By DANIEL TAUB
The next trend in L.A. development activity could be inward instead of outward.
The big question, however, is whether infill projects will make financial sense, especially since these developments will lean more toward rehabilitation than new construction. And given the cost of such items as asbestos removal and code compliance, rehabs can be nearly as expensive as building anew.
"You end up not that much cheaper than building a new building," said Cliff Goldstein, a partner at Miracle Mile-based commercial developer J.H. Snyder Co. "So ultimately, the analysis gets down to what kind of rent the building will lease for, how quickly it will lease, and how the market forces will affect your success."
Goldstein and other developers say that, given those market forces, less-popular areas such as downtown Los Angeles and the Mid-Wilshire district long touted as ripe for redevelopment won't see many rehab projects in the next five to 10 years. Rehab activity is more likely to occur in the more popular parts of town.
"The Westside of Los Angeles is clearly a place where you'll see renovations," Goldstein said. "The Tri-Cities area is clearly a place where you'll see renovations. Beverly Hills is a classic renovation market because of the lack of new buildings there."
Many of the rehab projects will involve upgrading class-B and class-C office space to class-A space, a trend already underway in Century City. That could spread to other areas; even Woodland Hills, a relatively new business center, is likely to see some buildings undergo rehabilitation.
One advantage of a rehab is that it takes far less time to complete.
"To build a new building if you don't have property that's entitled, your construction time including zoning and entitlements is three or four years," Goldstein said. "You can get a renovation done in eight or nine months."
In addition, some buildings that are candidates for rehabilitation could not be built today, due to changes in zoning laws. Beverly Hills, for example, has a three-story height restriction for new buildings, but existing buildings are 10 and 12 stories, and they can be converted from class-B or C to class-A space.
In some areas such as those with a large number of entertainment and multimedia businesses, like Santa Monica rehabs involve converting older, standard-layout office buildings to properties with more open space.
"There are so many different rehab stories," said Tom Bak, managing director of the City of Commerce office of Trammell Crow Co. "The key is to make your rehab functional to the submarket you're in. Each submarket has idiosyncrasies that you have to be sensitive to."
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