Land Values Near Subway Show No Signs of Riding High
Property owners who have been hoping for years to cash in on the Metro Rail subway station in North Hollywood still face a long wait before their land and buildings rise in value as a result of development around the subway station.
That’s the consensus of real estate experts and planners, who say property prices and office rental rates haven’t climbed at all in anticipation of the new subway station, which is scheduled to be completed in May 2000.
In fact, the lack of increase in property values is one of the few points that people agree on regarding the impact of the subway on real estate. Otherwise, opinions vary sharply in terms of whether the new Metro Rail station will spur development, what kind of development it might produce, and how big a factor the subway will be in comparison with other North Hollywood development forces.
“It hasn’t happened yet,” commercial real estate broker Seth Dudley of Julien J. Studley Inc. said when asked if office leasing rates have climbed in North Hollywood in expectation of the new subway stop.
“There’s been a lot of talk about it. I even had a broker tell me that a certain space was a good deal because rates are going to go up when the subway comes in,” Dudley said.
But so far, Dudley said, talk of subway-related rent increases is just talk. The asking rent for space in the best office buildings in North Hollywood is about $2 per square foot per month now, he said--at the low end of rates for top quality buildings in the East Valley.
Dudley said about 80,000 square feet of space is available in one of the buildings, at 5200 Lankershim Blvd., and about 18,000 square feet is available in the other, at 5161 Lankershim Blvd.
“These are both very high quality buildings. If those same buildings were in the Burbank Media District or even downtown Glendale, they could easily get $2.50 a square foot,” Dudley said.
Nonetheless, Dudley thinks the subway station could serve as a catalyst to commercial real estate development, most likely mixed-use projects of offices, retail shops and restaurants. And he sees North Hollywood as a likely spot for the entertainment industry to concentrate if the subway generates commercial development.
But that’s a big if, both in Dudley’s opinion and in the minds of others tracking the subway’s development.
“I think the prevailing sentiment right now is ‘wait and see,’ although I know a lot of owners are holding onto their properties right now in anticipation that values are going to scoot up as rental rates scoot up,” said Mike Zugsmith, chairman of Encino-based Capital Commercial/NAI, a commercial real estate brokerage.
While Dudley believes the subway station could help to boost retail development, Zugsmith takes an opposite view.
“I question what impact the subway will have on commercial values because, first of all, it’s not going to bring people in from outlying areas, it’s going to take people from North Hollywood toward downtown,” Zugsmith said. “Second of all, there will be a commuter group that comes and parks and rides the subway downtown, if in fact the subway gets the kind of ridership that is being projected. But people aren’t going to stop in North Hollywood to shop. They’re going to get in their cars and go home.”
Zugsmith allowed, however, that his view of the subway’s commercial importance could be tempered if North Hollywood redevelopment plans succeed.
“To the extent the North Hollywood project comes off, there is a chance for revitalization in the area, but there’s no question in my mind that the subway, just by itself, will not be a strong enough factor to revitalize North Hollywood,” Zugsmith said.
According to Mark Pisano, executive director of the Southern California Assn. of Governments, a series of studies conducted over the years by a number of government and transit agencies has shown that “there is no question that there is a relationship” between transit stations and development.
“In the Valley with its entertainment and multimedia industries, there’s a possibility that the stations in the Valley could do very well,” Pisano said.
At the same time, Pisano conceded that the Metro Rail stations in the Mid-Wilshire district and downtown Los Angeles have not yet generated any increased development.
While some property values have been rising in North Hollywood, both commercial and residential brokers point out that values have been rising steadily throughout Southern California in the real estate recovery that began near the end of 1995. Determining if any of the price increases are related to the subway station is difficult if not impossible, they say.
For example, the average price per unit that investors paid for apartments in North Hollywood in the first three months of this year rose to $45,196, compared with $39,782 in the first quarter of 1998, according to a recent study by Westlake Village-based Hanes Investment Realty Inc.
But per-unit prices have been rising steadily throughout the Valley and the rest of Southern California for several years, noted Todd Schwartz, a senior associate at Hanes.
“It would be very difficult to say how much of an impact the subway is having, if any, on the prices being paid,” Schwartz said. The presence of a Metro Rail station could eventually be an incentive for developers to rehabilitate or build new apartments in the area, but thus far the subway has not emerged clearly as a factor affecting apartment values, he added.
The North Hollywood redevelopment plans include a proposal for a complex of movie studios and office buildings next to the subway station. The Los Angeles Community Redevelopment Agency in March entered a six-month exclusive negotiating agreement with Santa Monica-based developer J. Allen Radford for the 30-acre project. The development could cost an estimated $400 million, including 2 million square feet of office space, retail shops and film production studios.
Even with the prospect of the huge development right next to the train station, “People still have a wait-and-see attitude” about the impact of the subway on property values, said Lillian Burkenheim, CRA project manager in North Hollywood.
“I don’t think the subway has had any impact yet on real estate leasing or property values. Once the station actually opens and it generates some activity, then it will probably have an impact,” Burkenheim said.
According to broker Dudley, the question of the subway’s impact on sales prices of commercial buildings is moot. Very few commercial properties are sold year-in and year-out in North Hollywood, he said, so there are hardly any comparable sales.
Lankershim and Magnolia boulevards are both commercial streets, but within half a block of each the neighborhoods consist mainly of small pre-World War II and immediate-postwar homes, he said. Assembling the larger parcels required for commercial development would be difficult because the land is divided into so many small properties, Dudley pointed out.
If the subway station does spur development, another question will be how large an area around the station will be affected.
That too is a difficult question, according to John Gosling, a vice president in Washington, D.C. with RTKL Associates Inc., an architectural and urban planning firm that has worked on subways in Washington, Dallas, Tokyo and other cities.
Gosling said developers created a slew of plans for shops, office buildings, restaurants and other projects surrounding new Washington, D.C. subway stations when they were built in the 1980s.
But would-be builders had to shelve those plans when the recession struck in the early 1990s, he said, and development only recently has begun around stations closer to the center of D.C. In general, he said, commercial development has proceeded more slowly than many had expected.
One example of how plans can change, Gosling said, is that some developers who assembled parcels in hopes of building commercial real estate projects are instead building housing near the stations because they realize that commercial development won’t be coming to the stations any time soon.
“It may or may not be valid to compare Washington with Los Angeles because there is a lot more demand in Washington for government office space,” Gosling said. “I think the lesson is that there are many unknowns involved, so it’s difficult to predict how much and how soon the development will occur.”
