Telecom Boom Revives Declining Neighborhood

Surging growth in the local telecommunications industry is driving up occupancy in a cluster of downtown Los Angeles office buildings that have sat mostly empty or even abandoned for the last several years.

The boom is helping to spark a turnaround in an aging, struggling commercial neighborhood that in many spots has been a ghost town of dark windows and “For lease” signs in the shadow of newer, more desirable high-rises.

The spurt is largely the result of growing competition in telecommunications markets over the last two years and new and expanding companies’ need to locate near the hub of downtown’s local and long-distance telephone networks. The area is anchored by a Pacific Bell/AT&T; facility at 420 S. Grand Ave. and, oddly, a 1960s-era office tower.

In the last 10 months, nearly 400,000 square feet of once-vacant office space has been leased to telecom firms in a five-block area fanning west from the intersection of Wilshire Boulevard and Grand Avenue, said Kevin Keating, a commercial real estate broker and developer whose company has cinched at least eight of the new deals since February.

The year-to-date lease totals already represent a 232% jump over new telecommunications occupancy in the area last year, and Keating thinks total square footage commanded by the industry could grow by an additional 200,000 square feet during the next several months. The total now stands at about 700,000 square feet, spread among 10 buildings accommodating close to 150 companies, he said. The businesses range from established long-distance providers to feisty new competitors in local telephone, wireless and Internet services.

The boom has breathed new life into one office building--700 Wilshire--that had been shuttered for five years and another--530 W. 6th St.--that had been struggling with 10% occupancy for at least that long. Both buildings are being remodeled to accommodate the needs of telecommunications firms, and both have already inked lease agreements to fill more than half of their available office space.

“This is reviving buildings that had lost their way and were not really competitive with the glass towers on Bunker Hill,” said Eric Bender, whose company manages 700 Wilshire. “This is providing an alternate use for them.”

The spurt has also helped fill to capacity two buildings in the 600 block of South Grand Avenue and push occupancy to 90% at 611 Wilshire, which as recently as two years ago had only about a third of its available space occupied.

Such high occupancy rates have been rare in that neighborhood for some time, said Hayden Eaves, a senior broker with Cushman & Wakefield. He called the telecommunications trend a welcome engine of revitalization for the area.

“It’s been great for the market,” he said. “It’s been unbelievable.”

Plans are even underway to convert 500,000 square feet of moribund retail space at the long-vacated Robinsons-May department store at 600 W. 7th St. into a telecom hub.

Telecommunications tenants are a boon for property managers and leasing companies because high demand for space has meant high rents. Monthly rent at 530 W. 6th St., for example, is $1.80 per square foot, compared with about $1.50 at Arco Plaza, a white-collar office building at 3rd and Flower streets.

Management companies, however, have had to spend millions in capital improvements to accommodate the special needs of the industry. Bender’s company, for example, has spent $1.2 million on upgrades at 700 Wilshire, including installation of a backup power generator and revamping the building’s electrical-distribution system to provide higher amperage.

Telecommunications businesses, however, are not expected to add much street life to the area’s sparsely peopled sidewalks nor spur growth in the neighborhood’s service sector. Most of the area’s telecommunications firms occupy 5,000 to 8,000 square feet, much of which is typically devoted to banks of circuitry and equipment. They tend to have few, if any, workers on site.

“It’s a somewhat unusual use of commercial space,” said Jack Kyser, chief economist with the Los Angeles Economic Development Corp.

“You look at these buildings and they are not filled with people. They are filled with all kinds of equipment.”

But Kyser thinks the downtown telecommunications hub could eventually lure people-intensive businesses that need access to high-capacity digital networks, especially entertainment-related companies such as animation, special-effects and post-production houses.

“This could be a trigger for additional business attraction,” he said.

Driving the occupancy boom is voracious consumer demand for expanded phone and Internet services as well as market and logistical forces that encourage telecommunications firms to locate routing and networking sites in close proximity. This clustering allows companies to tap into one another’s networks easily and cheaply to provide broader services.

Telecom companies began settling in the neighborhood in the mid-’80s because of its proximity to the Pacific Bell/AT&T; facility on Grand Avenue, one of the largest telephone signal routing stations in the country. After the breakup of AT&T; in 1984, companies vying for a piece of the newly deregulated long-distance market set up shop almost exclusively at the One Wilshire building at 624 S. Grand--just two blocks from the switching station.

Mark Messana, project manager with the company that manages One Wilshire, said one reason MCI and other companies chose the building is that its rooftop--at 30 stories, one of the highest in the city when it was completed in 1968--provided an optimal height for satellite dishes.

In 1996, congressional deregulation of local phone service sparked further growth in the industry, helping One Wilshire reach full occupancy about 18 months ago. Now 50% of the commercial space in the building is devoted to telecommunications.

“We just got lucky to have the first people, and from there it spurred others,” Messana said.

The tight conditions at One Wilshire was largely responsible for a leasing boom in surrounding buildings as new and expanding companies sought to be close to the extensive communications infrastructure there.

David Leatherwood of Portland, Ore.-based Enron Communications Inc. said his company chose to locate a facility in the former Tokai Bank building, now dubbed Telecom Center by its new owners, because it is less than half a block from One Wilshire.

“Our building is like an adjunct telecom hotel to One Wilshire,” he said. “That’s where all our fiber is going into, so we wanted to be close.”