PMI has launched its new company to acquire, renovate, and convert multi-family properties into creative housing spaces. PMI will utilize many of the techniques and skills in its creative office division and apply them to apartment living to create new and different rental housing experiences for urban dwellers. PMI already has projects under way in Echo Park, Silver Lake, and Hollywood, California.
I have noticed more use of wide handles on kitchen cabinets and less use of knobs. In Bravo’s new reality show, Start-ups: Silicon Valley, young attractive start up hopeful Kim Taylor shows off her kitchen in her Mission Bay apartment at the Avalon. The apartment is typical of most new apartments: espresso cabinets with long silver brushed handles, open to living space, granite or Cesar stone counters, stainless steel appliances, and an eating bar:
Apartments in Los Angeles are still recovering from the downturn in late 2008. Vacancies continue to decline and according to many surveys, now hover in the low 3% range. Many sub-markets are actually below 3%. According to PMI’s research, the last time apartment vacancies fell below 3% (in 1997 and 2006), strong rent increases followed. The U.S. economy grew strongly in both 1997 and 2006, and we don’t know if we can say the same thing about 2013. Rent growth may not be nearly as strong in 2013 as in those years.
However, Los Angeles vacancies are likely to fall below 3% if the economy does not take a turn for the worst. As I result, one could expect rents to increase 10% over the next 18 months. Indeed, several Los Angeles owners have experienced record low vacancies this year (1 to 2%). Unlike the office market, where owners will incur high vacancy rates to achieve very high rents, apartment owners will allow their occupancies to drift down to very low levels before testing rents. Apartment owners tend to be more cash flow sensitive, and apartment tenants tend to be very rent sensitive. After a year of very low vacancies, apartment owners will begin to explore and test rents or eliminate concessions.
Different reports show that job prospects for young adults have improved. This has encouraged them to start households after many years of living with roommates or their parents. This trend also coincides with a move back to urban centers where apartment living is common and convenient. Very little in the way of significant new apartment supply will be delivered during 2013. Although home sales and prices are likely continue to improve also in 2013–residential financing still remains very difficult. A move in the economy will either improve this forecast if positive or negate it if negative.
PMI has a creative office building on Rose near Main Street and the new Google offices. The property was always a performer for us because of its proximity to the popular Main Street in Santa Monica on its north, Abbot Kinney in Venice on its south, and Venice Beach on its west. If you went a few blocks East on Rose Avenue, the area become seedy with homeless, crime, and run down retail. In the last six years, this area has transformed and gentrified into a new hip location. The Los Angeles Times article describes this transformation.
This recent LA Times article provides more evidence that the economy is improving and in turn causing apartment rentals to improve. The article discusses new research showing that young adults who doubled up with their parents are getting jobs, leaving the nest, and renting apartments.
Other reasons cited for the apartment market’s strength include former foreclosed homeowners converting to rentals, potential new homeowners choosing to rent, and a movement back to the urban centers where renting is more convenient and economical.
However, the article shows that rental housing is strongly connected with the job prospects of young adults who have benefited more statistically from this recovery. It is a double edged sword. A reversal of the recovery could upend the rental market’s strength.
Check out the article on the LA Times website here.
In new mutlifamily urban housing in Los Angeles, developers are building bigger kitchens and leaving out formal dining rooms. In other words, the kitchen, dining room, and living room are morphing into one large room.
The new Archstone Apartments in Venice (Los Angeles, California), feature knockout open kitchens. The kitchen forms the center piece of one great room for living, dining, and food preparation. A breakfast bar area provides the only place in the apartment for sit down dining.
One bedroom apartments featuring this 1,000 square foot floor plan start at $4,000– a hefty price to pay for the changing layout of urban living. With the evolution of Gen Y’s preferences regarding living spaces, separate rooms for entertaining, dining, and living are no longer needed. PMI will feature these designs in their new, creative multifamily projects.
Photo courtesy of Archstone Apartments
There has been an alarming increase in lenders demanding debt service coverage ratios, and/or the right to demand loan pay downs if a property’s appraised valued declines. This is also called” re-margining.” If an owner’s cash flow or property’s value declines beyond a certain point, lenders want the right to require owners to make forced pay downs on their loans or post additional security. These pay downs will likely come at a time when the owner is unable to obtain alternative financing and when his cash resources will already be strained by falling occupancy as well as rents and increases in tenant improvement and leasing costs. This is similar to forcing a homeowner to pay down his loan if he loses his job.
The lender’s right to require pay downs can occur even if the owner is current on all his loan payments and obligations. Such a provision demands even lower leverage and outsized capital reserves from a conservative investor. Where will the equity for a loan pay down come from?
Office values are extremely volatile and have exhibited declines ranging from 40% to 70% during recession periods. Defaults and foreclosures will only multiply if banks require owners to make loan pay downs during a recession. Conservative investors should resist such clauses.
Represent LA is a website that maps the location of new tech start ups and investors in Los Angeles. The map is useful because it allows people to browse according to location, investors, or company name. With Represent LA, it’s easy to see which areas have the highest and lowest numbers of startups, which could be a factor for a new startup in their search for leasing creative space. The creators of the website also promote a sense of community and support by offering up the ability for companies who do not see their business on the map to submit their information to be added.
The geographical breakdown of startups within Los Angeles can be determined by exploring the Represent LA map. Currently, downtown Santa Monica and Venice have the highest concentration of start ups, followed by the area east of downtown Santa Monica. Surprisingly, Santa Monica airport area has many startups while Playa Vista does not.
Downtown Los Angeles, Hollywood, Culver City, El Segundo, Pasadena, Tri-Cities, and the greater South Bay have moderate levels of start ups. San Fernando Valley, Century City, Westwood, and the Beverly Hills area contain low levels of startups. The fewest startups, however, are located in Malibu, South Los Angeles, Mid-City, East Los Angeles, and the San Gabriel Valley.
It seems that Silicon Beach is continuing to grow as an area that start ups are drawn to, which is consistent with the articles we have shared about in past. Conversely, Pasadena’s start up activity seems to be on the decline. Represent LA’s map is a great way to find start ups, coworking space, investors, or consulting firms in Los Angeles and will hopefully be another resource tech start ups will be able to efficiently use.
The 2001 LA Times article, “More Westside Office Space Turns Up in Latest Tally,” discusses a study in 2001 by Grubb & Ellis that showed a significant underestimated supply of Westside office space due to creative office conversions.
Warehouse conversions to creative office space are small and numerous, making it extremely difficult to track. Likewise, supply statisticians may also underestimate the supply of creative office space. Conventional office space can be converted to creative office space for $50 to $80 per square foot in two to eight months by opening ceilings, exposing the structural architecture, and installing creative office features. Because it is so easy for traditional office space to be converted into a creative office, the supply of creative office space can expand rapidly.
In Los Angeles, brokers call these spaces “soft creative” because they lack the full intrinsic drama of single level converted warehouses but can still provide the creative purpose for certain companies. Currently, in San Francisco, owners are working feverishly to convert conventional offices as well as older moth ball buildings into creative spaces and vacant land into new highrise creative properties.
When it comes to creative space production, we are all “Houstons”. The last time around, the real estate investment and leasing community failed to accurately account for the full amount of creative office space. The industry needs to count the supply more accurately this time and hope the demand increases and sustains with equal fervor.
Rachel Emma Silverman’s article, “Step into the Office-Less Company,” discusses a new kind of company where employees work from home. Automattic is an example of one such company in which employees use social networking, cloud storage, and video conferencing to communicate with one another.
While Automattic does have an office in San Francisco, the company heavily relies on internal blogs rather than traditional office buildings. Because of this, Automattic is able to reach out to a larger and selective workforce regardless of workers’ location and timezones. This also allows work to be completed at any hour of the day, while the company saves enormously on real estate costs.
Companies like Automattic claim that employees are more effective in this type of environment without interruptions, but also complete work with less instructions. While only 2.5% workers currently work from home, this new type of company is still worth noting.
For further discussion, the original Wall Street Journal can be accessed here as well as read below:
The Web-services company Automattic Inc. has 123 employees working in 26 countries, 94 cities and 28 U.S. states. Its offices? Workers’ homes.
At Automattic, which hosts the servers for the blogging platform WordPress.com, work gets done wherever employees choose, and virtual meetings are conducted on Skype or over Internet chat.
The company has a San Francisco office for occasional use, but project management, brainstorming and water-cooler chatter take place on internal blogs. If necessary, team members fly around the world to meet each other face to face. And if people have sensitive questions, they pick up the phone.
Web firm Automattic has 123 employees in 94 cities—and everyone works at home.
Having a remote workforce lets companies tap into a wider talent pool not limited by geography. Firms can also save money on real estate, though sizeable travel budgets may partly offset that.
Nobody knows for sure how many completely office-less companies there are or how fast their ranks are growing, but management researchers say such firms are still rare. Today, just 2.5% of the U.S. workforce considers home its primary place of work. But that number, which is based on census-data analysis, grew 66% from 2005 to 2010, according to the Telework Research Network, a consulting and research firm. And increasingly, employees at companies with physical offices are choosing to work remotely or forming virtual teams with colleagues world-wide, thanks to rapid advances in video, social-networking, cloud storage, and mobile technology.
Source: the company
He says that one remote worker he studied got into his car every morning, drove around the block and then returned home to clock in.
Lori McLeese, who heads Automattic human resources, says that its hiring and orientation processes are key to creating a cohesive culture. The company requires top applicants to work on a trial project for a few weeks to see if they are a good fit. New hires, regardless of position, must work in customer service for three weeks to create a unifying employee experience and have direct customer contact.
The company lives by a philosophy of “overcommunication,” says Ms. McLeese, to help proactively quell any misunderstandings and provide workers with direction. Employees mainly transmit messages via internal blogs, dubbed P2s, which also act as a virtual water cooler. When misunderstandings occur with text-based chats, participants are encouraged to pick up the phone.
But because staffers are in so many time zones, work is often done asynchronously. Team members work their own hours—the company has a lot of night owls and early risers—to meet project deadlines. If someone misses the mark, the team leader or another staffer will reach out to the employee to figure out what went wrong.
The company also organizes regular face-to-face get-togethers of teams, allowing workers to fly to meet each other in convenient locations, and an annual, week-long “grand meetup” for all employees. Ms. McLeese says that after long stretches without seeing each other face to face, the meetups can be emotional. “People are giving each other hugs at the airport,” she says.
Mat Atkinson, the chief executive of the design-review software company ProofHQ, says that managing “distributed” teams requires 25% more effort than a face-to-face team would because managers must pay closer attention to whether workers are motivated and fully understand tasks and business processes. “There isn’t the opportunity to just pop into someone’s office,” says Mr. Atkinson, who is based in London and has 32 staffers based in 17 cities around the world.
But Mr. Atkinson says that employees are more productive because they have no commutes and fewer interruptions. And he says that being virtual costs about 50% less than having fixed real-estate costs.
Kalypso LP, an innovation consulting firm, has 150 employees around the country and in Europe but no corporate offices, says founding-partner Bill Poston, who works from his home in Boerne, Texas, when he is not at client sites.
When the firm was founded eight years ago, Mr. Poston says the decision to go office-less was financial. But now, being virtual is a matter of choice, though he points out that the company isn’t a good fit for people “who are uncomfortable with ambiguity.”
Mr. Poston also says that employees are far from isolated. Workers communicate constantly via instant messaging and email. And teams of consultants see each other almost daily when meeting with clients. The company also flies employees to an annual meeting in September, and it transports workers and their families to “family fun” weekends every June. In addition, employees can fly to meet each other whenever necessary.
Not everyone believes in virtual companies. Last year the founders of Zaarly Inc. debated whether to operate virtually or open an office for the fledgling online marketplace for local services.
The firm opted for the latter, says Shane Mac, director of product for Zaarly, which now has 43 employees, most of whom work in the company’s San Francisco-based office.
Although the firm has some remote employees, Mr. Mac says that making decisions is faster when someone is sitting next to you, and it’s easier to keep employees in the loop and brainstorm together over a whiteboard. “You can’t create true serendipity over IM,” he says.
To find out more information on this topic, contact the author of this article, Rachel Emma Silverman, at rachel.silverman@wsj.com.
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