where they're going inspires them to do what they do, more so than working from home."
Collaboratively Planning for Future Development
The panelists emphasized the importance of collaboration throughout the adaptive reuse process. "It all starts with the right team," stated Burnham, who leads preconstruction efforts at Swinerton. He stressed the need to address significant questions up front and emphasized the importance of developing both a preconstruction and a holistic program budget, which requires lowering acquisition prices.
"Acquisition costs are starting to drop to the point where we're finding that sweet spot," Burnham concluded.
Hsu chimed in, clarifying that the problem is not that the office market is dead but rather that LA has an oversupply of office space. She stressed the need for Los Angeles to learn from other cities and address its unique challenges, such as increasingly restrictive building codes on the West Coast due to earthquake and seismic hazards.
During the Q&A session, attendees raised questions about the possibility of government subsidies to stimulate more development and the relaxation of developmental restrictions to expedite adaptive reuse conversions. Bartoni responded, "We're trying to be as flexible as possible... we don't actually know what's going to happen, and that's okay. Sometimes in planning, you think that you need to control the outcome, but you actually just need to spark creativity." Bartoni reiterated the importance of approaching adaptive reuse with a focus on sustainability and safety, as this will ultimately encourage more rebuilding in the city.
Muhlstein issued a call to action to attendees, stating, "Adaptive reuse could be the saving grace to help us overcome these problems... the silent majority needs to wake up." It is evident that collaboration among city planning, investment, preconstruction, and development is crucial to addressing the underutilization of vacant office space in Los Angeles. The new wave of adaptive reuse is approaching the City of Los Angeles, and the question that remains is how close that future really is.
For those interested in more information, the Los Angeles City Planning will host webinars on June 6, 7, and 8 to provide an overview of the proposed changes to the adaptive reuse ordinance and is encouraging community input. For more information, visit the website https://planning.lacity.org/.
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