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Downtown Los Angeles

DOWNTOWN LOS ANGELES - The surge of investment in Downtown in the last couple years has reminded many people of the pre-recession era. Then, as now, big-budget housing and other projects are announced seemingly weekly. Once again, construction cranes speckle the sky.

There is a big difference, however, between the current boom and the one that peaked around 2006. Whereas the first wave of housing was powered by local developers often on a piecemeal basis, today the residential and mixed-use projects (and sometimes mega-projects) increasingly come from deep-pocketed institutional investors. What’s more, many of those pouring money into Downtown hail from Asia.

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Consider some of the biggest recent developments: The sites of Figueroa Central and Metropolis, two mixed-use mega-projects near L.A. Live, were bought late last year by Beijing-based Oceanwide Real Estate Group and Shanghai-based Greenland Group, respectively. The $1 billion Wilshire Grand tower comes from South Korean conglomerate Hanjin International. Singapore-based Overseas Union Enterprise bought U.S. Bank Tower last year. 

While the Asian buying spree gets many of the headlines, developers from around the United States, including from New York, Chicago, Houston, Atlanta and Cleveland, are looking to cash in on Downtown. Even large Los Angeles-based developers such as Evoq Properties have been backed by out-of-town institutional funds from New York and elsewhere, said Evoq CEO Martin Caverly.

“Downtown L.A. was not a favored place for big institutional funding,” Caverly said. “Now it is. This isn’t flash-in-the-pan stuff, either. When you have these players making these kinds of bets, it’s because they see long-term, sustainable success.”

The biggest beyond-L.A. investment is anchored in housing. More than 5,000 apartments are being built in Downtown, and more than 3,000 additional units have been approved by the city, according to real estate sales and research firm Polaris Pacific. 

Vancouver-based Onni Group has broken ground or submitted plans for more than 1,000 units throughout Downtown, all in mid- and high-rise structures. Carmel Partners is deep into construction on a low-rise 700-apartment building with a Whole Foods market at Eighth Street and Grand Avenue, and the San Francisco-based developer recently revealed plans for a 27-story, 363-unit tower nearby at Eighth and Olive streets. New York-based Related Cos. is constructing a 19-story apartment building on Bunker Hill adjacent to the upcoming Broad museum, and is aiming for a 2015 groundbreaking on the recently revived, $650 million, Frank Gehry-designed mixed-use project The Grand across the street from Walt Disney Concert Hall. 

Experts say that these developers are not being speculative or over-optimistic about the demand for new housing. Many ambitious residential projects were downgraded or cut altogether during the recession, and that sense of caution still lingers with lenders — partly why so few condominiums are being built despite the overall boom, according to Thomas Bohlinger, an executive vice president at brokerage firm CBRE. 

CIM Group Leases 39,000 SF of Retail Space in Hollywood

CIM Group has leased a 39,000-square-foot, one-story retail building at the Hollywood and Western mixed-use redevelopment project in Los Angeles. The new tenants are Marshalls and Petco. Marshalls will take 24,000 square feet, while Petco will take the remaining 15,000 square feet. Both stores are expected to open in 2014. Things are really starting to shape up at the development, as CIM also recently signed Yogaworks to a 3,000-square-foot space at the 163-unit Gershwin Apartments, the first phase at the Hollywood and Western project.

Commercial Real Estate Outlook

The worst may be over for the U.S. commercial real estate industry. In fact, well over half of industry participants – including developers, investors, lawyers and financiers – are now signaling that markets are entering a period of recovery. Cautious recovery is evident, with three out of five executives describing their outlook as opportunistic – and just over one in 10 additional executives saying their behavior will be aggressive, since they see conditions as ripe for long-term investments.

Seeking to gauge conditions and outlooks for the industry, Forbes Insights, in association with CIT (NYSE: CIT), a leading financial services company serving the real estate community, conducted an October 2013 survey of industry participants. Interpreting responses from 208 senior, U.S.-based middle market commercial real estate executives, the survey reveals that:

• Commercial real estate is in cautious recovery

• Markets are mixed, but feature both aggression and opportunism

• Trends in interest rates and unemployment top industry concerns

• Taxation and regulation are hindering performance

• Though government budgets may be tight, investors want tax credit and incentives concessions

• Financing ranges from overabundant to spotty

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