Figueroa reaches for the sky
The Figueroa Street corridor in downtown Los Angeles is already thick with hotels, restaurants and office towers.
So is it ready for the vast project announced this week on the site of the Wilshire Grand hotel?
The $1-billion proposal by owner Korean Air calls for demolishing the 1950s hotel and an adjoining office building and replacing it with two skyscrapers: a 60-story office tower and a 40-story hotel. It’s just the latest in a series of projects that have been remaking the corridor.
The trend began with the construction of Staples Center in 1999 and has been pushing north ever since.
There’s the Nokia Theatre and the $2.5-billion L.A. Live complex that includes a combined Marriott and Ritz-Carlton hotel, which is still under construction but already towering over the neighborhood at 54 stories.
Continuing from there, developers have erected hundreds of apartments and condos, and a shopping mall is being refurbished.
The new hotel project is considered likely to succeed, but some wonder whether the office market is ready to absorb more than 1 million more square feet of steel and glass.
“Downtown demand is softening,” said Bert Dezzutti, who runs Southern California operations for office landlord Brookfield Properties Corp., which owns buildings flanking the proposed site. Some law firms, which are among downtown’s largest office tenants, have been shrinking through layoffs, he said.
To succeed, the developers would probably have to charge their office tenants a lot more than the market will bear right now, said Mark Lammas of Maguire Properties Inc.
“You might need to double today’s asking rents,” he said.
Maguire is downtown’s largest office landlord and owns an office development site a block away from the Wilshire Grand, but construction there has been indefinitely postponed.
After almost two decades of weakness dating to an office building boom in the late 1980s and early 1990s, the downtown market finally stabilized a few years ago. But in recent months it has begun to feel the pinch of the recession.
Vacancy in the central business district was stable at 14% in January but may be a little higher now. A market at 10% vacancy is considered healthy, favoring neither tenants nor landlords.
Korean Air, a unit of South Korea’s Hanjin Group, has an agreement with Los Angeles developer Thomas Properties Group to develop the site pending city approval. Construction is proposed to begin in 2011, with completion in 2014.
Thomas Properties wouldn’t start work on the planned office tower unless it had lease commitments for half of it. That goal may be attainable by the time the proposal goes through the city approval process, Chairman Jim Thomas said.
“It’s reasonable to suppose that in a couple of years we’ll be at that point,” Thomas said.
If there is not demand for more offices by then, he could still proceed with the planned 40-story hotel while waiting for the office market to improve.
The planned hotel would improve the neighborhood, said Bruce Baltin, a hospitality industry analyst at PKF Consulting Corp. “In the medium to long run, the market is clearly better off with this [proposed hotel] instead of Wilshire Grand,” he said.
At the moment, the more modestly priced Wilshire Grand, where room rates start around $135 a night, drags down the average price that downtown hotels can command, Baltin said. Current downtown demand is healthy with about 74% of rooms being occupied, and shouldn’t dip for long when the new Marriott and Ritz-Carlton open, he said. “They’ll help draw more conventions.”
Office landlord Dezzutti said he would welcome a new hotel. “Right now there is not a true business hotel of any size in the downtown core,” he said.
When the Marriott under construction at L.A. Live was proposed, it met some resistance, including a protracted legal fight by Peter Zen, the owner of downtown’s Westin Bonaventure Hotel & Suites. He objected to millions of dollars in subsidies that the city offered developers to get the Marriott project going.
The Wilshire Grand proposal, however, doesn’t increase the number of hotel rooms downtown, and there has been no discussion of city subsidies at this time.
Zen could not be reached for comment on the Korean Air proposal.
The proposal to demolish the Wilshire Grand is unlikely to provoke a fight from preservationists, even though the hotel and office complex thrilled Angelenos when it opened in 1952. It was the first new downtown hotel since the Biltmore opened in 1923, and Gov. Earl Warren was among dignitaries at the groundbreaking on the site of a former Studebaker car dealership.
The Statler Center, as it was called then, was one of several buildings of the era that marked the westward migration of downtown’s financial district toward the then-new Harbor Freeway.
Statler was an upscale hotel chain that was later purchased by Hilton.
“When it opened as Statler Center it was very important to the downtown community, but it has been altered substantially through the years and no longer reads as the striking modern building that it once was,” said Linda Dishman, executive director of the Los Angeles Conservancy.
The preservation group has led campaigns to oppose demolition of historic buildings in the region, but, Dishman said, “This would not be a priority for us.”
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