Mateo and Palmetto

The Downtown Art District retail will start to pick up steam. Currently, the Art District has 3 hot restaurants (Bestia, Factory Kitchen, and Church and State) ;an Urth Cafe; and four coffee houses (Slumptown, Handsome, Verve, Novel, and Daily Dose). Now two projects will add 165,000 square feet of new retail.

A corner property where Mateo and Palmetto streets meet, now occupied by five warehouses, is about to be transformed into a huge, $30-million shopping center (with parking!), says the Downtown News. The 125,000-square-foot “urban retail center” will be an open-air mall “anchored by a major retailer” (as yet unnamed) and have a grocery store, according to a release from ASB Real Estate Investments, which is partnering with Century City-based Blatteis & Schnur on the development. No renderings have been released yet, but developers have said that they’re hoping to keep the center in line with the AD’s “unique place in Los Angeles” and that they’ve planned ” [a] brilliant design … allowing us to attract unique, compelling and artisan retailers and food purveyors.”

The Yards

The second project involves the 45,000 square foot portion of the 435 apartment unit One Santa Fee under construction.  The developer announced it as a collection of 25 unique designers, specialty boutiques, and renowned chefs curated around private landscaped walkways to be called the Yards. ,

Finally, the retail is filling in the Art District to provide an exciting experience for those who work and live in the area.

More and more new apartments are eliminating the dining room..  Many Millennials eat out, at their desk, on a coffee table (and in front of a video screen) , or at a eating bar and (in front of a video screen).  Jerome Synder’s new two luxury highrise apartment towers, the Vermont, at Wilshire and Vermont,do not offer residents a dining room.

Notice that in the one bedroom floor plan below, there is no dining room:

No Dining Room in the Wilshire Vermont One Bedroom.

In the Living Room Looking Toward the Kitchen Eating Bar in the Vermont One Bedroom

Instead, the dining room is replaced with an eating bar in the kitchen.

We just gave birth to a full creative apartment unit renovation at our new project at 1306 Temple Street in Echo Park.  At 580 square feet, the one bedroom unit has full deconstructed open wood ceilings.  We stripped off the drywall ceiling of a 1920 apartment unit and left the wood lumber exposed.  To accomplish this, we installed new finished doug fir plywood just above the existing wood ceiling frame. The result was to create a loft look in only 580 square feet.  Due to City laws, most one bedroom loft like apartment units (with wood ceilings)  in Los Angeles are much larger. Creating this unit may seem easy, but it was very difficult because it had never been done before.

A number of dubious team members worried the city fire codes would not allow an open ceiling, or it could not be framed.    Eighteen years ago, we faced a similar challenge.  We proposed to strip the acoustic tile from an existing 1000 square foot office suite and create an open wood ceiling with rigid ducting and skylights.  In other words, we wanted to create a creative office in a conventional 3 story office building.

First Wood Open Ceiling in a Conventional 1982 Office Building, 720 Wilshire, Santa Monica

.  No one had done this before in Los Angeles. The first prospect loved the space but asked when the ceiling was going in.  Shortly, we had multiple offers for the space.  Again, the first one was hard, but the rest is history.

Below is how the 1920 apartment unit, with drywall ceilings, looked  before our renovation..

Unit Before Renovation

Here is a close up of the ceiling before deconstruction:

Original Drywall Ceiling Prior to Deconstruction and Renovation

Below is the unit after renovation: a loft looking creative apartment unit with the new deconstructed open wood ceilings.

After Renovation with New Deconstructed Open Wood Ceiling

Congrats to our project designer/manager, Adaptive Realty, our consulting engineer/architect Gwynne Pugh Urban Studios, and  our PMI team.

Creative office landlords are having a difficult time getting security from tenants in the creative field.  One of the major drivers of creative office, especially in San Francisco, is the technology industry.  Start up companies, whose survival depends on continued venture capital funding, compose a very significant component of this market demand. In the dot com bust,  these tech tenants folded like a house of cards.  I lost 13 out of 14 of these tech tenants.  Yes, tech tenants are better capitalized than before.  However, instead of folding in six months, they can last a year or two, maybe. What is different the last time  is that we got whopper security deposits in the form of letter of credits–that ranged from one to three years rent.  Let me tell you, that really helped.  Today, it is hard to get a security deposit equal to six months of rent from these tenants.  Even if you can get more than a 12 month letter of credit–the bankruptcy laws have changed to limit a landlord to only a 12 month rent recovery in bankruptcy–even in the case of a letter of credit.

Also, a lot more creative office is being produced right now.  I don’t even know if the conversions are being counted in the new construction numbers in the brokerage market reports.

Los Angeles did better than San Francisco during the dot com bust since its creative tenancies are more diversified comprised of entertainment, advertising, media, design, and technology. Some landlords are trying to get credit technology companies like Google and Microsoft. But you cannot hold out only for those tenants.

In New York, young tenants build their own room partitions to create more bedrooms to facilitate sharing apartment.  The tenants put the walls up and take them down, often without the landlord’s permission.

In  New York, the trend of do-it-themselves partitioning has run afoul of building and zoning codes which prohibit such partitioning.  Partitioning in New York apartments and code violation issues are discussed in the article below.  The article also references a company who put up and takes down code compliant partitions of different types  (sliding doors, furniture walls, partial height walls) so these young people can accomplish their housing objectives.

In Los Angeles,  young millennials are locating to pricier urban areas, a trend that pushes up rents.  As a result, young urban Los Angeles tenants desire more bedrooms per square foot.

In addition to more bedrooms, Los Angeles young urban tenants also sometimes desire a partitioned office nook.  In one case, one of our young tenants split a large living room in half with screens.  One one side was the office where they worked on laptops, and on the other side was the living room with a couch, coffee table, and computer used as an entertainment center.

The Fall of Temporary Apartment Walls – NYTimes.com.

The Fall of Temporary Apartment Walls – NYTimes.com.

At the June 4 Marcus and Millichap investment conference, a Marcus and Millichap representative gave the results of an investment survey: in 2014, 30% of the existing apartment owners wanted to buy and very few wanted to sell.  In a special research report by Marcus and Millichap called “First Quarter 2014 Commercial Real Estate Investment Outlook”, the report declared “Investor Confidence Trending at 10 Year High.”  Nearly half of  all office investor who already own properties (49% percent) believe  now is the time to buy more, while only 15% consider now the time to sell.  As a result,  prices are climbing, and most properties that are not overly priced receive multiple offers.  Many sellers demand non-contingent offers.

In certain cases, these markets are up they go until they blow. One exception was the market of 1998.  Commercial properties started a steep rise from their historic lows of the early 1990 recession.  Suddenly, world events triggered what was known as the Russian Financial Crisis.  Stock plummeted, and pundits started talking recession.  Property appreciation came to an abrupt halt. Although both the world and real estate market shortly recovered from this interruption, property values slightly dipped and only gradually recovered.  Even as occupancies and rents climbed, real estate values remained stubbornly muted.  Instead, everyone one had stock market and internet stock market fever. Except for properties heavily vested in technology companies, property values did not experience a steep fall during the early 2000 recession and quickly recovered.

It is hard to tell whether property prices will continue to rise until a recession knocks them down, or i f a rise in interest rates creates a much softer landing.

Niche Ink, a site that analyzes education data, has declared Palms to be the best place in Los Angeles for Millennials. (LA ranked seventeenth on the list of best metros, though.) In order to find the optimal areas for youngs, Niche used data including median rent and income from the Census’s American Communities Survey, as well as FBI crime stats and “proprietary Niche rankings” from surveys of college students and grads on things like nightlife and best places to live after graduation.  Niche declared Palms the number one area in LA for young people.

Many people out of college ask where the best apartment deals on the West side of Los Angeles are?  I always refer them to Palms where the rents are lower and the access to other areas is great.   When the expo line is finished, Palms will have its own station that will connect Palms to Culver City, Santa Monica, and Downtown Los Angeles.  Palms is also close to Downtown Culver City which is now filled with hip new bars and restaurants and other amenities.  Indeed, I am promoting Palms to tech companies as a good source of affordable housing for their employees.  Restaurants and bars are taking notice and moving to Palms, according to one of my young colleagues.   You can read the article below.

Palms Is the Best Neighborhood in L.A. for Millennials | The Informer | Los Angeles | Los Angeles News and Events | LA Weekly.