Almost All’s Quiet on the Western Front : City West: Lack of tenants, city approval and financing is slowing development in area west of the Harbor Freeway.
Watt City Center is one of several projects suffering from what seems to be a growing commercial real estate malaise in Los Angeles.
Developers W&M; Partners have spent the last several years jumping through an almost endless series of hoops to get their $600-million office project approved by the city of Los Angeles.
Two towers totaling 1.6 million square feet of space are planned just west of the Harbor Freeway, between 7th and 8th streets. These buildings would form an important part of a “new downtown” known as Central City West.
This 325-acre area is where a group of landowners are planning to concentrate about 25 million square feet of new commercial development and several thousand housing units over the next 20 years. That would mean almost doubling the size of downtown Los Angeles.
The only problem with all these grand plans is a lack of tenants and of financing.
Veteran developer Ray Watt is trying to find an anchor tenant for Watt City Center or possibly a buyer for the whole project. As the going gets tough, equity partner Kent Merselis--the M of W&M; Partners--appears to now be taking a secondary role in the project.
Downtown Los Angeles generally doesn’t seem to be faring much better:
--Metropolitan Structures West is building a second tower totaling 1.24 million square feet at California Plaza. So far there are no tenants signed.
--At 550 South Hope, the Koll Co. and Ohbayashi America have no signed leases for their 566,000 square feet of office space.
--The 801 Tower on Figueroa Street by Ryoshin Fudosan and Takenaka Corp. has no tenants lined up.
--Manulife Real Estate opened its new 865 South Figueroa Building this month with just 12% of its 688,000 square feet leased.
And several other buildings are set to open soon.
All this vacant space in the core of downtown Los Angeles doesn’t suggest any great or immediate future for Central City West.
Neither does a change in the leasing patterns of downtown’s staple tenants.
Last year, about 50% of the 1.2 million square feet of office space leased downtown went to law firms, reported Coldwell Banker’s Kathryn S. Schloessman. This year, “it’s not looking very good,” she said.
Law firms have lost lots of business because of the downturn in mergers and acquisitions work, she noted. Signing new leases doesn’t make sense for many law firms, she said, because “there isn’t enough business to support it all.”
As for the future of Central City West, “I see troubled waters ahead,” predicted Scott Keesling, an associate vice president at Coldwell Banker. Many of the Pacific Rim tenants that had been expected to fill Los Angeles office space may not be coming, he warned. And, he said, trouble in the Middle East is making many in the business community anxious about the future.
It’s this nervousness that explains the tough time developers such as W&M; have had in signing on tenants to expensive and long-term leases.
Meanwhile, W&M; has to worry about almost 7 tons of steel, worth about $4.5 million, that are rusting in a Stockton yard. They had ordered the steel in hopes that construction could begin already, but that didn’t work out.
Watt said last week that he is in serious negotiations with at least one major tenant. If he manages to close a deal soon, he said, a lender will be forthcoming. “I feel more confident than ever,” he said.
Watt City Center is one of three projects approved by the city of Los Angeles for Central City West.
Meanwhile a new City West Specific Plan was passed in June by the city’s Planning Commission and is set for a vote by the City Council later this year. The plan has been in the works for several years and is a comprehensive blueprint for land use and transportation sponsored by local property owners.
The following is an overview of other planned projects in Central City West:
--Hillman Properties has yet to secure all the approvals necessary for Los Angeles Center, a 15-plus-acre project that would include demolishing the current headquarters building of Unocal Corp. and the nearby Los Angeles Area Chamber of Commerce.
To obtain financing, Hillman wants and probably needs both of these big tenants to commit themselves to space in Los Angeles Center.
Unocal is being courted, however, by several other developers downtown eager to fill their buildings with such a big company. The advantage for Unocal in moving elsewhere is that it wouldn’t have to wait for Hillman’s project to get approved and built.
--Platt Commercial Enterprises has received the city’s go-ahead for a 33-story office building just west of the Harbor Freeway, between 6th Street and Wilshire Boulevard.
The 400,000-square-foot building is to be known as Coopers & Lybrand Plaza in deference to its anchor tenant, which currently owns and occupies an older building on the site slated for demolition. Early 1991 is the earliest starting date for this project.
--Koar Inc. is another one of the three city-approved projects in Central City West. The developer plans a relatively conservative 13-story building at 1111 Wilshire Blvd. totaling about 180,000 square feet. The project is scheduled to start within the next few months.
--In the area near 3rd and Bixel streets known as Crown Hill, two developers have plans for adjacent eight-acre parcels.
Cathay City Inc. wants to build 1 million square feet of commercial space, including offices, a hotel and residences. Meanwhile, P.C. Crown Hill Inc. has submitted preliminary drawings for Pacific Centre, a project that’s been designed to include 800,000 square feet of office space, 400,000 square feet of retail, a 500-room hotel and about 400 residences.
Just what comes of all these plans is anybody’s guess and the city is unlikely to approve an 82-story tower as suggested by the owners.
--Pacific Architects & Engineers has plans for a 30-plus-story office building at 1234 Wilshire Blvd. The two-acre property is currently a parking lot, and no development is likely until late 1991 or early 1992. Most of the owner’s other land holdings are concentrated in Japan.
--S-P Properties has ambitious plans for several million square feet of construction on 26 acres it owns in the area of 1st and Beaudry streets. Phase 1 is planned to include two triangular towers, one an office building, the other a hotel. Also on the drawing boards is an exhibition hall and a retail mall. The developer has yet to secure any city approvals.
--What used to be known the site of Woodbury University on Wilshire Boulevard is now owned by Maruko of California. Maruko painstakingly took the old university apart last year brick-by-brick, but has yet to announce plans for the about 1-acre site.
--Owners of the site across the street--which formerly served as Woodbury’s library--are trying to sell. So too are the owners of a parcel next door to the library site.
Other players in the area are First Grayline Corp., which owns a chunk of land near Crown Hill; the State Bar of California, which is looking to possibly sell out of its land holdings in the area and lease space elsewhere in downtown, and the Department of Water and Power, which owns a parcel near 2nd and Beaudry streets.
DOWNTOWN L.A. NEW BUILDING VACANCIES
Size in Expected Square Vacancy Building Completion Feet Factor Figueroa Plaza Phase II 1990 307,307 68.0% Sanwa Bank Plaza 1990 947,092 33.6 777 Tower 1990 1,020,000 80.2 865 S. Figueroa Building 1990 686,250 88.2 Gas Company Center 1991 1,240,000 26.0 550 South Hope Building 1991 565,821 100.0 801 Tower 1992 432,000 100.0 Two California Plaza 1992 1,240,000 100.0
SOURCE: Cushman Realty Corp., Los Angeles.
