By JOYZELLE DAVIS
The building that garners some of downtown L.A.’s highest rents and a rare 100 percent occupancy rate isn’t a gleaming trophy tower on Bunker Hill.
Built in 1966, the One Wilshire building doesn’t have standout architecture, a health club, a concierge or other amenities normally associated with high-end office space.
What One Wilshire does have and why it boasts lease rates second only to the 8-year-old Sanwa Bank building downtown is the infrastructure needed by long-distance telecommunications providers.
And because these companies like to be clustered together to cover gaps in their service, One Wilshire has become one of L.A.’s priciest addresses.
“It’s the mothership for telecommunications companies in L.A.,” said Gerald Porter, president of the commercial brokerage firm Metrospace/CRESA Corp.
Within the telecommunications industry, One Wilshire is known as a “carrier hotel.” Almost every major city began getting one following deregulation of the long-distance industry.
The building is outfitted with telecommunications switches, which are used by long-distance service providers like MCI and Sprint Inc. to route phone calls and fax transmissions to locations around the world.
No single telecommunications company has the world market networked on its own, so companies cross-sell their coverage areas in order to patch together a fluid network. The companies need to be in close proximity to each other to connect their systems with 4-inch copper conduits.
By locating in One Wilshire, companies like WorldCom Inc., MCI and Sprint can connect to another tenant’s telecommunications switch in order to patch together an uninterrupted global network.
For the owners of the One Wilshire building, private investment group Paramount Group Inc., it’s a profitable niche.
The owners, who declined to be interviewed, get monthly rents as high as $2.50 per square foot and the space is fully leased, according to Cushman & Wakefield Inc.
By comparison, Cushman & Wakefield reports that downtown’s financial office market has a vacancy rate of 18 percent and an average rental rate of $1.58 per square foot.
About 50 percent of the tenants in the 30-story tower are telecommunications firms, with the balance leased out to law firms and general tenants.
Now that the One Wilshire building, which is actually located at 624 S. Grand Ave., is fully leased, telecom tenants are spilling into adjacent buildings where they get tied into One Wilshire via underground conduits.
A year ago, the 611 Wilshire building was about 50 percent leased and 650 S. Grand was virtually empty. Noting that the nearby One Wilshire was turning away tenants, broker John McCarthy suggested to the respective building owners that they each build a conduit system to offer telecom tenants the ability to connect to One Wilshire.
The telecom tenants flooded in, and the 650 S. Grand building is now about 90 percent leased and The 611 Wilshire building will soon be 95 percent leased, according to McCarthy, president of the property management firm Summit Group.
He quotes an asking monthly rental rate of $1.75 per square foot for the buildings.
“It’s been a lucrative market,” he said. “There’s nothing special about One Wilshire other than a lot of the telecom companies happened to be there first.”
Kevin Keating, a broker at the downtown Cushman & Wakefield office who handles telecommunications tenants exclusively nationwide, is helping a group of private investors convert an 11-story building at 530 W. Sixth St. into a “telecom center” that will connect to One Wilshire.
Keating is also turning a portion of the 1.4-million-square-foot TransAmerica Center near the Convention Center into a carrier hotel.
As Europe deregulates its telecommunications industry there are more service providers in the market, he said. Plus, the need for Internet and other data-transmission facilities has created even more of a need for telecom service providers.
Nonetheless, entering the carrier hotel market has risks.
First, there’s the expense of modifying the space. A telecom building needs both an uninterrupted power source and a back-up diesel generator. A 2,000-kilowatt generator usually costs about $1 million, and some landlords take the extra measure of providing two.
The building also needs structural reinforcement to support the heavy equipment. A standard office can handle 50 pounds per square foot, compared to the 120 pounds per square foot that a telecom building needs.
A building needs enough space to accommodate the 4-inch conduit pipes that run through the building’s risers to connect the networks.
Each telecom tenant needs its own conduit lines, so space becomes an issue when a building is brimming with telecom tenants. The owners of the One Wilshire building ended up using an abandoned elevator shaft to handle all of the lines.
Finally, there’s the tenants themselves. Many of the telecommunication tenants are fledgling companies, making them leasing risks for a landlord, Keating said.