Hollywood Faces Consequences of Residential Binge

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The sizzling rate at which Hollywood office buildings are being converted into expensive residences is getting too fast for even some of its original proponents the city of Los Angeles and members of the local business community.


While initial conversions mostly have been of unoccupied older buildings, developers recently have begun targeting more modern offices that have significant occupancy.


Much of the recent concern was sparked by Phoenix-based Alliance Residential Co., which paid $29 million for the 180,000-square foot office building at 7060 Hollywood Blvd.


The company informed city officials last month that it plans to convert the building on the southwest corner of Hollywood Boulevard and Sycamore Avenue into high-end residences.


“That really opened our eyes,” said Leron Gubler, executive director of the Hollywood Chamber of Commerce, which has been lobbying city officials to protect the community’s remaining office buildings.


The property is one of the neighborhood’s largest office buildings and is adjacent to a twin tower at 7080 Hollywood Blvd. that is completely filled with office tenants.


City officials say that if 7080 is successful in attracting tenants there is little reason that 7060 can’t be revitalized to do so also. Moreover, there is concern that other Hollywood buildings currently for sale such as the CNN building on Sunset Boulevard could be next.


If the buildings are taken off the market, and no new offices are built, then much of Hollywood’s office tenants could be forced to relocate to surrounding communities.


The concerns prompted the Hollywood Chamber of Commerce to set up a meeting next month among city officials, property owners and developers to discuss ways to balance residential and office development.


Already the offices of Mayor Antonio Villaraigosa and Council President Eric Garcetti, whose 13th District includes most of Hollywood, and the Community Redevelopment Agency of Los Angeles are debating ways to amend the city laws that allow the conversions in Hollywood.


While a proposal is still being hammered out, the city officials are also looking at ways to influence the construction of office buildings by changing the area’s zoning and preemptively entitling parcels for office buildings.


“In a way, it’s become too much of a good thing,” said Helmi Hisserich, the head of the Hollywood office of the redevelopment agency. “The intention wasn’t to flush out tenants and convert functional office buildings.”



Shrinking supply


As in downtown Los Angeles, converting older Hollywood office buildings into high-end apartments has caught on quickly.


At first the city law that allows the conversions called the Adaptive Re-Use Ordinance was specific to downtown, but city officials extended it to Hollywood and other parts of L.A. two years ago.


In downtown, where there are substantially more office buildings than Hollywood, developers have used adaptive re-use on the numerous older, largely vacant buildings. Only two modern office buildings 1100 Wilshire Blvd. and 801 S. Grand Ave. are being converted and both had large vacancies.


When the ordinance was extended to Hollywood, residential developers flocked to the area, which is more evenly balanced between residents and workers than downtown.


CIM Group Inc. is in the process of converting a 19-story tower at the southeast corner of Sunset Boulevard and Vine Street into 90 apartments and an older structure at 7046 Hollywood Blvd. into apartments.


At Hollywood Boulevard and Vine Street, The Kor Group Inc. is converting the Broadway building on the southwest corner into condominiums, while the Paladin Group Inc. is converting the Equitable building on the northeast corner into condos.


And at the northwest corner of Yucca and Vine streets, Second Street Ventures LLC purchased the former KFWB building for possible conversion into a residential complex.


Other prominent buildings could soon follow. The owner of the Security Pacific building at the northeast corner of Hollywood Boulevard and Cahuenga Avenue has hired CB Richard Ellis Group Inc. to find a buyer, who could convert the building into residential units.


While those faded buildings are the types that the city is targeting with its ordinance, the possibility of converting buildings like 7060 Hollywood Blvd. is being seen as going too far.


While the building is run-down and has on occasion been evacuated by the Los Angeles Fire Department for code infractions, the structure has the potential to be successful as offices, Hisserich and others said.


Its twin to the east has been maintained and is completely occupied at near market rents, according to area commercial brokers.


“We certainly don’t want to lose what commercial presence we have already,” Gubler said. “If we start to lose modern offices, we could be hurting ourselves in the future.”


Executives with building owner Alliance Residential did not return telephone calls for comment. However, other developers have already said they are wary of the city tinkering with the Adaptive Re-Use Ordinance.


Tyson Sayles, a senior vice president of development at Kor Group, believes the buildings that are being converted including 7060 Hollywood Blvd. weren’t functional and are better suited as residential buildings.


“Many of these projects never worked as an office building,” Sayles said. “Our Broadway building had been substantially vacant for 20 years before we bought it.”



On the rise


Market forces also could correct for any imbalance that’s created by the residential conversions, developers and property owners say.


As older buildings are taken off the office market, Hollywood’s office vacancy rates have plunged and rents have been rising steadily, according to data from Grubb & Ellis Co.


Vacancy rates at Hollywood office buildings dropped to single-digits by the end of last year from nearly 20 percent when the ordinance was expanded. At the end of December, average asking rents in Hollywood were $2.54 a foot, while during the same period a year earlier the rents were 10 cents a foot cheaper.


The lower vacancy rates and increase in rents have attracted new, institutional office owners to the area. Three months ago, for example, CB Richard Ellis Investors bought the House of Blues building at 6255 Sunset Blvd. The firm, an owner of office buildings on behalf of institutional clients, isn’t likely to change the building’s use.


While CIM Group is converting some office buildings into residences, the company has also been investing in higher-quality Hollywood office buildings. The company renovated its TV Guide building at 6922 Hollywood Blvd., which is almost fully leased.


Last year, CIM purchased the Stephen J. Cannell building at 7083 Hollywood Blvd. and the firm is close to completing a drastic renovation of the long-neglected office building at 1800 Highland Ave.


The company is also considering developing new office buildings on Highland Avenue both north and south of Hollywood Boulevard, near the firm’s Hollywood & Highland mall.


“We believe Hollywood has a bright future as an office location for entertainment companies,” said John Given, a CIM Group principal.


Still, that activity hasn’t satisfied city officials who want even more office space brought onto the market.


“There are firms that would love to be in Hollywood but can’t find the space,” said Hisserich. “We want to make sure we continue to build a vibrant economy based on the entertainment industry, which is our major employer in Hollywood.”

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