Development/27″/mike1st/mark2nd

By DANIEL TAUB

Staff Reporter

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.”

Bak and others said that rehabilitating old buildings is becoming easier in cities as public officials become more aware of the benefit a rehabilitated building can bring to an area.

“Some of the older cities across the country have put into their planning codes provisions that encourage redevelopment and renovation,” said Bob Champion, president of Champion Development Group. “Since Los Angeles is a relatively young city and its structure is not as old as cities like Boston, there hasn’t really been the need to be introspective and look at what we have and make it better.”

But city officials are becoming more aware of the issue. For example, the city of Los Angeles recently made it easier to convert downtown office buildings into lofts where artists, computer programmers and others can live and work.

Rehabilitation of older projects will not be limited to office buildings and live-work spaces, either. Retail redevelopment projects are also expected to hit the more developed parts of L.A.

“Historically, there has not been a lot of development in Central and South Central Los Angeles,” Champion said. “And I think a few pioneers, like Magic Johnson, have discovered there is tremendous purchasing power in those communities, and I think there will be a couple of developers who will discover that and create some tremendous projects.”

Johnson’s company, Johnson Development Corp., is working on the redevelopment of the 43-year-old, 21.5-acre Santa Barbara Plaza in the Crenshaw district.

“What I am seeing in the industry, and something we continue to see, is the rehabilitation of old centers and older malls that are essentially being rehabilitated and repositioned to accommodate larger-box retailers with different needs than the current centers have,” Bak said.

That means an increasing number of 1970s-era shopping centers comprised of 5,000-square-foot stores will likely be converted into shopping centers for big-box tenants, like Staples and Wal-Mart.

In the final analysis, however, much of the new development in the years ahead will likely occur on the outskirts of L.A. the West San Fernando Valley, Santa Clarita Valley and parts of the San Gabriel Valley. It will be driven, developers say, not only by the lack of land in built-out urban areas but by a growing desire among executives to work close to where they live.

Developers call places like the West Valley and Valencia “nodes” areas with their own office buildings, residential areas and retail centers, forming something of a self-contained community.

“I think that’s very much part of this trend where you’re creating a sense of place, a sense of community,” Champion said.

For example, the office-and-residential project being developed in Playa Vista by Playa Capital Co. LLC the planned future home of DreamWorks SKG is being touted as a self-contained community.