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Korean Air, Thomas Plan $1 Billion L.A. Office, Hotel Complex
By Daniel Taub
April 3 (Bloomberg)
Korean Air Lines Co. and Thomas Properties Group Inc. plan to build a $1 billion office-and- hotel complex, downtown Los Angeles’s first office high-rise since 1992, to capture rising demand after the U.S. recession.
A 60-story office tower with 1.15 million square feet (107,000 square meters) of space and a 40-story hotel with as many as 700 rooms will be built on a full city block where the Wilshire Grand Hotel now stands, Seoul-based Korean Air and Los Angeles-based Thomas Properties said today in a statement. Korean Air has owned the hotel and the land since 1989.
Development of high-rise towers in the U.S. has been slowed by the global credit crisis and a drop in demand for space amid the recession. In downtown Los Angeles, the Grand Avenue residential, hotel and retail project planned by Related Cos. has been stalled by a lack of funding.
Korean Air and Thomas Properties said they expect financing will be available for their project by the time construction begins, likely in 2011.
“It’s reasonable to assume that the credit market will get fixed and start flowing again,” Thomas Properties Chief Executive Officer James A. Thomas said in an interview. “The ideal timing is to get everything lined up, and as you come out of the recession, you have the product to deliver. So I think our timing is really superb.”
Early Stage
Plans for the project, which Thomas said will cost "$1 billion, plus or minus,” are in their early stages, he said. Korean Air and Thomas haven’t yet decided whether Thomas Properties will have an equity stake in the project, planned for completion in 2014, or how large such a stake would be.
Thomas Properties and Korean Air also will decide later whether the complex’s hotel will include condominiums or rental apartments on its top floors. As many as 100 residential units may be included, James Thomas said.
The project doesn’t have financing and may be seeking it at a time when banks have curtailed lending for real estate as commercial loan delinquencies and office vacancies rise.
The Los Angeles metropolitan area had about $7.5 billion in distressed properties as of the end of March, a 168 percent jump from December, according to data from Real Capital Analytics.
“Korean banks are interested, but it’s too early to say anything yet,” Korean Air Chief Executive Officer Yang Ho Cho said in an interview. Korean Air also will need to select an operator for the complex’s hotel, he said.
Wilshire Grand
In addition to the 896-room Wilshire Grand, which sits on the corner of Wilshire Boulevard and Figueroa Street, Korean Air also owns three hotels in Korea and one in Hawaii, as well as office buildings in Los Angeles, Japan, Hong Kong and Korea. The company is South Korea’s biggest air carrier, and employs more than 1,000 people in Los Angeles.
Thomas Properties, founded in 1996, owns office, retail and apartment buildings in California, Texas, Pennsylvania and Virginia. Its properties in Southern California include City National Plaza, an office complex with two 51-story office towers that occupies an entire city block in downtown Los Angeles.
The shares are down 85 percent in the year through yesterday, reducing the company’s market value to $52.5 million.
Downtown Los Angeles, which was dominated for decades by banks, law offices, accounting firms and government offices and had few residents and little nightlife, has undergone a revival over the past decade, with the opening of the Staples Center sports arena, Walt Disney Concert Hall and the L.A. Live entertainment complex.
No Office Towers
While high-rise hotels and residential buildings have been added to downtown Los Angeles’s skyline, no major office buildings have been added in the city’s core in almost two decades. The last built was Maguire Properties Inc.’s 54-story Two California Plaza, completed in 1992, James Thomas said.
Downtown Los Angeles has about 14 million square feet of space in so-called trophy office buildings, and about 88 percent of that space is leased, James Thomas said. Once the economy improves, it will take three to five years for those buildings to reach 93 percent occupancy, the point at which landlords are considered to have pricing advantage over office space, he said.
“We are overdue for an office building,” Thomas said. “We need it.”
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