It’s no secret that it’s been a tumultuous time for the office market. During the pandemic, many workers took their work home, and not all have returned to the office since. But most office developers and brokers alike agree that the market has bottomed out while Class A, highly amenitized projects are still seeing great success. “The office market today in Los Angeles is in the healing stage,” said Newmark Group Inc.’s Kevin Shannon.
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Attracting Employees: Sonnet Hui says office buildings are having to compete with home offices.
Sonnet Hui is the general manager and vice president of Project Management Advisors Inc., a downtown-based real estate advisory firm focused on real estate development. The firm serves a wide array of industries, including office, industrial, hospitality, education, residential, retail and more. Hui leads the firm’s overall business strategy, operations and business growth. She’s been with the company since 2020.
Tell me about you and your role at PMA.
I am the general manager and vice president at Project Management Advisors, where I run day-to-day business operations and project delivery to support the firm’s growth in the Los Angeles area. I was in architecture for 15 years before joining an international development company, where I ran large-scale mixed-use projects in Los Angeles from entitlements through design and construction. Prior to joining PMA, I was the vice president of design and construction at NBCUniversal and ran the studio department executing all campus projects.
How would you characterize the state of the Los Angeles office market?
Post-pandemic, the line between work and home life has blurred. We’ve entered a reset phase where hybrid work and flexibility are the norm. The challenge for businesses is finding ways to bring people back to the office while still providing the flexibility employees want. While some areas have rebounded to pre-pandemic levels, others, like DTLA, are still struggling.
What are the challenges of getting people back into the office?
Offices now compete with the comfort and convenience of home (offices). Employees value their comfort, time and the reduced stress of not having to deal with traffic and long, increasingly expensive commutes. The flexibility of remote work has shown employees that balance is achievable and desirable, making them less inclined to return to traditional office environments. Many employees also feel they are more productive at home, without the distractions of an office environment.
Recently, PMA relocated its own office downtown. Tell me about this move.
PMA works with many big, Los Angeles-area tech companies, real estate developers and landlords so being centrally located downtown was a must. We wanted our new office to inspire employees to come back in-person, so we surveyed them on what would move the needle for them. We found a central location in a historic building, which gave the office a lot of unique characteristics that employees wanted. We also included a variety of workspaces to support our multigenerational workforce on focus work, collaboration and brainstorming.
How do you advise companies on their office portfolio?
We focus on helping clients achieve high employee engagement and satisfaction, which is crucial for retaining and attracting top talent. Some trends and elements that we emphasize are: food options, including company-provided meals and a wide range of quality restaurants nearby the office space; mental health and wellbeing at the office, including providing access to quiet or relaxation spaces, natural light, greenery, high ceilings, natural materials and outdoor areas; flexible working hours and locations, which support work-life balance and accommodate employee needs – this can also mean providing a variety of work points such as ample desk space, quiet phone rooms, meeting rooms and lounge space; seamless technology such as powerful WiFi, mobile monitors and mobile power solutions; and curated office events like learning labs, open houses and parties.
Looking ahead, what do you predict for the Los Angeles office market? Do you see a rebound?
The Los Angeles office market is showing signs of a gradual rebound. Recent leases indicate office leasing activities are picking up, with tenants actively seeking better deals. While office vacancies in DTLA are currently higher than during the 2009 recession, the market is beginning to stabilize and pick up in certain areas. The office market is highly competitive, with a clear distinction emerging between class A properties and class B and C properties. Longstanding tenants are exploring new options as leases come up for renewal, and brokers are aggressively offering alternatives. The focus is on better locations, competitive rents and enhanced amenities to attract and retain tenants.
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Leasing Office Spaces: CBRE’s Todd Doney works with both landlords and tenants on office leases.
Todd Doney is a vice chair at CBRE Group Inc., specializing in office leasing. He works out of the firm’s downtown office, on behalf of both landlords and tenants. Over this 39-year career, Doney has completed commercial real estate transactions encompassing more than 100 million square feet of office space. He is a graduate of Arizona State University.
How did you get your start in office leasing?
My interest in real estate began early, influenced by my father’s career in the mobile home park business. Initially, I envisioned working alongside him. However, after earning my Bachelor of Science degree in real estate, I received valuable advice to gain experience with a larger company first. This turned out to be some of the best guidance I have ever received. I was fortunate to start my career with Cushman & Wakefield immediately after graduation, and I found my passion for office leasing from the very beginning.
Do you mainly represent tenants or landlords? Who are some of your clients?
My practice encompasses both landlord and tenant representation, allowing me to offer a comprehensive range of services to a diverse clientele. Over the years, I have had the privilege of working with some of the largest and most prestigious companies in various industries. These include Cedars-Sinai Medical Center, Southern California Edison, Nestlé, Wells Fargo, KPMG, AT&T and Cigna.
In the real estate sector, I have collaborated with prominent developers and property management companies, including Worthe Real Estate Group, Blackstone, Brookfield, Hudson Pacific Properties, Lincoln Property Company, LBA Realty and Onni Group.
How would you characterize the state of the Los Angeles office market today?
The Los Angeles office market is quite complex, comprising over 70 distinct submarkets, which makes it challenging to generalize. However, the lingering effects of the pandemic are still evident across these markets. The pandemic significantly accelerated the adoption of hybrid work models and, while we are now seeing some companies beginning to enforce more robust return-to-office policies, many will still require less space when their current leases expire.
What do you think have been some of the biggest hindrances to its success?
The office market is currently facing several significant challenges that hinder its success. Firstly, many tenants are requiring less space, leading to higher vacancy rates. This shift is largely due to the increased adoption of hybrid work models and changing workplace needs. Secondly, landlords with upcoming loan maturities are struggling to refinance their properties due to the illiquidity in the financial markets. This financial strain makes it difficult for property owners to maintain and upgrade their buildings. Lastly, many older office buildings lack the amenities and infrastructure that today’s office users desire. These factors combined create a challenging environment.
Tell me about some of the trends you’re noticing in the Los Angeles office market. What do tenants and/or landlords want?
Modern office projects are increasingly incorporating features like patios, large Wi-Fi-enabled courtyards, balconies and walking paths. These elements cater to tenants’ growing preference for outdoor and communal spaces. In the past, amenities might have included a simple sandwich shop or dry cleaners on the ground floor. Today, the best office projects offer a much broader range of amenities, including gyms, conference centers, pickleball courts, multiple dining options, convenient ride-sharing drop-off areas, operable windows and even golf simulators. These enhanced amenities reflect the evolving needs and expectations of tenants, who are looking for more than just a place to work – they want a dynamic and engaging environment that supports their lifestyle and well-being.
Looking ahead, what do you predict for the Los Angeles office market? Do you see a rebound?
Looking ahead, I do anticipate a general rebound for the Los Angeles office market starting in late 2025 or 2026, particularly for some of the struggling submarkets. Personally, I go into the office practically every day. I am absolutely convinced that my team delivers a better product to our clients, my team members are more engaged in our success and our culture is enhanced by us being together in person. I believe most executives feel the same way and therefore the top office buildings will do well in the long term despite the near-term difficulties.
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Office Owners: Continental’s Bob Tarnofsky says El Segundo has been a beneficiary of tenants leaving downtown.
Bob Tarnofsky is the executive vice president of real estate for Continental Development Corp., an El Segundo-based commercial developer of office, retail and hospitality assets. The group is particularly active in the South Bay and recently inked a deal with Mattel Inc. at one of Continental’s properties in El Segundo.
Tell me about yourself and your role at Continental Development. How long have you been with the company?
I have been with Continental Development since 1992. Together, with our leadership team, we have developed or reinvigorated over 5 million square feet of Class A office, retail, hospitality, and entertainment buildings throughout California, with a significant focus in the cities of El Segundo, Manhattan Beach and Torrance.
Tell me about Continental’s portfolio. What kinds of office properties are you most interested in?
Currently, Continental Development holds about 3 million square feet of commercial and office space in California. This includes Continental Park in El Segundo, the largest mixed-use office park in Los Angeles County, and the 14-acre headquarters and training facility for the Los Angeles Chargers that opened earlier this year. It also includes the 32-story InterContinental San Francisco, the largest hotel developed in San Francisco in the last three decades.
Recently, the office market has been hit hard by rising vacancies and the influx of remote work. Has this changed the way in which you do business?
One of the biggest beneficiaries of the flight out of DTLA has been the El Segundo submarket. Continental Park – where a large portion of our office space is located – is about 85% to 90% leased. Physical occupancy is still down, closer to that 60% level, but we are seeing more tenants start to return to the office every day.
One reason that areas like El Segundo and Century City are in high demand with office space is because of their close proximity to higher-end residential. We are finding that entrepreneurs and CEOs want to be close to home, but also now demand Class A space loaded with amenities. There is a definite flight to quality in the product they’re seeking. Work habits are changing with a lot of major employers moving to hybrid schedules, and shortening the commute is just another incentive they can offer.
Have you found yourself developing other types of assets in response?
In collaboration with Mar Ventures Inc. and an institutional land and hotel owner, we secured approvals for 263 units of new housing on Pacific Coast Highway at the northern end of El Segundo, near LAX. The new apartment community, called Pacific Coast Commons, will include 32 affordable units. We also have two office sites in Manhattan Beach that are likely to be redeveloped as large, institutional quality multifamily assets.
Are you still planning to develop more office looking forward?
Not in the near term. We have no plans for ground-up, new office construction at the moment. We have entitled land for a new media campus, as well as other office and data center uses, but are not focused on any speculative office development right now. We are working to refresh various buildings in our portfolio to meet the new requirements of tenants as people return to work post pandemic.
Tell me about a project you’re working on or recent deal that you’re particularly excited about.
In October, we announced that Mattel is adding studio operations to 831 S. Douglas, a 60,000-square-foot single-story creative building we own (in El Segundo). This is one of the largest full building leases in the South Bay and will accommodate Mattel’s expanding studio needs. The building already has state-of-the-art studio space, a contemporary, flexible office floorplan, and is in move-in condition. It sits right off the Rosecrans Corridor, which is one of – if not the – most highly-amenitized regions in the South Bay, with restaurants, the high-end Bay Club athletic facility, the Manhattan Country Club, hotels and shopping.
Continental Development has heavily invested in El Segundo. What’s attractive
to you about that area?
The City of El Segundo has been our core market of the South Bay for decades because it is one of the most business-friendly cities in California. That is in large part due to the city’s leadership – from the mayor and the council members to its staff. They are very proactive in attracting great companies to come to El Segundo. El Segundo Mayor Drew Boyles calls the city the five most important square miles in California. That’s not a hyperbole – next to San Francisco, El Segundo has the most Fortune 500 businesses in all of California.
What’s next for the company?
Consistent with our five decades of community development in El Segundo, we are continuing to look for opportunities to create state-of-the-art facilities for the broad spectrum of users seeking to make El Segundo their home. CDC’s holdings on Rosecrans and the Raytheon Campus have attracted the attention of R&D (research and development), sports and recreation, life science, technology, media and other users.
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Investing in Amenities: ‘Market conditions are continually evolving,” says ULI’s Kellie Kao Miles.
Kellie Kao Miles is the current executive director of ULI Los Angeles, a district council of the Urban Land Institute, a nonprofit education and research institute with approximately 50,000 global members. Before taking on her role as executive director full time, she was a managing director at Coldwell Banker Development Marketing Group. Prior to that, she was the chief financial officer of an Inc. 500 hotel technology company.
Tell me about yourself and your role as executive director of ULI. What do your responsibilities look like?
I became executive director of ULI Los Angeles in July of this year after having been an active member leader for several years. As executive director, I work closely with our chair, advisory board, member leaders and the staff to deliver programs and initiatives that address important issues in our industry by sharing knowledge, promoting best practices and conducting advisory services on complex issues such as downtown revitalization, and providing a platform for convening and engagement among stakeholders. Altogether we execute and deliver over 50 programs and initiatives a year for our members and the industry at large.
As an organization, how does ULI discuss topics like the changing landscape of Los Angeles?
ULI Los Angeles has over 2,000 members across the full spectrum of real estate and land use disciplines including developers, architects, investors, brokers, planners, public sector officials, academia and more. Our members work in virtually every product type and every submarket. Our diverse membership gives us a uniquely comprehensive perspective on the Los Angeles region.
What are some of the biggest difficulties facing the office market?
Market conditions are continually evolving. In the current environment, the supply and demand imbalance continues to be a challenge as hybrid work impacts office utilization. At the end of Q3, vacancy in the greater Los Angeles market was at a high of around 24% and companies are downsizing their footprint by 15% to 20% at lease renewal. The other notable concern is on the capital side as the market continues to search for a bottom and loans come to maturity.
Are many of ULI’s developer members still interested in investing in office assets?
In every phase of the cycle, there are opportunities. Even in the current environment, quality products in desirable locations continue to be of interest. Certain submarkets such as Century City, Culver City and the San Gabriel Valley have performed well. There are also efforts and strategies to redevelop obsolete office buildings and reinvigorate the DTLA Central Business District.
What trends are you noticing today?
There is a continued flight to quality (trend) as companies seek to encourage employees to return to the office with spaces that enhance collaboration and productivity and offer amenities that employees desire. Flexible, coworking spaces are also gaining importance, offering companies options to adapt their space requirement.
At a time when there’s lots of interest in low-rise creative office spaces, what are people doing to make high rises more appealing?
Similarly to low-rise creative offices and coworking spaces, high-rise owners are making their properties more appealing by investing in amenities such as gyms, on-site dining, concierge and other services within the building. Another enhancement is providing state-of-the-art technology and smart building systems to cater to tech-savvy tenants. Where feasible, providing outdoor spaces for tenant companies and employees to casually gather or use for company functions is also a valuable offering.
Looking ahead, what do you predict for the Los Angeles office market? Do you see a rebound?
Despite the challenges in the current environment, I see a rebound in the mid-to-long term. Los Angeles is one of the great regions of the world – we have key industries, world-class education and research institutions, and a diverse talent pool that will continue to drive innovation and business growth in the region which will positively impact the office market.
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Major Deal Broker: Kevin Shannon found his passion for real estate while a student at USC.
Kevin Shannon is a top office broker and also serves as the co-head of U.S. Capital Markets at Newmark Group Inc., where he leads a team of 31 professionals focused on arranging capital markets transactions on behalf of domestic and offshore investors. Shannon has been involved in over $80 billion of capital markets transactions since 2010. He works out of Newmark’s El Segundo office.
How did you get your start in office brokerage?
I owe my passion for commercial real estate to USC and their outstanding real estate program. I knew during college that commercial real estate was going to be my career path because my introductory real estate class freshman year at USC got me completely hooked. I began my career in office leasing in the South Bay and decided in 1995 to transition to a full-time investment sales professional which was a great career decision due in part to impeccable timing. Investment sales finally exploded in 1996 and 1997 after the Great Financial Crisis as Arden and Spieker’s REIT growth fueled an explosion of office acquisitions in Southern California.
How would you characterize the state of the Los Angeles office market today? How does it compare to other asset classes?
The office market today in Los Angeles is in the “healing” stage and has clearly bottomed from a capital markets perspective. Investors have much more certainty on their cost of capital, and we are finally seeing some institutional buyers playing to win on the nicer Class A office product in addition to the family office investors which have dominated the buyer pool landscape for office product during the last two years. The unprecedented pace of rate increases in 2023 (created) so much cost of capital uncertainty that the market was essentially frozen.
What do you think have been some of the biggest hindrances to its success?
The bottom line is the fundamentals in the Los Angeles office market with the exception of Century City are soft. Los Angeles’ growth engine has always been “techtainment,” and both of those engines are temporarily stalled and have contributed to the availability rates hitting close to 30% with office utilization still sub 50% countywide. The entertainment industry has not recovered to pre-Covid levels and filming days are down about 10% year over year. The current contraction trend with “techtainment” tenants will eventually change of course, but for now this is a clear headwind for the Los Angeles office market. Law firms and professional firms have been far more active. Also, owner-user buyers, especially UCLA, have been a bright spot as well and have contributed substantially to the office absorption that has occurred. Their conversion of the Westside Pavillion will create a beneficial medical research ecosystem that will be an engine of growth for West Los Angeles.
Tell me about some of the trends you’re noticing in the Los Angeles office market. What are buyers looking for?
Family office buyers have dominated the Los Angeles office sales landscape recently along with owner user buyers. Many of the family office buyers are simply ‘psf (per square foot) buyers’ attracted to the massive discounts available to prior peak pricing and to replacement cost. This is especially true in the more commodity markets. Institutional investors are also starting to bid on office assets but are limited to the A product in the better long-term office markets like West Los Angeles. This is definitely a positive trend, but few Los Angeles office offerings to date have met their investment parameters.
Are a lot of your clients taking advantage of marketplace distress?
Many of my clients are looking to buy office at “market pricing” right now. The number of confidentiality agreements for office product offerings and potential buyer tours has spiked for Los Angeles office product. The market bottomed from a transactional velocity perspective in the first quarter 2024 and ever since then has seen accelerated sales velocity. I expect that trend to continue into 2025.
How many of the office properties you sell are being eyed for conversions?
The amount of office to residential conversions of existing office product in Los Angeles has been muted. There is both a cost of capital and market demand issue that is preventing more conversions. The math doesn’t work when you reconcile the required change of use seismic retrofit costs for conversion, the existing elevated debt costs in conjunction with weaker multifamily fundamentals and well below replacement cost recent multifamily sales comps for newer ground up developments. The submarket which should eventually have the most conversions because of potential inventory is downtown, but the demand side is weak with near double digit vacancy rates and two months free rent per year of lease term on some existing projects.
Looking ahead, what do you predict for the Los Angeles office market? Do you see a rebound?
The Los Angeles office market has already bottomed from a capital markets perspective with the first quarter of 2024 being the nadir. Office sales velocity has increased during the year and will increase further in 2025 and 2026 as the healing process continues. The debt market for office product has improved substantially and this trend should also continue in 2025 with more lender depth and optionality tightening spreads further.
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Broker Is Seeing Flight To Quality Office Assets
Anneke Greco is an executive vice president at Colliers specializing in office properties, with a focus on agency leasing in the Tri Cities and North Hollywood submarkets. She joined Colliers in June of last year and works out of the firm’s Glendale location. She attended USC where she received her Bachelor of Arts degree in business administration. Prior to Colliers, she worked at JLL.
How did you get your start in office leasing?
My first internship was in the retail sector, which was fun and a great place to start. I wanted to try office leasing, so I did a three-month rotation with an office team, started a 22-year partnership and never looked back.
Do you mainly represent tenants or landlords? Who are some of your clients?
I primarily represent landlords and have been very fortunate to work with fantastic institutional clients. My team currently represents DivcoWest, Douglas Emmett, LBA Realty, Pendulum Property Partners, Granite Properties, Cruzan, UBS, Heitman LLC and Jade Global.
How would you characterize the state of the Los Angeles office market today? How does it compare to other asset classes?
The Los Angeles office market is lumpy and inconsistent. While industrial and retail have been hot over the last couple of years, office vacancies in many submarkets remain at an all-time high. Aside from Century City, which has seen the most activity and success recently, most others are struggling due to slow RTO (return-to-office), market barriers to entry, and submarket rate resets because of debt maturities and asset distress.
What do you think have been some of the biggest hindrances to its success?
The impact of the pandemic and working from home has caused the most disruption in office leasing. Because many employees embrace working from home, companies are reducing their footprint and real estate monetary obligations. The entertainment industry has changed dramatically because a significant amount of filming/production occurs outside of California and there are still impacts from the 2023 strikes. What was once an exploding industry in Los Angeles due to content creation is a shrinking tenant base.
Which submarkets are you seeing the most office activity in?
It’s not necessarily the submarket, but more the asset class. Highly amenitized, quality products are seeing much more leasing activity than commodity buildings. In our portfolio, Pasadena benefits most from tenants leaving downtown Los Angeles for a safer, more secure environment.
What about the least?
Glendale has seen the most significant downsize, primarily in tech and insurance, which has increased vacancy and known space availability (rates) to a historic high of over 40%.
Tell me about some of the trends you’re noticing in the Los Angeles office market. What do tenants and/or landlords want?
Employers are trying to make their offices “commute worthy,” so tenants are focused on building amenities, safety and security. With many landlords facing debt maturities, tenants are paying a lot of attention to loans and landlord financials. Tenants don’t want to come out of pocket to build out their space, so they need to have a financially solvent landlord willing to put capital into their space. Another thing we are starting to see is that after reducing footprints significantly, some tenants have realized they gave too much space back and are now in expansion mode. Finally, it seems as though all deals are taking way too long to close, and, in our business, time kills deals.
Looking ahead, what do you predict for the Los Angeles office market? Do you see a rebound?
Yes, there will undoubtedly be a rebound. Los Angeles will always be a desired office market and, while some buildings will be converted to other uses, there will (continue to) be demand. There are already green shoots, and it won’t happen quickly, but Los Angeles real estate will recover.
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Architecture Firm Uses Own Offices as Model
Michael White is the co-managing director of Gensler’s Los Angeles office, specializing in office and workplace design. He’s been with the architecture firm for 14 years and also sits on its board of directors. Prior to joining Gensler, White was a managing partner at real estate advisory firm Cresa Partners.
Tell me about how you got started in architecture.
I received my master’s degree in architecture from Columbia University. Early in my career, I became fascinated with better understanding why buildings got built. What were the social, economic and business drivers behind why a building was needed? This focus – on understanding the purpose of a building or workplace – has been a foundation in my career. At Gensler, we are committed to creating spaces and places that create positive experiences for the people who occupy them, enhance the success of the businesses they serve and are responsible to the communities they impact.
Specifically, your focus is on office. What do you like about designing workplace environments?
I am so lucky to be able to work with some of the most innovative and creative companies in the world. At Gensler, we start each new client relationship as an exploration to discover that client’s unique vision. Our goal is to create a workplace that is a physical manifestation of their company’s culture. The workplace design tells a story about a company’s values, its character and, most importantly, its people.
I am focused on aligning the design of the workplace with its purpose. Successful workplaces help to drive the success of a company by creating a space that fosters innovation, that inspires creativity and enables collaboration. Great workplaces improve the experiences of their people and drive the success of their business.
How has the landscape of office changed over the course of your career?
Previously, workplace design focused on rigid ideas about organizational perfection, but missed the need for flexibility and the reality of how business’ actually need to evolve and adapt over time. Today’s workplaces must accommodate for rapid change. The future of workplace will be focused on creating engaging human experiences, solving for a broad range of diverse human needs, and a much more sophisticated understanding of the importance of health, wellness and ergonomics.
What about since the onset of Covid-19?
Although the office is no longer the only place you need to go to get your work done, there is a heightened awareness of the unique value that the office creates as a physical environment that brings people together into a collaborative place where human connections happen with an added spatial dimension. Offices serve the need for communal human experiences where people innovate together. They enable impromptu interactions, exposure to ideas, a broader social network and a team culture.
Gensler is currently in the process of redoing its own office downtown. Can you tell me about this office transformation? What was the inspiration?
The vision for our Gensler Los Angeles office renovation started with listening and learning from the feedback of our people about what they want the office to provide for them and resulted in: accommodating a much broader diversity of workplaces settings; adding communal, collaboration and innovation spaces; integrating advanced technology that enables better collaboration; a deeper commitment to health, wellness and ergonomics; and a softer, warmer more comfortable environment.
The renovation of our Gensler DTLA office is also a part of our commitment to improving DTLA. Our front entry facade will create a much more engaging urban experience. The creative energy within our space will now be more visible and engaging with the street. The addition of trees and outside café seating for our people will make our street entrance more active. We intend to continue to hold important community events within our main event space.
What has been the feedback so far?
Our first “pilot phase” was extremely effective at allowing us the freedom to test new ideas and see what worked best for our people. The positive employee feedback has been extremely high within the studios we renovated. We also learned a lot and are implementing that feedback into our Gensler Los Angeles Phase 2 Jewel Box renovation, which is underway now.
How do you advise clients on redesigning their own office spaces?
We are fortunate that our Gensler Strategy Team is hired by our clients early on to help them on an ongoing basis with what their future workplace needs will be. This early engagement allows the client to plan ahead and for Gensler to assess what works best for them. We are also able to share perspectives from our extensive workplace research. Our research is published annually in our design forecast.
At a time when there’s lots of interest in low-rise creative office spaces, what are people doing to make high rises more appealing?
As people have been drawn to the vibrant lifestyle that comes with urban city life, high rise vertical campuses are also becoming more popular. The need for a more sustainable lifestyle is changing commuting patterns. The interest in walking to work or utilizing public transportation systems will continue to increase.
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Unusual Path: JLL’s Jaclyn Ward has risen from an assistant to managing director.
Jaclyn Ward is a managing director at Jones Lang LaSalle Inc. and co-leads the firm’s Los Angeles agency leasing practice, splitting her time between its West Los Angeles and downtown offices. Her experience includes landlord, tenant, local market and sale advisory roles, with a primary focus on agency representation. One of her responsibilities includes handling creative office leasing at Row DTLA.
How did you get your start in office leasing?
Similar to many other brokers, I knew I wanted to be an office leasing broker from a young age…just kidding. I finished undergrad at USC coming out of the Great Recession and I needed a job while most of my friends were extending school as long as possible. A friend worked at a commercial real estate firm that had a position open for a marketing and research assistant in Century City. It was a salaried role where I was supporting about 10 brokers running surveys, redlining documents, processing commission invoices and scheduling the coffee service. As I became familiar with the company several months in, I told our broker lead I wanted to transition to a commissioned broker role. It hadn’t happened before at that office, but he, and others, supported my bold, 20-something ambitions, and created a framework to make it happen about a year in. I’m still with that same firm today.
Do you mainly represent tenants or landlords? Who are some of your clients?
I started with a primarily landlord-focused business. As I grew to recognize the value of understanding the landlord perspective and having up-to-the-minute market intel to strategically engineer deals to maximize leverage, I diversified my business to where it is today, representing both landlords and tenants.
I’ve had the opportunity to work for both institutional and private clients on the landlord side, such as Atlas Capital, CommonWealth Partners, DivcoWest, EQ Office, Goldman Sachs, OceanWest Capital Partners and Silverstein Properties. On the tenant side, I’ve represented a wide range of client industries from media and entertainment, finance and banking, fashion/e-commerce, technology companies and nonprofits.
How would you characterize the state of the Los Angeles office market today? How would you compare it to other asset classes?
Anecdotally, if we were bungee jumping, the last few years of Los Angeles office leasing have felt like the bridge we stepped off of was higher than we expected, and we’ve been waiting to find the bottom. I think we’ve finally seen it. While the great reset of once-overvalued office product isn’t yet over, we have seen an uptick in occupier confidence in decision-making as it relates to office space.
In recent months, for the best office product, in thoughtfully-amenitized buildings, with well-capitalized landlords in the most desirably located pockets of the city, there is, again, competition on space. While investor allocations may still be more heavily weighted to multifamily and industrial for the time being, there is institutional and private capital in the market with a long-term lens on office that is taking strategic advantage of the once-in-a-generation pricing available as others need to exit.
You mainly specialize in downtown leasing. How would you rank tenant interest in that area?
While two of my larger landlord assignments are currently in downtown and the Arts District, I specialize in both downtown and Westside leasing. The CBD (central business district) and the Arts District attract a different tenant base: law, insurance and finance in the CBD and more creative industries in the Arts District.
I’ve been fortunate to partner with two landlord clients, Atlas Capital and Silverstein Properties, who each understand the importance of continued reinvestment in enhancing the built-environment experience for their tenants, which has garnered meaningful tenant interest in the last two to three years. On the Westside, I’m advising a few tenant companies, from fashion to consumer products, who are either solving for headcount growth or seeking a higher-quality office environment for their employees.
What other submarkets are you seeing office activity in?
Century City is still the darling of the Los Angeles submarkets, performing consistently strong as the preferred Westside destination for top law, finance, talent agencies and private equity firms, all of which have strong return-to-office policies. The office and street-level weekday workforce energy there is palpable. Beyond Century City, consistent activity is really asset dependent, and sometimes even on a space-by-space basis. There has been recent, long-awaited activity at a few of the newer spec construction projects on the Westside, each of which were thoughtfully designed and amenitized, with equally patient and strategic landlords.
Tell me about some of the trends you’re noticing in the Los Angeles office market. What do tenants and/or landlords want?
For tenants, energy, stability, flexibility and capital-mitigated deals are some of the key trends. With energy and activation of the built environment, employers want buzzy activity, safe surroundings and plentiful amenities for their people. They also want stability and reassurances of the landlord with whom they are making a commitment with. For landlords, they want credit, term and occupancy or returns from tenants. With credit, there is less interest today in taking a gamble on a tenant in-the-red without considerable securitization to mitigate out-of-pocket exposure.
Looking ahead, what do you predict for the Los Angeles office market? Do you see a rebound?
The Los Angeles ecosystem and core economic drivers are strong, diverse and dynamic, and provide a fabric for office to rebound in a meaningful way, but it will take time and intentionality. As the macro-economic winds hopefully continue to shift in a beneficial way to release some of the pressure, we also need strong leadership at a local level to bounce back meaningfully: strong business leaders to continue to lead with the merits of in-person collaboration and economic output while giving their people flexibility and enhanced workplace offerings; strong public-private partnership to restore the once-vibrant and destination-oriented pockets of the city that have struggled in recent years; and strong incentives to make Los Angeles a place where businesses can grow and thrive.
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Finding Opportunities: Ratkovich’s Brian Saenger is ‘committed to infill properties.’
Brian Saenger is the current president and chief executive of The Ratkovich Co., a downtown-based developer known for specializing in urban infill and historic rehabilitation of landmark properties. Saenger has been with Ratkovich since 2010 and moved into his current role as its top executive in 2021. He played a leading role in the company’s acquisition of The Bloc, a 1.8 million-square-foot mixed-use property downtown which consists of office, retail and hospitality uses.
Tell me about yourself and your role at The Ratkovich Co. How has the company evolved during your tenure?
My journey with TRC (has been) a bit unique. I worked with TRC as their outside attorney before joining the firm as vice president of acquisitions more than 13 years ago. I was fortunate to learn the business side of real estate from the late legend, Wayne Ratkovich, and progressed through the ranks to my current role.
TRC is a mission-driven company that seeks to profitably produce developments that improve the quality of urban life. While each project is unique and the way people use buildings and space constantly evolves, our mission statement is the steady lens through which we approach all our projects.
What kinds of office properties are you most interested in?
Our company has specialized in urban infill and historic rehabilitation projects for over 40 years. We remain committed to infill projects because of their proximity to the workforce and to the amenities building users seek.
Recently, the office market has been hit hard by rising vacancies and the influx of remote work. Has this changed how you do business?
The work-from-home model is a paradigm shift for the office market. Prior to the shift, we sought to create inspiring workplaces, such as the outdoor retail plaza and the rooftop amenity deck at The Bloc (downtown). After the shift, we remain intently focused on providing office spaces that motivate people to leave the comfort of their home offices. Our Bowcroft Collection media campus (in Baldwin Hills) is one example of that focus.
Have you found yourself developing other types of assets in response?
We always want to be where the puck is going, not where it is today. West Harbor, our 42-acre retail, dining and entertainment project on the L.A. Waterfront, will provide a much-needed destination to the South Bay next year. The Villages at The Alhambra is being planned and will be a substantial, infill residential community at The Alhambra, our 40-acre mixed-use campus in Alhambra.
Are you still planning to develop more office properties looking forward?
Our company developed office early in its history and it will always be in our DNA. We strongly believe there is value and interest in working together, in-person, in a pleasant environment. We continue to look for office opportunities, but we are highly selective in our pursuits.
Tell me about a project you’re working on that you’re particularly excited about.
We are developing the Bowcroft Collection near downtown Culver City, a standout office market, as a next-generation media and tech campus. The project is a flexible, low-rise (creative office) campus that checks the boxes for modern wor kspace.
Ratkovich has heavily invested in downtown. What are your thoughts on the future of that market?
It is no secret to anyone reading the headlines that the DTLA office market is challenged. The underlying fundamentals in DTLA, however, are solid and position the market for long-term success. DTLA remains an entertainment and cultural hub with over 27,000 residential units in the pipeline on top of the more than 47,000 units already there. With an employee-centric address and attractive office rents, I would not write off DTLA.
What’s next for the company?
We are fortunate that our company structure allows us to be nimble. We pride ourselves on finding opportunities that others miss. We are active in the market, and we look forward to reimagining, reinventing and revitalizing our next under-the-radar project.
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Developing in Burbank: Jeff Worthe launches firm’s first fund, invests heavily in the Burbank market.
Jeff Worthe is the president of Worthe Real Estate Group, a Santa Monica-based firm that specializes in the development and refurbishment of office properties around Los Angeles. The firm has more than 7 million square feet of properties in Los Angeles and has been particularly active in the Burbank submarket lately.
Tell me about yourself and your role at Worthe Real Estate Group. How has the company changed over time?
Worthe Real Estate Group is a team of around 125 people. I am just one of many of the leaders of the company. It was founded in 1991 with the idea to continue the long history of its predecessor company, M. David Paul & Associates, which was formed in 1967. Our business plan has remained largely the same, yet we have expanded the company’s portfolio substantially.
Tell me about your investment strategy. What do you look for in acquiring new properties?
Our primary target is developing properties from the ground up. We have a unique skill set that sets us apart from many in the business due to our ownership of our own general contracting business. We then look for projects that require substantial rehabilitation. Finally, we will acquire projects that are already completed and stabilized, however, there would be a strategic reason for that acquisition.
Recently, the office market has been hit hard by rising vacancies and the influx of remote work. Has this changed the way in which you do business?
We are seeing remote work shifting back to work from the office. The employers are gaining the upper hand in that discussion. There is no doubt people are far more productive when they are in a collaborative environment. We can’t design and build an office building on Zoom, and nor can many businesses operate effectively that way. We require five days a week in office and we are starting to see more companies following suit. We need to continue to upgrade our amenity offerings at the projects to set them apart from others which helps the employer with their requirement of return to the office.
Have you found yourself developing other types of assets in response?
Not really. We have focused on our media office business (line of development) and will continue to stay primarily in that direction. We do have other projects, namely housing and hospitality, near the beach. We have an apartment portfolio in Hermosa Beach as well as a development project in Santa Monica.
Are you still planning to develop more office projects in the future?
Definitely.
Worthe is currently doing a lot of projects in Burbank. What’s attractive to you about that area?
The company built its first building there in 1984. We have built or acquired another 16 projects (in Burbank) since then. Tenant demand is a sector we specialize in, media-related office and production uses. There is good demand in that market, and we anticipate being there for the long term. Our 18th project is The Ranch lot development. It has 16 sound stages, a 326,000-square-foot office building, a 60,000-square-foot mill and a 2,500-car parking structure. We are about 50% completed with that project. In 2022, we completed an 800,000-square-foot office building and 1 million-square-foot underground parking garage in Burbank, which was designed by Frank Gehry.
What’s next for the company?
We will just keep doing what we have been doing. We think we do a good job for ourselves and our investors. We are launching our first fund, Worthe Real Estate Fund 1, and have brought on Chris Graham to lead that business.
The markets are definitely improving, and we are pursuing a number of acquisitions at this time. We like our position in the markets, and we are fortunate to be well capitalized to pursue some of the amazing opportunities this current cycle is offering.
