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.
As our nation’s most populated state, burdened with an exorbitant cost of living, its hard to comprehend how California will emerge from our current housing crisis. The issue often becomes a sociopolitical tug-of-war, with long-time or native-born residents generally opposing development as they cling to the ideal of the old California. Our state was often romanticized as the “new world” or the “land of plenty” in generations past. Newcomers found space was abundant, and an image of suburban sprawl became the norm. A stark contrast to density-driven cities along the Atlantic, such as New York or Boston. Fast forward to 2019, and this mentality has produced a sea of single-family homes on postage stamp-sized lots, all stacked right up against each other. Congestion, soaring rents and home prices are additional side effects of this antiquated view, which is no longer sustainable. Los Angeles is in desperate need of more housing – and long overdue for a wake-up call.
The development community, and other forward-thinking individuals are eager to solve this problem, but in this land of sardine-packed suburbia, the only way is up. New building initiatives, which tend to incorporate density, are often met with opposition, mandated fees, and sky-high construction costs. In our April panel event, we hosted a group of development professionals and city officials to address the lingering question of whether or not Los Angeles can truly build its way out of the housing crisis. If the only way is up, just how willing are we to put the past aside and go there?
Not Much Left for the Middle
Kevin Keller, executive officer for the Los Angeles Department of City Planning, opened the panel by explaining how the government entity is tasked with reviewing all developments of scale, while also trying to ensure that new homes for all income types are being built. The building of new homes is widely accepted as a crucial component to ending the Los Angeles housing crisis. Moderator Edgar Khalatian, partner at Mayer Brown, a law firm specializing in real estate, added that even Mayor Eric Garcetti is in support of new development. Under Garcetti, the city of Los Angeles has implemented a goal of building 100,000 new units by 2021. Since 2013, when Garcetti first announced this intention, the city has approved permits for 92,000 new units. Khalatian added that while this number is large, it pales in comparison to what is needed to alleviate rent-burdened families across Los Angeles. In addition to the shortage of housing, there is most notably a shortage of affordable housing.
Housing permits are up 49% which is roughly 21,000 units, with affordable units increasing by almost 63%, but in terms of hard numbers, affordable housing units have increased by only 1,600 units. Approximately 1,100 of which are reserved for very low-income households. The propensity for city governments to reserve affordable housing permits to very low-income households is a noble act; however, it creates even more of a shortage and less of a solution for the majority of residents who fall somewhere in the middle of the affordability spectrum. Panelists all agreed that there is a mismatch between the housing supply and the jobs in our region, and the simple fact that affordable housing costs roughly the same amount to build as luxury housing, doesn’t seem to be helping anyone.
“Without subsidies, it is very difficult to build affordable housing,” said Khalatian. “Land costs are the same, entitlement process is the same, consultant costs are the same, the only difference is the revenue source.”
With much of the new developments being geared toward both extreme ends of the spectrum, many are asking themselves why the current development boom is not catered more toward middle-income households. Panelists agreed the incentivization of middle-income housing development needs to be prioritized in order to reach real solutions.
The Only Way is Up
The rate of return is also a major factor that either helps, or hurts development efforts – of all asset classes. Clifford P. Goldstein, founder of GPI Companies, pointed out that construction costs often have an overwhelmingly harsh effect on development.
“We are down to building on about a 5% to a 5.5% return on residential projects,” said Goldstein. “And there are some investors who simply won’t even take on a project with such a low return on cost.”
This is especially problematic for Southern California because the low rate of return threatens the flow of capital, which is essential to a healthy economy. As construction costs continue to rise, the rate of return is unlikely to increase. If this trend persists, Los Angeles is likely to see the capital necessary for development, move to other parts of the country with more promising rates of return.
“Development is inherently risky, and when looking at opportunities, we have to look at many different metrics,” said Patrick Rhodes III of Brookfield Properties. “We need to be able to develop to a percentage of yield that coincides with our cap rate, this is becoming harder and harder.”
This would only further compound the housing crisis as it would deter development even further, leaving Los Angeles with older and increasingly deteriorating units. Reducing the cost of development is a necessary step in the right direction, but accomplishing this is not an easy task. This would require the dismantling of multiple sets of systems across state and local jurisdictions which have often opposed large scale vertical developments, especially those which favor density.
“70% of people in Los Angeles agree we have a housing crisis, but around the same percentage (70%) don’t want to see more housing in their neighborhoods,” said Khalatian. “Large changes in policy will immediately spur more development, but people need to become open to it.”
A solution to the housing crisis in Los Angeles has many forces stacked against it. Cheaper development costs are a solution, although not the most feasible. What really needs to happen is Angelenos need to get out of their own way. Communities need to come together and find mutually beneficial solutions. Our 88-city nation-state needs to realize we are all in this together, and what is good for one neighborhood, is good for all. The dream of a big house with a white-picket fence, is a dream which ended decades ago – and we have run out of times to hit the snooze button. Solving this problem will take a great change, to both our urban landscape and our mentality. The solution to the housing crisis is in fact, more development. Los Angeles can build its way out of this crisis, and the only way is up.
Of all the various issues that can plague the development community, none is so crucial to the general population as healthcare. Ensuring our medical facilities are adequate and up-to-date is one of the most pressing items. In this month’s panel event, hundreds of architects, engineers, and more, filed into the California Club to hear from a group of panelists at the forefront of the medical facility planning and development processes. In one of our most heavily attended events, panelists discussed how the various issues in the healthcare industry will affect development, Southern California, and the nation as a whole.
Sarah Meeker Jensen, AIA, LEED AP, President of Jensen + Partners began the program by introducing the 4 panelists who work in different domains of healthcare development. Jean Mah, FAIA, FACHA, LEED AP of Perkins + Will, who is a principal and healthcare planner, has been recognized for her innovative style. The second panelist, Andrew K. Moey, AIA, is an assistant deputy director at Los Angeles County Public Works. Projects he has worked on include the renovation and master-planning of UCLA Harbor Medical Center, which is currently in development stages. Our final panelist, who was quite a rarity, was George Tingwald, MD, AIA, ACHA of Stanford Healthcare. Dr. Tingwald was able to provide unique perspectives due to his experience as both a physician and an architect, which also serve him exceptionally well in creating medical facility master plans.
Sustainability in Medical Facilities
Our panel discussion touched on many topics which pertain to sustainability, both of individual medical facilities as well as the state of the healthcare industry itself.
“Hospitals are the most challenging building type to make sustainable, but they also present some of the biggest opportunities for designers,” said Jean Mah. “The potential benefits to people and the environment are so high.”
All panelists had their own concerns regarding the sustainability of our current healthcare facility model. This is especially important to California – both northern and southern – whose metro areas face increasingly limited quantities of space. San Jose, was noted specifically as having a notable access problem with over 350,000 individuals being turned away from hospitals in 2018 alone. Other issues relate to the resiliency of structures. It is estimated that between 20% and 40% of California hospitals may be forced in to closure in the near future due to the inability to fund seismic retrofitting renovations, which are mandated by state law. While these regulations have the best intentions, they can often hamper development efforts. This can be especially precarious in the arena of structures which provide essential services, hospitals being among them.
Current Successes, Failures and Looming Crises
While the panelists delivered mostly sobering information during the discussion, not everything was laden with bad news. For instance, some of successes that were noted by panelists centered around certain progress made in the realm of behavioral health.
“Healthcare in Los Angeles has developed to place a large emphasis on behavioral healthcare,” said Andrew K. Moey. “However, for it to be truly successful on a long-term basis, healthcare professionals must adapt a model in which behavioral health is fully integrated into mainstream medical care,” he continued.
Other panelists agreed that while progress has been made, there is still abundant room for improvement. Issues surrounding behavioral health are especially pertinent in Southern California, a region notorious for being rife with homeless individuals, many of whom are suffering from mental illness, addiction, and other behavioral health issues.
“These problems affect many areas of society, we need to move into a model of behavioral health that removes those who are suffering from the vicious cycle they are caught up in,” said Moey of the current shortcomings.
Wellness, a popular concept which has taken the healthcare landscape by storm in the last decade was noted by panelists as largely being a failure. This concept is perhaps better suited towards retail environments in the form of a service provided, not necessarily healthcare. Looming crises include the current statistics of nurses and physicians.
“Around 50% of nurses and doctors are over the age of 50,” said Tingwald. “This is especially going to affect the baby boomer generation, who are the next generation to advance into the upper stages of aging.”
Panelists all agreed that while development efforts are crucial in the future of the healthcare landscape, the medical profession must also reconsider how doctors and nurses are trained. In addition to training, medical professionals must continue to work with members of the development community to provide both the best care for patients, as well as the best working environment for hospital staff.
Among the various challenges associated with life in Southern California, resiliency is one that needs to be discussed with greater frequency. Surely the devastation of the recent Woolsey Fire, and the potential threat of mudslides almost immediately after serve as the most recent example of our vulnerability to the surrounding natural environment. The moments that follow a natural disaster, from realization to actual rebuilding are what seems to be when people are most concerned with resiliency. However, our February panel event speakers explained why resiliency measures need to become a continuous dialogue, rather than limited only to the moments after suffering a catastrophic loss of property or lives.
The Issue of Perception
The event was moderated by John Bwarie, deputy director at Dr. Lucy Jones Center for Science and Society. The center was founded with the intent to activate the use of science in the creation of more resilient communities. John began the conversation by pointing out that while resilience and sustainability are both topics of concern in the development community, there is an added level of difficulty surrounding them as both concepts deal with an issue of perception. What is perceived as a resilient measure in one community, may not be as applicable to another. For example, the panel’s next guest speaker, Jefferson “Zuma Jay” Wagner, who was recently re-elected as mayor for the city of Malibu, lives in a community where truly sustainable building practices would include preventative fire safety measures. This should come as no surprise given that the recent Woolsey Fire tore through his city, destroying 670 total structures including at least 400 single-family homes. In total, the fire burned about 96 thousand acres. Given the topography of Malibu, the threat of fire is much more likely than perhaps Downtown Los Angeles where the panel was held. A community such as Downtown Los Angeles would more likely be concerned about seismic resiliency rather than wildfire resiliency. This difference in need contributes the issue of how resiliency is perceived. Like sustainability, resiliency can be open to interpretation, which means it can be difficult to incorporate when considering re-development opportunities. A second panelist, Matt Barnard, principal at Degenkolb, agreed that because resiliency is a localized experience, it is difficult to broadly define. All panelists agreed that regardless of our difficulty in defining resiliency, there needs to be more discussion to move Southern California into a resilient direction.
What Keeps You Up At Night?
Another common theme for the panel discussion was a simple question often asked of leaders and decision makers: What keeps you up at night? Carey Upton, Chief Operations Officer at Santa Monica-Malibu Unified School District stated that a primary area of concern within the school district is ensuring that children will have the ability to safely attend school. Additionally, public schools are sometimes used as evacuation facilities. As schools are a cornerstone of any community, they will always need to be designed for safety as well as resiliency. School districts also have the challenge of incorporating resiliency measures into the structure not just for today, but for the generations of tomorrow.
Christian Johnston, founder of the Sustainable Building Council, added that his work has taken him to visit many communities who are freshly in the wake of coping with natural disaster. The devastation endured by residents and the overwhelming desire for families and individuals to rebuild their lives, and more importantly, the need to help these people, is what keeps him awake at night. While panelists all had different aspects of resiliency and sustainability that might stir in their minds, all agreed that the Northridge Earthquake of 1994is the Southern California natural disaster that is one of the most pronounced in their minds when considering how to better plan for resiliency to seismic activity. However Matt pointed out that the Northridge earthquake, although memorable, is not large compared to “the Big One” that threatens Southern California.
Another common connection made among all panelists was risk. Many communities are built in areas at high risk of enduring a natural disaster, and if a disaster occurs, we have seen them be rebuilt, only with the same structures and infrastructure as before. One audience member pointed out that Tejon Ranch, a master-planned community near the Grapevine in northern Los Angeles County, was approved for additional home construction sites in high-risk burn areas less than a month after the destruction of the Woolsey Fire ended on the other side of Los Angeles County. This has led many sustainability- and resiliency-oriented development professionals to question not just how rebuilding should occur but also if the risk of disaster outweighs the need to rebuild at all in specific areas especially prone to disaster. However, eliminating a community’s attempt to rebuild in the area they have known as home can be a restrictive tactic that may meet fierce opposition by recently displaced residents who want to rebuild their community.
The key takeaway is that resiliency needs to be approached more eagerly and with the entire community’s best interests at heart. Truly, resilience is the capacity for humans to survive, adapt and grow, regardless of what shocks or stressors ensue. It is an effort that will take full cooperation by developers, residents, and governments, alike.
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.
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