Usable Space : New Occupants Find Homes in Corporate Castoffs
In the shell of a vacant office building in Westchester, where IBM employees once toiled in endless rows of offices, student artists and designers are soon going to be working in vast loft-like spaces sprinkled with galleries, libraries and workshops.
The seven-story building complex was recently purchased by the Otis College of Art and Design, which plans to use the site for its new main campus. The Los Angeles arts college bought the building, parking garage and adjoining property for only $6 million--about half what it would cost to build from scratch.
“It’s a very good deal for us,” said Otis College President Neil Hoffman, adding: “The whole block and [an adjacent building occupied by] a bank branch came with it.”
Until Otis College came along, the former IBM building had sat vacant for years, left behind and unwanted like hundreds--if not thousands--of other Southern California office and industrial buildings in the wake of corporate cutbacks, mergers and failures.
But many of those same corporate castoffs are being snapped up by new owners at bargain prices and are being turned into everything from churches to police training centers.
The building make-overs include a wide variety of commercial real estate left over from bank takeovers and department store mergers. But the change has been the most painful and profound for the owners of office buildings, traditionally the most stable and lucrative form of real estate development.
New uses for old buildings--which real estate and design experts refer to as “adaptive reuse”--reflects the new pecking order in the Southern California economy, with aerospace plants and research labs transformed into dramatic space for Hollywood studios and burgeoning medical centers.
Even though the region’s commercial real estate market is generally rebounding slowly from the deep recession of the early 1990s, some areas--particularly downtown Los Angeles and the South Bay--remain awash in empty space.
In addition, advances in technology and communications as well as corporate budget-cutting have curbed the demand for future space, leaving many landlords to look for new kinds of tenants to pay the rent.
Real estate developers and landlords will have to deal with changes in the market for the long-term, said David Dale-Johnson, a finance professor at USC and head of the university’s program in real estate studies.
“Not only do you have the downsizing of corporate America, you also have individual users becoming much more careful about how they use their real estate,” he said.
The glut of available space has resulted in bargains for buyers--even after costly and complicated renovations. The Los Angeles Police Department, for example, saved an estimated $20 million by purchasing a former Hewlett-Packard owned-facility in Westchester instead of building a new structure.
Now, the LAPD trains recruits where Hewlett-Packard once trained salespeople. “This is an excellent time to acquire commercial real estate in the city of Los Angeles,” Steve Hatfield, who heads the Police Department’s construction group.
Many of the changes have resulted from the contraction of the defense industry, which has flooded the market with vacant space. In the South Bay, where much of the region’s defense industry was centered, nearly 30% of all commercial space lies vacant, according recent real estate surveys.
Since 1992, Hughes Electronics alone has vacated an estimated 5.6 million square feet of commercial space--enough to fill nearly half a dozen 50-story skyscrapers--across Southern California.
In Burbank, Walt Disney Co. artists will soon move into a building located in Lockheed Aircraft’s fabled Skunk Works, a now-defunct research complex where the Stealth fighter and U-2 spy plane were developed.
The 200,000-square-foot building features waffle-like concrete ceilings 16 feet high--a dramatic touch that sells well with creative clients, said building developer and contractor David Paul.
“High tech was a possibility,” said Paul of potential tenants. “But we really thought the entertainment industry was the best market.”
Stores, fitness centers and other types of retail development have also found new homes in former aerospace buildings.
In Anaheim, an empty Rockwell International assembly plant has been converted into a Fry’s Electronics store. The 30-year-old factory required substantial renovations, including a new roof and air-conditioning system, but Fry’s was attracted by the plant’s location off the 91 Freeway, said real estate broker Robert Socci.
“There were other retail sites available but they happened to think this was the best one,” Socci said.
When a defense firm put a small building up for sale next to Torrance Memorial Hospital, the medical center purchased the structure in 1991 for its breast diagnostics center.
The acquisition of the marble-clad building allowed the hospital to reduce the amount of space it leased elsewhere while expanding the number of mammography units. Enough space was left over to lease offices to three family practitioners.
“We certainly did just fine for the times,” said John Mazzarino, vice president of facilities, materials and support services at the hospital.
Several religious groups have also taken advantage of depressed commercial real estate prices.
The highest bidder for the old Metropolitan Water District headquarters near downtown Los Angeles was the Holy Hill Community Church, a fast-growing Korean congregation that paid $8 million for the complex.
Since moving in last year, church members have transformed drab administrative offices into colorful Sunday school classrooms and installed pews in the auditorium where the agency’s board of directors once met.
Church elder M.K. Kim recalls the arrival of a confused building inspector who drove away thinking he was given the wrong address. “This is a church?” the inspector kept saying of the office complex.
But not every aging building is a candidate for a successful transformation. New owners often have to spend considerable amounts of money to bring older buildings up to current standards. Even buildings from 1970s face costly renovations to make them accessible to the physically disabled and strong enough to meet toughened seismic building codes.
Otis College faces a rather unusual problem that stems from the design of its new home. The irregular pattern of windows that intentionally make the former IBM research center resemble a giant computer punch card screens out a great deal of the natural light that artists crave. As a result, the school must install a lighting system that generates the proper quality of light as part of an estimated $4 million worth of renovations.
But the competition for tenants in some markets is so fierce and buildings so obsolete that the outlook for many properties is bleak, particularly in areas still flooded with unwanted space.
In the Harbor Gateway area north of the ports of Los Angeles and Long Beach, McDonnell Douglas and Lockheed Martin Corp. have both given up separate attempts to find aerospace tenants to move into two aging plants. Instead, the two firms have announced rival plans to turn the factories into shopping centers.
“They are past their prime,” said Tom Overturf, director of development for McDonnell Douglas’ real estate division, alluding to the World War II-era airplane bomber plants. “They are no longer useful for the aerospace business.”
Many urban planners complain about the lack of organized efforts to match unused commercial buildings with potential tenants as part of broader efforts revive depressed neighborhoods. For instance, in lower Manhattan, New York City officials have created flexible zoning laws and property tax breaks in hopes of converting the boardrooms and offices of empty Wall Street buildings into pricey residences.
In Southern California, the growing number of vacant buildings in the mid-Wilshire area, for example, could lead second lives as apartments and public structures, said Los Angeles architect Richard Keating.
The problem is that there is no coordinated way to convert the inventory of empty buildings--and that hurts efforts by cities such as Los Angeles to reclaim blighted neighborhoods.
“Architects and planners can be effective in suggesting these alternatives,” Keating said. “Now, you just hope that a broker runs into a client who says, ‘What if?’ That’s not good enough for the city.”
