The New Collective in Playa Vista

Office developers are now acknowledging that the older warehouse conversion make better creative offices than brand new office buildings.  However, office developers are adapting.

At the new Collective in Playa Vista, Tishman Speyer is building a new creative office property with the ceiling heights to resemble a converted warehouse.

Interiors at the Collective

Land cost may make this strategy more difficult as developers attempt to maximize densities. Tishman picked up this land at a very favorable price during the recession.

PMI’s 1440 Kellam, Angeleno Heights

When PMI started converting warehouses to creative offices in the 1990’s, people were surprised as to how much it cost to do so.  At the time, the majority of people perceived warehouse office conversion as appealing to only budget-minded office users.  However, certain users – specifically those in arts, media, and entertainment –  actually preferred these warehouse style offices to conventional offices for a variety of reasons.  A main reason these spaces were coveted was the aesthetic of the older architectural, raw deconstructed look coupled with the sophistication and refinements of newer office features.  Creative types also favored the dramatic ceiling heights, which reduced the effects of density, as well as the industrial power and operable windows.

Similarly, older apartments may offer many attributes that new complexes cropping up in Los Angeles cannot economically achieve.  Older apartments may have lower densities, more landscaping, individuality, and better outdoor space.  Most new apartments in Los Angeles tend to be three to four story higher density elevator buildings.  Granted, some renters may prefer these buildings with contemporary facades and hotel like amenities, but some renters enjoy and seek out older  apartments with historical charm, lower densities, and generous open space.

New Apartment at 6th and Broadway in Santa Monica

Knowing this, when we create a new modern interior within the bones of certain older properties, we attempt to highlight the natural existing elements of the structure (like natural wood ceilings for example), privatize unused open space, and keep the historical charm of the period.  We can create a living space in an older building that some renters prefer to a building built brand new.

Young Urban Millennial Professionals

There is a subset of millennials invading the urban core and occupying our apartments. Since many of these millennials work in the creative industries in Los Angeles, some have suggested we call them YUCs: young urban creatives. However, not all of them work in the creative industries. These young professionals also work as lawyers, accountants, engineers, etc.

OK, so why not call them Yuppies: young urban professionals. Yuppies connote the young urban professionals of the 1980s from the baby boomer generation. Yuppies were associated with the greed is good theory of that decade. In the movie Wall Street, Charlie Sheen came to represent the epitome of the yuppie who sold out his 1960’s ideology for a pasta machine and other things. We dare not mix up the young urban millennials of today with this derogatory term.

Instead, we propose the term Yumps: young urban millennial professionals to describe this new cohort that appears to be filling renovated and new apartments in the urban cores.

Creative companies are disbursing around Los Angeles. As we discussed In previous posts, the location of creative firms around Los Angeles resembles a boot. The foot of the boot stretches from Manhattan Beach to Santa Monica. The shaft passes thru Culver City, Beverly Hills, West Hollywood, Hollywood, Burbank/Glendale, Downtown, and Pasadena.

We can now identify the types of creative firms more likely to locate in different parts of the boot. Playa Vista, Venice, Santa Monica, and Venice attract technology, biotech, advertising and social media companies. Entertainment, media, music, and new media companies are moving back to their cultural roots in Culver City, Hollywood, and Burbank,. A prime example of this is Viacom’s planned move from Santa Monica to Hollywood. Downtown is attracting fashion, art, design and architecture tenants.  An example of this is Nasty Gal Fashion’s expansion and Gensler’s move from the Westside to Downtown.  Being in close proximity to Hollywood and Burbank/Glendale, Downtown could eventually also attract new media companies.  The techies like the beach, and the artistic crowd likes LA’s cultural neighborhoods

PMI Expands Its Highland Park Portfolio Once Again!

5515 Media Exterior

We are pleased to announce our acquisition of 5515 Media Ave, a sixteen unit apartment building in the Highland Park neighborhood of Los Angeles.

Highland Park started attracting Young Urban Creatives due to its proximity to the creative industries in Downtown, Pasadena, Hollywood, and Burbank/Glendale and due to  the abundance of 19th Century historical homes being rehabbed.  These millennials work in the creative industries:  entertainment, music, media, design.  Housing renovators first bought small 19th century houses, renovated  them, and sold them to the Young Urban Creatives who appreciated the more affordable home prices and housing’s historical charm.  This trend gave way to new retailers opening stores, cafes, and bars on York Avenue and Figueroa to cater to this demographic.   Cognizant of this new pool of young creative workers, more companies in  certain creative industries like entertainment, media, and fashion are moving back to Downtown, Pasadena, Hollywood, and Burbank/Glendale taking advantage either of the availability of larger creative spaces or more affordable creative spaces than available on the Westside.

We intend to reinvent and extensively renovate this bland and ordinary 1950’s building into a contemporary modern complex to fit the taste of the creatives moving into and near Highland Park.  We will fix some of the building’s shortcomings, starting by constructing brand new interiors. On the outside, we will make use of the abundant land to create expansive private patios.  The low density and abundant outdoor area in some older existing properties. like 5515 Media, provide an alternative that some Young Creatives prefer to a high density newly constructed multifamily building..  The immediate neighborhood contains many historical residences and is part of a Historical Protection Overlay Zone that makes new multifamily construction difficult.

5515 Media is PMI’s 22nd acquisition in Northeast Los Angeles.

We are pleased to announce both the full lease-up of 865 Hoover (click here to read more) as well as the completion of our next five unit apartment renovation in Silverlake at 4356 Burns, close to the very popular Sunset Junction. 4356 Burns Ave demonstrates PMI’s Creative Multifamily strategy.

Creative Multifamily is a new line of small low rise apartments that are stylish, contemporary, and playful but yet still affordable.  The apartment retains the flavor of its era but with a total new creative interior.  Residents here want to walk to amenities and identify with the artistic flavor of the neighborhoods. These apartments are located two blocks from the very popular Sqirl coffee shop, a new coffee shop in this rapidly gentrifying area.

We took a property with great character on the outside and maintained it with just a bit of contemporary defined by the new landscape and fencing.

Before Exterior

After Exterior

Before Kitchen

Before Living Room

After Living Room

Rents on the Westside are climbing.  Landlords and their brokers have declared good times,  yet both CBRE and Newmark report vacancies at 12.7%for  the Westside and 15% for Los Angeles at the end of the first quarter.   Ten percent used to demarcate a landlord from tenant market.  Only once vacancies dipped below 10%–landlords declared good times.  The Westside’s occupancy has increased now for 4 straight years.   After the dot com bust in the early 2000’s, with only three years of rising occupancy, the Westside hit a peak of 93.6% occupancy and a low of a 6.4% vacancy. San Francisco has a vacancy rate of 5% at the end of the first quarter 2015.   In the 90’s,  Westside office vacancies dipped to 7%.  Only in the 1980s did vacancy not break below the magic 10% due to massive new construction.

So why are we so bullish with vacancies still over 10% The answer may involve the distribution of  vacancies.  Some areas of much hotter than areas.  For examples, rents in West Los Angeles are still under or near $3 per square foot while rents in Santa  Monica are over $4 per square foot. Creative office is now much hotter than conventional offices.   Industry Partners reports the vacancy for creative office at only 8.4%  Large blocks of space are much harder to come by than small spaces.  Offices with 4 per 1000 parking are much more dear than those with only 2 per 1000 parking in today’s world of 5 employees per 1000 square feet. .    As with the rest of the economy,  this expansion is not shared equally.

So far the answer is no; we have not had too much apartment construction.  Last year we hit 10,000 multifamily permits in the City of Los Angeles. It will take one to two years for this supply to come online. These units will not constitute a significant amount of historical supply. It has not reached the level of the mid 2000s, and it is nowhere near the levels reached during the mid 1980s.

Marcus and Millichap forecasts a 50 basis point increase in the LA County vacancy rate in 2015. They attribute this to the completion of 10,000 units representing a 0.9% increase in the stock. Therefore, Marcus forecasts an absorption of only 4,444 units. In 2014, vacancy declined 40 basis points although 9,300 units came on line. This decline indicates an absorption of 13,700 multifamily units in 2014. So it appears Marcus is forecasting a reduction in absorption in 2015.

The supply of new multifamily units is concentrated in Downtown Los Angeles, Hollywood, and Marina/Playa Vista.  These areas may experience some temporary rise in vacancy and competition.

The new supply can influence the severity of the downturn during a recession.  Multifamily rentals experienced a more significant downturn during the 1990 recession due to the large supply overhang of units built from 1984 to 1989.  Los Angeles rents fell from their peak in 1990 and did not recover until the end of the decade.   During the 1990s, there was little multifamily construction, and, as a result, apartments did not experience much in the way of rent reductions during the 2000 recession. A greater supply was built during the mid 2000s–although many units were probably for sale and not for rent. In any case, rents  fell by 10% to 20% during the 2009 recession.

We see many cranes and read many announcements of apartment projects. Unlike other times, owners intend to rent most of these multifamily units versus offering them for sale.  Even though the recent permit numbers do not indicate a supply above historical norms–many planned projects may turn into reality.  The first quarter 2015 permit results would imply a rate of over 13,000 units.  Successive years above 15,000 to 20,000 permits may indicate a supply reminiscent of the late 1980s when supply did impact rents negatively.  The above statistics can provide a context to current rental housing permitting, and some guide to supply levels which may influence the severity of another downturn.

On Tuesday, May 12, Jeffrey Palmer spoke on Bisnow’s Panel on Creative Office in Los Angeles.  Representatives of Bixby Land Company, Tishman, and Clarion Partners joined Jeff on the panel. These developers who joined Jeff on the panel not only build Creative Office buildings but also build and redevelop large scale creative office campuses.

Creative office is no longer the purview of just the small boutique developer.  Creative office is now mainstream.  The moderator for the event, Pete Roth of Allen Matkins, agreed with this sentiment and made the argument that creative office has gone global.

Pete Roth posed the question to the panel about opportunities for others to take advantage of the creative synergy that now exists in Playa Vista after many major creative company behemoths have moved there like Google, Yahoo, Sony Playstation, Verizon, and 72 and Sunny.  The large developers argued that the opportunities have now passed because the large tracts of land in Playa Vista are gone.  However, Jeffrey Palmer disagreed.  Jeff now predicts a wave of smaller developers coming to Playa Vista to redevelop the retail and industrial properties in and around the area.  Jeff also distinguishes creative offices, which describe an aesthetic, from collaborative team based offices, which describe office layouts and furniture.

Clarion Partners hired Gensler to redesign and re-brand a conventional 300,000 square foot Playa Vista office building into a creative office campus.  Gensler successful accomplished this feat by adding an exterior stairway, painted designs, and roll up doors on the ground floor.  The most successful feature of all included using the grounds to create an interesting “boutique hotel rooftop” like outdoor space for creative workers with fire pits, work bars, and conversational seating.

New Outdoor Furniture and Landscaping at I/O Playa Vista

Tishman is building a 300,000 square foot creative office park in Playa Vista from the ground up.  The campus will include over 15 different outdoor furnished spaces.  The new buildings will resemble modern versions of a bow truss warehouse.

Under Construction Playa Vista Office Building designed to resemble a bow truss warehouse.

You can read more about the conference below.

Why Price Doesn’t Matter for Creative Office | Bisnow