Will Downtown Los Angeles Get Revived?

Downtown Los Angeles is a wonderful city. Most of us here in L.A., we refer to our state income tax as our weather tax. We have beautiful beaches. We have the mountains. You can get to the desert. You can go skiing. You can go out on the water. Everything is so close to where you might live. But when the pandemic hit, it was a bit of a gut punch. We have a homeless problem in downtown L.A. We are really feeling the brunt of the hybrid work strategies that have been going on. The impact that it's having on the commercial real estate industry is really catastrophic. Do you think politics is blocking L.A. from achieving what it needs to? We are a wonderful community in Los Angeles. There are competing interests, but we can solve those problems by all taking a step back to say, let's find out what we have in common. My guest today is Chris Cooper, real estate expert from the city of Los Angeles. Today, he'll talk about what challenges Los Angeles, especially downtown Los Angeles, is facing today and how to bring its glory back. I'm a third-generation Angeleno, and we have so much going for us in our city. We have to get great minds that we have in Los Angeles together, both public and private, and really think through a way to attract people to come back, to re-energize that renaissance that we had established before the pandemic. I'm CMI Kurami. Welcome to California Insider. Chris, it's great to have you on. Welcome. Thank you very much. Good morning. We want to talk to you about downtown L.A. You're an expert in real estate. You've been watching what's going on. What's happening in downtown L.A.? Can you paint a picture? Well, downtown Los Angeles is a wonderful city, and it's in a little bit of a pause in its long-term plan of re-gentrification and renaissance, if you will. Downtown L.A., before the pandemic, was just an amazing example of how you can create a live-work-play environment, starting all the way back from the time we built what was then called Staples Center and L.A. Live to then creating the Arts District and all the lofts and the apartments and condos and then many, many restaurants with Michelin star chefs. We were seeing a tremendous growth in the greater downtown L.A. residential population and truly creating nightlife where people were walking around and there were concerts in the park and there were art gatherings. And obviously, with many cities, and Los Angeles included, when the pandemic hit, it was a bit of a gut punch. And so I think in downtown Los Angeles today, we're trying to shake that off and come up with some new solutions to bring the office tenants back downtown and bring the residential tenants back downtown, bring the retail back downtown, get things opened up. We're doing a great job with some of the transportation and the connector, et cetera. But we have some work to do, and it's going to take a real partnership between the private sector and the city government. Before the revival of the downtown, what was it like? Well, downtown before that revival, the sidewalks would roll up at 5 p.m. When I was a young lawyer back in the mid-80s, I actually lived downtown in one of the very few condominiums in South Park. It was at 9th and Hope. And at 5 p.m., you wouldn't walk around in the evening to go to a restaurant. You would get in your car and go and valet it. So it was very quiet. There were a few restaurants, but there were no supermarkets. I remember I would have to drive to Pasadena to go grocery shopping. So it was a place really where the office tenant came downtown, went to work from 8 to 5, and then left. And so it was not representative of what a true downtown should be like you see in San Francisco, New York, or Chicago. And there was big investment into making downtown a place for people to live, right? Oh, a huge investment, a huge investment. And it was a great partnership between a public-private partnership allowing expedited development, especially in the arts district, but also in the downtown core where a lot of the office buildings were. We were doing conversions of buildings when we were building new lofts, etc. And so people saw the vision and people felt the momentum. The LA Live people put together this amazing sizzle video, and it featured some big names like Ryan Seacrest, where he's telling people to bring your business downtown and come live downtown. And then the metro rail started to really develop, and now we've further developed with the connectors so that you can come right into the downtown core through the various parts of the greater LA area. So the city was able to build this downtown from what you experienced back in the day to kind of before the pandemic, right? Around the pandemic, things started changing, right? Yeah, that's correct. I mean, the big first step, as I mentioned earlier, was then Staples Center. Now it's Crypto.com Arena and LA Live, and that was a big draw to downtown LA that we could have, you know, be sort of the entertainment epicenter and host things like the Grammys. And then we had the Microsoft Theater at LA Live, and you're hosting the American Music Awards, and you're hosting major telecasts. It became a place that people wanted to gravitate toward. That was the beginning of the equation, and then you had to have the restaurants and the nightlife, and you had to have shuttles and transportation and ways to get out to the arts district, etc. And by bringing these restaurants in and bringing an opportunity for people to live in the downtown core safely and have fun and be able to do things, that was a huge step. And there was a tremendous amount of momentum. Still had things to solve like schools. You know, you had young families that were starting to have children, and there were no schools really to send them to. So, you know, the city and LAUSD and the community were starting to work on that as well. But when the pandemic happened right now, the trend kind of has changed, right? Is there some issues in downtown now compared to what it was before the pandemic, right? There are several issues as a result of the pandemic. I'll start with some of the financing issues that occurred. There's a major development in downtown LA called Oceanwide, and it consists of residential and a big hotel right across the street from the Crypto.com arena, and it's been sitting for four or five years just stalled, you know, and it hasn't been sealed watertight or anything like that. And so, you know, it's a bit of an eyesore. We as a community in the downtown core are really looking to somebody to step in and try to complete the project or take an alternative route with it. But that's a bit representative of what's happening with the pandemic as well. And as I mentioned earlier, it was a bit of a gut punch to the momentum we had going, as opposed to other cities, whether it's, you know, Chicago, New York, you know, Seattle or San Francisco, which are well-established live, work, play environments. Los Angeles was just going through its renaissance and, you know, boom, we just get hit by the wall. And so we are facing some challenges. We have a homeless problem in downtown LA. We are really feeling the brunt of the hybrid work strategies that have been going on. It's interesting because when you look at some of the challenges commercial real estate has faced and downtown LA has faced, you can go all the way back to the SNL crisis in the early 90s. You can go to the dot-com bust in 2000. You can go to the financial crisis in 07, 08, 09. And each one of those crises, there was a primary or single reason or force that caused that, you know, whether it was poor underwriting or just, you know, startup companies in 2000 just bleeding to a point where they couldn't survive it anymore. This one is sort of a triple hit. And we're running into a situation where you've got the inability to get credit. You've got the inability to further develop and trade real estate and grow the business. And most importantly, you almost have a bit of a culture war going on. It's almost a war of labor where your labor, which is the most valuable asset any organization can have, is insisting that they're going to work remotely. And some people say, well, you know, a good recession would do us all good and people will lose their jobs. And if they want to come back, they're going to have to come back full time. And I don't espouse to that strategy. I think that that does not make good business sense. What makes good business sense is that we have to get great minds that we have in Los Angeles together, both public and private, and really think through a way to attract people to come back to LA, to re-energize that renaissance that we had established before the pandemic. Because the way you're going to get people back into the offices, back into the restaurants, back into the residential units that we've built is to say, this is a wonderful live, work, play environment. You want to be here. It's affordable to be here. And we embrace the diversity of the community and we can provide housing, you know, at market rates, but we can also provide housing at affordable rates, even for our homeless. Now, in terms of what you see, what's happened to LA, like certain things that has happened are not really in our control, you know, in the leader's control. Right. Like from the pandemic to the, you know, people not wanting to come back. Is there any policy things that you noticed that maybe they are not done right? There's several solutions. I mean, one of the challenges we have to your point is that our, the city of Los Angeles charter is a bit challenging. The mayor does not have as much power as other mayors in other cities, where I think Mayor Bass really has her heart and mind in the right place. She has focused on the homeless problem. She's very compassionate. And I think what Los Angeles really needs to do, because it's a big city and it's sprawling and it's a big problem because our weather is so good. I think we have more than our fair share of homeless, but as to really get great minds to sit down together, public and private, whether, you know, it's Rick Caruso or Roski or other, you know, great developers that have built so much of this city, they share the vision of the revitalization of Los Angeles. And I see, I think what we can do a better job of is getting great minds in a room together, putting political agendas aside and giving more expeditious leadership power to the mayor so that the mayor can execute on the plan. At this point, city council members really have to, you know, be on board 110%. We have to also reduce the amount of bureaucracy and red tape that goes along with any kind of development. Even if you're doing low income or affordable housing, it has to be built a certain way and use certain material and certain labor. And it becomes so expensive that this public private partnership begins to fail because the, you know, you have to do this with a carrot to a developer. You can't force them to do certain things because when it doesn't make economic sense, they're not going to participate in the solution. So I think, you know, putting great minds together and getting people to put the political agendas aside. And in terms of the homeless issue, has it impacted downtown a lot? It is a problem. But I think it more so stands in the way of creating that great live work play environment. If you're in downtown, you know, in the central business district or the financial district, and you want to go have dinner in the arts district, you have to go down sixth street and you're driving right through skid row. It's a bit of a challenge. And we do have the problem in downtown as well. I think solutions like increasing the visibility of the bid and the people in the purple shirts, they're fantastic. You see them on their bikes, providing some level of visual security. I think LAPD is doing the best job they can and hopefully they can recruit more sworn officers to be on the street and even walking a beat like they do in many other cities. I think the presence of security and police officers is really going to make people feel safer. But you can't solve the problem with just a stick. You have to create opportunities to house these people and get them back into society in a productive way and in a safe and humane way. I also applaud the mayor in her recent efforts on getting rid of some of these encampments. You see a lot of the abandoned RVs along various highways here in Southern California and the greater Los Angeles area. We can't have that. So I think the mayor is doing a pretty good job of trying to get the city cleaned up, but she needs help from the private sector as well. And so I think it's very important that we all pool our resources together. Folks, you've probably been hearing me talk about WireEFI for a while now. WireEFI has been getting a ton of phone calls from you and I thank you for supporting an investment that actually helps people. A lot of people are talking about this investment and I like to review the basics with you. First off, yes, it's true. 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We have to change everything. We have to change some things bigger. I think you have to change some things now. You have to show progress, but I don't think you have to do a complete overhaul of downtown to bring people back. From the office perspective, we have some of the greatest office buildings in the world in downtown Los Angeles. And the price, the rental price is a fraction. I mean, you're looking at $4 rents in downtown LA for class A trophy towers. And if you go to Century City, Beverly Hills, Santa Monica, you're looking at $8 and $9 rents and sometimes even higher. So there's going to come an inflection point where people say, yes, I want to be on the west side for various reasons. They think it might be safer, it's closer to home, more amenities, whatever it might be. But at the end of the day, people, they walk with their wallets. And they're going to realize as people begin to migrate back to the office, as you see the trend of management asking their employees to return to the office so they can take advantage of collaboration and coaching and career advancement, that they are not necessarily going to want to pay $8 and $9 rents and that they will realize the great value of some of these beautiful trophy assets that we have downtown. And buildings that are mixed use and have retail and hospitality and office. And you might see more of that. We have some office buildings now that have that mixed use built into them. And is there a lot of vacancies right now in downtown? The vacancy rate is pretty high. Yes. I mean, it's running somewhere in the high 20s right now, 28, 29%. The bigger concern is the occupancy. But I'm happy to report that as I'm downtown quite a bit, you know, we go into our office building. And if you're not there by 9 a.m., you're going down to P5 because the parking structure is filling up, which is great. I don't mind. That's a good thing. So people are coming back. They are coming back. Yeah. And I think that employers like our firm are building out pretty cool, creative space. Our space has a lot of huddle rooms. We've gotten rid of the whole lobby and got and moved much toward a cafe feeling. And our entry area and cafe turns into a whole big conference. You can open up our conference center and it opens up into the cafe. So it's much more of a, again, representing that live, work, play environment. And, you know, the office is getting away from that. I'm going at 8, leaving at 5, heads down work. It's more of I'm going to go into the office. I'm going to have a team meeting in a huddle room. I'm going to visit with some clients. I'll do a team's call. And then I'm going to go out into the field and see my clients and go take some meetings. So we're really promoting an environment where the office becomes more of a functional place as opposed to just an 8 to 5 destination. Big difference. So you're kind of using the office and then you go do other things. Yes. I liken it to if you go to the Grove, which is a wonderful outdoor retail experience in the mid-Wilshire area, you might go there just because you need to buy a pair of slacks. But truth be told, when you get there, there's the farmer's market. So maybe you'll walk around the farmer's market and pick up a few things for the weekend. And there's kiosks. And so you might have a cafe and then you might be another kiosk to get a cover for your iPhone. And then there's music playing. So you might sit and listen to the music. And so you went there originally to buy a pair of pants, but at the end of the day, you did five different things at the Grove. And that's the way we look at our office space. So it becomes an experience. Correct. Correct. And so when you're working with the various architects, it's all about the experience. And in the old days, they just wanted to know how many offices do you need, conference rooms, what's the program. Obviously very important because we're trying to save money with our occupancy. But on the other hand, it's what's the experience. What is the vibe of your employees? What's the culture of your firm? And working with the really good architecture firms, they can make that become a reality. Now, Chris, you see that you're pretty optimistic that the downtown will come back. And you've been a third generation Angeleno. What do you see in the culture of Los Angeles? Is there anything inside the culture of the Angelenos that makes you feel confident that this will be behind us and there will be... Yeah. The great thing about Los Angeles and Southern California is there's something for everybody. Some people live down on the water. Some people like to live out in the valley and have more of a little bit larger property. Some people live up in the mountains. It's a very diverse community, again, in terms of cultures, where people have come from, but also a very diverse economy and a very diverse landscape of where you can live. And I think that while we've suffered a little bit of people leaving over taxes or over regulations, there was a big migration of people who've moved to Texas. They moved to Florida. They moved to Arizona. I think that that type of behavior sort of goes in waves. But when you look at the investment that we're making with SoFi Stadium, that's a $5 billion investment into the Inglewood community, which is phenomenal. And there's going to be more like that. And we host the Super Bowl and we're hosting the Olympics in 2028. And we still are the entertainment capital of the world. And people want to be where that action is going on, where that quality of life can be provided. But I think we as Angelenos have to make sure we provide that quality of life to everybody, and not just to those who can afford it, but even for those who can't afford it. They're here. They're part of the community. And we all as Angelenos, first generation and third generation alike, have to really come up with some solutions. And that's by, again, everybody putting their guard down a little bit, putting their political agendas aside, and allowing some great minds to come together. That's the way the city was built back in the 20s. It's the way that LA Live was built. It was the way that the Adaptive Reuse Ordinance worked and created this wonderful environment in the Arts District. We'll do it again. We'll do it again. There was a mansion tax, which is affecting the commercial and apartment buildings, right? Correct. Is that, and some people said, well, if you do this mansion tax, people might not want to invest in LA. What are your thoughts on that? I think the mansion tax had all great intents to try to fund some of the solutions for the homeless and some of the companion issues. I think, unfortunately, I won't say it was accidentally misplaced, but I think the impact that it's having on the commercial real estate industry is really catastrophic. I mean, Los Angeles and Southern California is already suffering enough. Our taxes are very high. Our regulations are overbearing compared to other cities throughout the country. Now to put a five plus percent tax on certain transactions, and even higher as you get up into the higher numbers, when you're selling a $300 million building, that is a big number. We have seen significant sales fail because they were not able to get the transaction done before that mansion tax kicked in. Because people didn't want to pay. The math didn't add up to pay the tax. Correct. The math did not add up, and the parties then were the stalemate of who was going to pay that tax. There's been challenges to the tax, and the intent was that possibly if people are selling five, 10, $15 million mansions, maybe through this tax they could help contribute to providing alternative housing for the homeless, etc. But some people feel it's almost like an end round to Prop 13, etc., and it's just one more issue that we're all facing in the business world of Southern California. I think we, as Southern Californians and Angelenos, we have to find ways to attract people into our city and into our community, into our business environment, and not drive them away by more taxes and more regulations. Do you think those kind of international or national investors look at these kind of taxes and say, we should consider another city instead of L.A. to invest in, or do you think it's not that big? I don't think it's that big for some. I will say this. I'm a third generation Angeleno, and we have so much going for us in our city. First of all, we have not only a very diverse community, but we have a very diverse economy. We have the entertainment industry, aerospace and defense, biotech, white collar services, lawyers, accountants, insurance, etc. And so the economy goes up, the economy goes down, and boom and bust all over the country. We're fairly steady in Southern California. We have a diverse economy that sort of buffers us against some of the extremes. We have some of the greatest weather in the world. Most of us here in L.A., we refer to our state income tax as our weather tax. We have beautiful beaches. We have the mountains. You can get to the desert, you can go skiing, you can go out on the water. Everything is so close to where you might live. And foreign investors are very keen on Southern California. And foreign investors also see it as a very safe haven for their investments and for placing their capital. And we remain the gateway to Asia. We remain the gateway to much of international trade. We boast two of the biggest world ports in the world, Long Beach and Los Angeles. And so we have so much going for us. And foreign investment will continue to come into Los Angeles and Southern California. But we have our challenges, again, like any other city. Before we continue, we would like to thank Shen Yun for sponsoring this channel. I lived in China for two years and experienced two different Chinas. One is the China we know now, unfortunately with communism. And the other is ancient Chinese culture with 5,000 years of history, strong values, ethics, and morality that has been lost. Shen Yun Performing Arts is reviving this 5,000 years of Chinese traditional culture. It takes you back in time to magical world of ancient China with a unique blend of brilliant dancing, beautiful costumes, and legends coming to life. Go to Shenyun.com to find out the schedule and theater information. It's a lifetime experience you don't want to miss. Book your tickets today. Now let's go back to the interview. Now, in terms of downtown, do you think it will get revived quickly? Or do you think there's talks of people bringing, changing some of this commercial real estate to residential? Do you think any of that would work? Is that possible for that? I do think it will work. I don't think it's as easy as some people profess that you can just go and take a Class B building or a Class C office building in downtown LA and just do a quick gut and redo, and it's going to be this great residential building. There's three specific challenges that you have to think about. Anytime you do a major conversion like that, number one, you may have office tenants that have longer term leases. So you either have to wait them out, which probably doesn't make too much sense, or you buy them out, or you have to find an alternative location for them. And that's an expensive undertaking. Number two, many of these buildings would not comply with the state seismic requirements. So if, especially if you're converting an office, an older office building to a residential, that can be a significant undertaking, whether you have to wrap the columns or you have to put K-bracing in or whatever it may be. You may have to redo the foundation of the building. And then number three, we call it the MEP, but the mechanical, electrical, and plumbing of a residential building is much different than an office building. And so you're going to have to literally redo that whole MEP infrastructure of the building, which is very expensive. So you get to a point where is it just better just to knock the building down and start all over again, to really accomplish a true revitalization of our renaissance that we were going through. I think you have to really go through an exercise of some solid urban planning and city planning, because I'm not convinced as we sit today with all these office buildings that we can simply say we're just going to convert a third of them to residential and we're ready to go. I think we need to maybe eliminate some of these buildings, create parks, create gathering areas, create maybe some more museums, some restaurants, outdoor environments. You know, we have the greatest weather in the world. Why not create lots of areas with trees and parks where we have white tablecloth and just walk up quick service food as well, where people can really enjoy the weather and sit outside and really take advantage of that great asset that we have here. But the city is going to have to provide expedited development and approval for the developers. They're going to have to maybe enter into what we call DDAs, or disposition and development agreements, where there's a granting of property to the developer for a low price and then in exchange the developer builds something that's for the community. As we build housing, we have to entice the developer to also provide opportunities to build low-income housing or affordable housing. So again, I think we have to take a much broader view of what we need to do to get people to really come back downtown. Chris, do you think politics is blocking LA from achieving what it needs to? I think in some respects, yes. We have a very large city, a very large city council. You know, one of the, as I mentioned earlier, the beauty of Los Angeles is the diversity of the communities and of our economy, but also it can create some conflicting agendas and we have to find common ground. We, you know, we often say that we watch the dysfunctionality of Congress, but at the end of the day we all want to take a step back and say we're all Americans and we're all people living here in the United States and so we have a lot, we share a lot of common themes and desires to live freely, to be protected, and to have an equal opportunity to thrive. And I think if you bring that down to Los Angeles, it's no different. We are a wonderful community in Los Angeles. There are competing interests. People worry about overdevelopment. People do worry about the environment. People do worry about traffic. People do worry about the lack of affordable housing, but we can solve those problems by all taking a step back like we do at the at the national level to say let's find out what we have in common. And so if you begin to find those areas of commonality through, as I mentioned earlier, that public-private partnership, it's going to require the leadership of the mayor, the leadership of community organizers, and the leadership, I think, of people in the real estate industry who have built so much of this wonderful city to sit in a room and say what are the three or four things that we have in common? One of my partners always says what's our why? What is our why? Why do we do what we do? So we as Angelenos have to find our why. When we can do that together, we can fix these problems. In the meantime, we're seeing increased activity. We're seeing people coming back to the office. We're seeing people want to get back into the restaurants and make Los Angeles what it used to be in terms of its momentum. I think that great minds will solve this problem, but we, again, have to do it in a partnership. Well, hopefully things will get better fast. I agree. Chris Cooper, commercial real estate expert. It was great to have you on California Insider. Well, thank you so much. I really enjoyed it. If you haven't checked out CaliforniaInsider.com, we highly recommend you do that now because we're going to have a lot of news and videos there. And on top of what we have there right now, we're building a really big platform to cover what's happening in California. So you can be informed. We're going to have more shows, more videos from all aspects of life in California. Go to CaliforniaInsider.com and we'll see you there.