Report: SoCal Construction Still Faces Problems

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Construction is booming in Los Angeles and throughout Southern California.

Downtown towers are sprouting up left and right, a new $1.5 billion bridge spanning the mouth of the Los Angeles River at the Port of Long Beach is taking shape, and a $2.6 billion football stadium for the Los Angeles Rams broke ground last month in Inglewood.

But a new report by the Los Angeles Economic Development Corp., “Building the Future: Construction in Southern California,” says the region still hasn’t fully recovered from the recession and that the construction industry faces a challenging regulatory environment and high costs.

Yet, there is reason to be optimistic, according to the report, as builders utilize new technologies and look forward to further growth ahead.

Construction activity in 2014, the most recent year for which data are available, made up 2.9 percent, or $28.1 billion, of Southern California’s $962.2 billion regional gross product. That’s down from a high over the past decade of 5.1 percent in 2004 and 2005, the report says.

Last year, the construction industry employed 313,700 workers in Southern California, about 98,000 fewer than in 2006.

Looking ahead, new trends will develop, the study says, including:

• The multifamily sector will slow as single-family housing gains momentum, especially in more affordable inland areas.

• Homebuyers will continue to seek out walkable communities near employment centers and transportation hubs.

• Demand for ecology-minded building features for both commercial and residential structures will continue to rise.

• Remodeling and renovations will continue at a robust pace.

• Construction companies will struggle with shortages in some skilled trades.

• Prefabricated and off-site construction methods will become more popular.

• The use of building information modeling technology will become a necessity.

• Laser scanning technology used to create digital models will gain wider usage.

• Construction companies will be more cautious about project selection because of lingering caution from the recession.

Complex Makeover

The 1.3 million-square-foot Howard Hughes Center in Westchester is going to get an upgrade after its $583 million purchase last month.

The Blackstone Group acquired the office complex, near Los Angeles International Airport, as part of its purchase of 20 properties in California and Washington state for $1.16 billion from Hines REIT Inc. The sale was completed in November, according to CoStar Realty Information Inc.

Blackstone-owned real estate firm Equity Office said in a news release last week that it plans significant upgrades for the center to transform it into a creative, connected campus, though a spokeswoman wouldn’t say how much the company intends to spend.

“Playa Vista has blossomed into one of the most-sought-after office locations in Southern California,” Brendan McCracken, senior vice president of leasing at Equity Office, said in a statement. “There is a tremendous opportunity to enhance the project’s value by repositioning the asset to provide workplace settings and amenities that not only meet the needs of today’s workforce, but look to meet future needs as well.”

The Howard Hughes Center purchase involved seven properties on 45.7 acres near Sepulveda Boulevard and the 405 freeway that include a gym, vacant lot, and five office buildings with tenants such as Pepperdine University, Sony Corp., and Univision. CoStar listed the price tag at $583 million, which is about $448 a square foot.

Equity Office’s renovation of the complex’s office buildings will entail new pedestrian paths, enhanced outdoor entertainment areas, drought-tolerant landscaping, upgraded wired lobbies, contemporary spec suites, and customizable floor plans, the company said.

The sale and renovation mirrors developments at the neighboring Promenade at Howard Hughes Center retail hub.

Laurus Corp., based in Century City, bought the Promenade in mid-2015 for $111 million, paying about $446 a square foot for the 250,000-square-foot mall. The company said at the time that it will spend $30 million on improvements there.

Boyle Heights Rising

Boyle Heights, a neighborhood where residents protested this month against rising rental costs tied to a surge in development, will soon see a new project rise from the ground on a 14,000-square-foot lot at 110 S. Boyle Ave.

However, a forthcoming mixed-use structure on the property will include affordable housing units along with retail, according to a report posted online last month by the Economic Workforce Development Department.

The city of Los Angeles has an option to purchase the site from the CRA/LA, the successor to the Community Redevelopment Agency of Los Angeles. The option agreement was arranged in 2013 to ensure that the disposition of the property would provide ongoing community benefits.

The city submitted a request for proposals from potential buyers in May and received two bids from developers, according to the report. Once a buyer is selected, the city is required to purchase the site from the agency and sell it to the winning bidder at fair market value.

This week’s real estate column was compiled by managing editors Paul Eakins and Omar Shamout.

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