Room To Move

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Developer Michael Rosenfeld was applauded for cutting a deal last month with opponents of his plan to raze the Hyatt Regency Century Plaza hotel and replace it with two 50-story mixed-use towers.

Now, the historic hotel is staying as part of a smaller project that will convert some of the rooms into luxury condominiums.

But did the L.A. developer really have much of a choice? Or to put a more positive spin on it: Didn’t it make sense to downsize the $2 billion project during what promises to be a challenging commercial real estate market for years to come?

“I think they wouldn’t have agreed to do this if they didn’t view it as a business win,” said Los Angeles Conservancy Executive Director Linda Dishman, who was among the most vocal opponents of Rosenfeld’s original plan and worked on the compromise.

Next Century Associates, the hotel ownership group led by Rosenfeld and D.E. Shaw Group of New York, announced in December 2008 plans to raze the 18-story hotel and build two high-rises with 293 condos, a boutique hotel, and 100,000 square feet of office and retail space.

However, much has changed since then, even though the plans were announced while the country already was deep into the recession set off by the bust in the residential real estate market. It’s now clear that the commercial real estate market – including hotels, retail and offices – was nearly as overdeveloped as the residential market. And you don’t have to look much farther than West Los Angeles.

Once robust Westside retail strips are dotted with vacant storefronts. Luxury condo projects have lowered prices. And monthly asking rents in some top Century City office buildings have been cut more than one-third to less than $4 per square foot.

The new Century Plaza plan, announced Feb. 11, retains the 726-room hotel, but the top five floors would be converted into 45 luxury condos. Along with other changes, the hotel would be downsized to about 400 rooms. Rosenfeld acknowledged that the hotel, built to serve conventions, has been “a constant challenge” to fill.

As the market improves, Next Century plans to build one or two buildings on the hotel’s nearly six-acre site. They would go behind the hotel, in place of what is now a parking structure, and would house about 250 additional condos, and 100,000 square feet of offices. There also are plans for shops and restaurants.

“We have to look at it ultimately as creating a better project that really merges the goals and the ambitions of the different interest groups. Overall I have to see that as a positive,” said Rosenfeld, president of L.A.-based real estate investor and developer Woodridge Capital LLC.

Timing right?

Next Century still hopes to complete the entire project in about five years. The hope is that the economy will have improved by then, making it easier to sell the luxury residences.

There are three new luxury condominium projects totaling 252 units in Westwood and Century City that are on the market or soon will be. The projects include the Century on Avenue of the Stars, where the hotel is located. It features units with price tags of more than $5 million.

“I would say if (Rosenfeld) is talking five years down the road, he is probably closer to right than wrong,” said Stephen Shapiro, chairman of high-end residential brokerage Westside Estate Agency. “The new vacant units should be absorbed in the five-year period.”

Another critical issue will be Next Century’s ability to get a construction loan – and a large one at that, even with the downsized project. The frozen capital markets of the last few years have forced the delay of other high-profile real estate developments in Los Angeles, including the long-stalled Grand Avenue project downtown. But Rosenfeld is optimistic.

“We are already starting to see some restoring of the capital markets,” he said. “And I do anticipate that will take some time, but we feel that our time line is ideal for both access to construction financing as well as hitting the marketing cycle at the proper point.”

Then there’s the office space, which will be added to an ultra-Class A market that already boasts 2000 Avenue of the Stars and MGM Tower. But the reality is that 100,000 square feet is a drop in the bucket for a 9 million-square-foot market.

“I don’t think overall it’s that significant in terms of the inventory,” said Eric Olofson, vice chairman of commercial brokerage Cushman & Wakefield Inc., adding there is always room for well-designed projects. “The more Century City becomes a cool place, the better it is.”

Architecture firm Pei Cobb Freed & Partners – a holdover from Rosenfeld’s original project – is the lead architect. Local firm Marmol+Radziner Architecture will handle the restoration of the ’60s-era hotel, which was designed by Minoru Yamasaki and is known for hosting several U.S. presidents.

Leo Marmol, managing principal of Marmol+Radziner, said the compromise plan was a real win for preservationists.

“This project provides an opportunity for the city of Los Angeles to save an important modern structure,” he said in a statement to the Business Journal. “The preservation perspective that Next Century has adopted should be applauded by the community.”

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