Skyscrapers Planned Despite Glut : 11 Coming to Downtown; Critics Fear Gridlock

By JUBE SHIVER Jr

May 17, 1991 12 AM PT

TIMES STAFF WRITER

Amid the worst glut of office space in 20 years, developers are preparing to construct four massive real estate projects that will add 11 skyscrapers and nearly 9 million square feet of commercial rental space in downtown Los Angeles.

Although the four new projects are expected to create tens of thousands of construction, hotel and retailing jobs, critics charge that the developments will divert resources from sorely needed housing and dump more office space on a market already swimming in vacancies.

The critics--which include a citizens group, industry experts and some politicians--also contend that, even in a weak rental market, the swanky new towers will siphon tenants from older Los Angeles-area office buildings. The result, they say, will overwhelm downtown thoroughfares with traffic and congestion.

The towers are part of the Metropolis, Los Angeles Center, RCI Tower and Grand Avenue Plaza projects and will straddle the Harbor Freeway within roughly six blocks of each other near the 7th Street overpass. Three of the projects have been approved by the city and are scheduled to break ground in the next nine months. Together, the four make up the largest of 16 downtown sites scheduled to be developed over the next several years.

A citizens group called A Local And Regional Monitor, or ALARM, has asked a Superior Court judge to block the Metropolis and Grand Avenue Plaza because the city “seriously underestimated the cumulative traffic” and environmental impact of the projects. A decision in the case is expected this week.

“I’m appalled at the lack of backbone of the business interests in the Central City area,” said City Councilman Marvin Braude, who opposed the Metropolis and Los Angeles Center developments. “You can’t build a great city and have people traveling to their jobs from housing that’s 60 miles away. We already have gridlock, and (with the new buildings) it’s going to get much, much worse.”

The addition of 9 million square feet of office space downtown will overwhelm the neighboring freeway system, said Gerald Baer, a senior transportation engineer for Caltrans who has studied the impact of new office construction on freeway traffic.

“We would have to significantly expand (freeway) capacity to avoid gridlock,” Baer said. “The Harbor Freeway is at capacity for six hours a day. It can hardly handle the traffic it already has.”

Developers, citing the long lead times involved in commercial construction, say that demand for office space will pick up as the recession eases. They also say the office towers will pay for extensive city improvements, including more than $150 million for new parks, housing and street widening.

“Our project is a huge undertaking and we believe it is financially sound,” said John E. Vallance, executive vice president of City Center Development, the company that is developing the Metropolis project. “Right now the market for office space in Los Angeles is not as good as it was a couple of years ago. . . . But the market is not going to stay the same forever.”

The four projects are by far the most ambitious commercial developments planned for the downtown area. Three other projects--the 40-story Gateway Center on Temple and Figueroa, the Watt City Center at 7th and Bixel and the third phase of Citicorp Plaza on 8th Street--together would add an estimated 3.2 million square feet of office space, about one-third of the total for the tower projects.

The towers are part of a nationwide office boom that has left cities across the country drowning in excess commercial space. The oversupply has consequences not only for developers and tenants but also for the national economy, which could be seriously damaged by major defaults. About $360 billion in commercial real estate loans are now outstanding nationwide.

The boom in Los Angeles also raises questions about the direction of city planning. Critics question the quality of life that will exist in a few years if steel and glass office towers gobble up most of the remaining space in central cities--leaving little room for housing, parks and other uses.

“Most planning departments are not up to the task” of assessing the future impact of development, said Doug Porter, director of development policy and planning at the Urban Land Institute, a nonprofit Washington research group. “That’s especially true in California, where many departments are understaffed and under-funded.”

Porter added that whatever intelligent planning is done “often gets undercut in the political realm.”

William G. Luddy, president of the Los Angeles Planning Commission, conceded that “we don’t have the resources that we’d like to put to the planning task.” And he acknowledged that the city has failed in the past to build sufficient housing downtown or to mitigate traffic congestion. But he rejected the contention that the four new downtown projects will make matters worse.

“Downtown has taken some of the lead efforts to deal with transit problems and get people out of their cars” by promoting ride-sharing and supporting transit projects such as the Metrorail system, Luddy said. He added that some of the traffic congestion stems from through-traffic generated by growth outside downtown.

Los Angeles traffic congestion already costs local businesses and commuters $500 million in lost time, according to the Highway Users Federation in Washington, D.C.

And Bob Rogers, executive director of the city Planning Commission, last year told the City Council’s housing committee that the Harbor Freeway is within 90% of its capacity and will nearly double to 450,000 vehicles per day from the current 250,000 over the next 10 years.

The lack of housing near downtown jobs is one of the factors fueling traffic congestion, experts say.

Los Angeles has one of the nation’s most severe shortages of low-cost housing, in part because several downtown residential hotels and inexpensive apartments have been razed in recent years to make way for high-rise office buildings. And the Southern California Assn. of Governments predicts that more than two times as many new jobs as new residents are anticipated in the downtown area between 1984 and 2010--a development that ALARM says will cause “very serious adverse impacts.”

New office construction is expected to decline across the nation in coming years because banks and other financial institutions, under pressure from federal regulators, have curtailed lending to developers. But the firms building the four Los Angeles projects have deep pockets, and several have managed to secure the aid of foreign investors and U.S. joint venture partners to help finance their construction efforts.

But if office buildings in the Los Angeles area attract tenants at the pace they did during 1990, it will take 10 years until the current vacant space is fully occupied, predicted the consulting firm A. Gary Shilling & Co. Even at the brisker leasing pace Los Angeles experienced between 1985 and 1990, Shilling forecast that it will take five years before the area’s more than 137 million square feet of office space is fully leased.

Because of the peculiar economics of commercial real estate development, many developers say they can’t afford to delay projects. They say it is more cost-effective to maintain an empty building than to postpone construction and risk massive construction cost increases or the expiration of city permits.

Los Angeles Center developers Smith & Hricik Urban Development Inc. and Hillman Properties, one of the country’s largest real estate developers, had hoped to quickly capitalize on the booming office market in Los Angeles in the 1980s. But the $1-billion Los Angeles Center project became bogged down in lengthy negotiations over the adoption of a comprehensive plan for the Central City West area.

As the months ticked by and the office market weakened, Hillman has been hemorrhaging money, according to real estate industry sources. It is now negotiating with three unidentified parties--including a U.S. bank and a pension fund--to secure more than $150 million in financing to build the first of its five office towers, which range in height from 35 to 65 stories tall. The developers have also been locked in critical talks with giant Unocal Corp., current occupant of the site, to remain as a tenant in the Los Angeles Center.

But Unocal, aware of the soft demand for office space, is said to be demanding huge leasing subsidies for the estimated 500,000 square feet of space it is seeking.

Unocal declined to comment, as did Michael R. Chase, who heads Hillman’s Newport Beach offices. But John Best, principal in Smith & Hricik, said he is not deterred by the office glut and hopes to break ground on the Los Angeles Center “by the summer.” The project is expected to be completed within the next 20 years.

Though its European backers are said to have deep pockets, financial hurdles face the $750-million Metropolis project, which includes three, 30-story office towers and a 500-room hotel.

The project’s developers--a Swiss real estate group called Agenda Holding S.A. and a huge Luxembourg conglomerate called TAG Group S.A.--contend that they are losing $35,000 to $40,000 a day. The project was to have begun a year ago.

The developers, saying they are eager to start, are seeking $120 million in additional financing to complete their first office tower and an undisclosed amount from another partner to help build the hotel planned for the site. But Metropolis--as well as the Grand Avenue Plaza project scheduled to begin construction later this year--are being held up in court by ALARM’s lawsuit against the city. Metropolis’ Vallance said the lawsuit “is totally without merit.”

ALARM’s lawyer, Sabrina Schiller, responded that the group filed suit because “the city has been unwilling to deal with the problems of congestion and lack of housing downtown.”

Because it is not scheduled to begin construction until 1994, the 55-story RCI Tower has attracted the least amount of attention of the four projects. But Thomas A. Meeker, executive vice president of RCI Development Inc., said he’s nevertheless concerned about possible opposition.

“For the most part these lawsuits are little more than a delaying tactic to promote . . . objectives not shared by most civic leaders and the general population,” Meeker said. “People know you can’t stop growth entirely.” Office glut or not, he added, “downtown is going to grow.”

More Office Space for Los Angeles An estimated 16 real estate construction projects, totaling more than 20 million square feet of office space, are planned for downtown Los Angeles over the next decade. Listed below are four of the largest developments.

1 Metropolis ESTIMATED COST: $750 million

DEVELOPER: City Center Development

APPROXIMATE LOCATION: 818 West 7th Street

TOTAL OFFICE SPACE: 1.7 million square feet.

2 Los Angeles Center ESTIMATED COST: $1 billion

DEVELOPER: Hillman Properties and Smith & Hricik Urban Development Inc.

APPROXIMATE LOCATION: 6th and Boylston Streets

TOTAL OFFICE SPACE: 4.3 million square feet.

3 Grand Avenue Plaza ESTIMATED COST: $500 million

DEVELOPER: Pacific Atlas Development Corp.

LOCATION: 7th Street and Grand Avenue

TOTAL OFFICE SPACE: 1.8 million square feet