Posted Dec 27, 2009, 2:18 AM
Life of the Party
Join Date: Nov 2004
Location: Chicago, Illinois
A interesting article from 1985 regarding Cal Plaza.
Los Angeles: For Downtown, An Ambitious Mixed-Use Project
By TOM HAYES
Published: May 12, 1985
THE first of California Plaza's three glass-encased office towers is now visible on the expanding downtown skyline of Los Angeles, but the project, the most ambitious mixed-used urban development in the West, still has not signed up its first tenant.
The 42-story tower, with 1 million square feet of office space, is on schedule to open Oct. 1, along with 40,000 square feet of commercial and retail space, a 1,100-car parking garage, the city's new Museum of Contemporary Art and a theater that will serve as a permanent home for a ballet company.
In all, it is expected to take 10 years to complete the $1.2 billion complex. As envisioned, two more office towers will be added for an overall total of 3.5 million square feet - including what will be the city's tallest building at an estimated 63 stories.
The plans, endorsed three years ago by the city's Community Redevelopment Agency, also call for 750 housing units, a 450-room hotel, a 12-theater cinema, parking for 4,500 cars and five acres of parks, gardens, terraces and waterfalls.
California Plaza's immediate problem is bad timing. Several other downtown office projects are nearing completion, putting more than 3 million square feet of new space on the market this year, a record. An additional 11 million square feet is on the drawing board.
Its major competition is Citicorp Plaza, which has three tenants in its first tower, including Citicorp, a partner in the project. The $650 million development, which will include two more towers for a total of 2.6 million square feet of office space, is thought to have the advantage of a more central location.
Two major retailing companies, Bullock's and May Company, will open large department stores there next October. No retailers have yet been announced for Calfiornia Plaza.
At the same time, the downtown office market is slowly recovering from a flat year in terms of total space leased. Brokers and analysts say tenants in some cases are getting free rent for two years on 10-year leases as developers bargain to generate revenue on their new projects. Most top-grade space is available at $28 a square foot or less.
''This is a tenant's market, at least in the near-term,'' said Raymond M. Lepone, a senior marketing consultant with Grubb & Ellis Commercial Brokerage Services.
''There may be a lot of musical chairs, a lot of moving around, but that doesn't increase the net absorption,'' added David G. Shulman, vice president and director of research planning at TCW Realty Advisors. The city has averaged an increase of 900,000 square feet of leased office space downtown since the mid-1970's. Last year, it added 100,000 square feet.
The combination of more competition and slow demand could force California Plaza to lengthen its construction timetable. Still, Gregory Schultz, marketing director for the project, contends that several major tenants will be announced by June, and that the pace of serious negotiations with other prospective tenants has picked up.
''We've had some very significant developments recently,'' he said. ''We're more encouraged now than we've ever been.''
California Plaza is a development of Bunker Hill Associates, a partnership with Metropolitan Structures the managing partner, Cadillac Fairview/ California, a general partner and Shapell Industries and Goldrich, Kest & Associates as limited partners.
Metropolitan Structures is a unit of the Metropolitan Life Insurance Company, the primary financer of the first phase of the project. It is also the developer of Illinois Center, an ambitious project off Michigan Avenue in Chicago that includes plans for building 17 million square feet of office space into the 1990's.
The cost of California Plaza's first phase is $205 million. Metropolitan Life is providing $190 million in equity and mortgage financing, the largest amount ever by the company for a real-estate development project. Metropolitan Life has not made a commitment to finance the second or third phases.
Citicorp Plaza is being developed by a partnership between Oxford Properties and the Prudential Insurance Company of America. Citicorp is an equity investor in the first phase - the tower will be called Citicorp Center - along with Lillick, McHose & Charles, a major West Coast law firm.
Industry analysts say that to ride out the lean years of building cycles, major projects like California Plaza and Citicorp Plaza require the deep pockets and staying power of big financial partners like Metroplitan Life and Prudential.
''They are not saying the projects have to be proven out in two or three years,'' said Roger P. Moon, a vice president at Landauer Associates, a real-estate consulting company. ''They are looking at the long haul. In 10 years, California Plaza and Citicorp Plaza will be good and viable projects.''
The two biggest uncertainties facing California Plaza, realty analysts said, are its location and reliance on more people living downtown. The project covers 11.2 acres on Bunker Hill, which was a haven for rambling, deteriorating, turn-of-the century Victorian homes that has given way to the city's growing urbanization in the last 20 years. The Music Center, government buildings, a cluster of condominium projects and several office buildings now dominate the hillside.
Many prominent owners and tenants, in fact, have moved to Bunker Hill in the last few years. Last year Metropolitan Life, one of the biggest property owners in Los Angeles, acquired the 56-story headquarters of the Security Pacific National Bank for $310 million. It also is a part owner of the Sheraton Grande Hotel and Crocker Center, on Bunker Hill.
Two years ago, I.B.M. moved into 600,000 square feet of one of two new towers partially financed and owned by the Crocker Bank. Other prominent tenants on the hill include the city's two biggest law firms, Gibson Dunn & Crutcher and O'Melveny & Myers, as well as Goldman Sachs, Kidder Peabody and McKinsey & Company.
''We're not pioneering,'' Mr. Schultz said. ''We're directly across the street from all of these people who are already here. There is a well-established trend of large, professional service firms moving to Bunker Hill.''
Still, California Plaza is in the far northeast corner of the downtown white-collar district, putting it more distant from the Harbor Freeway, a main link to commuter routes, than the Wells Fargo, Security Pacific and Crocker Center towers nearby.
T HE idea of of an urban life style has been slower to develop in Los Angeles than many had anticipated a few years ago. Although 2,100 people now live in the modern apartments and condominiums that have been built downtown, the schools, retail shops and supermarkets needed to support a larger community have been slow to develop, said Mr. Moon of Landauer Associates.
In addition to the 750 housing units in the California Plaza project, other developers have committed to building an additional 800 units. The overbuilding of condominiums across southern California has caused many lenders to turn cautious on new developments. The first 250 units were switched to rental units from condominiums, and no decision has been made on which approach to take for the remaining 500 units, Mr. Schultz said.
''We still haven't succeeded in proving downtown Los Angeles as a residential area,'' Mr. Moon said. ''California Plaza in its totality is really geared to that acceptance. It doesn't have the parking or the location to be viable if that doesn't happen.''
California Plaza is counting on a combination of a day-time office population on Bunker Hill estimated at 40,000, Mr. Schultz said, to help support the mix of restaurants and shops during the day.
He said the Museum of Contemporary Art, a $23 million gift to the city by Bunker Hill Associates, is being counted on as an attraction that will rank close to Disneyland and Universal Studios on tourists' lists.
''It's the sum of the parts, not just one of the parts,'' he said, ''that will make California Plaza successful.''