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Wednesday, Feb 21, 2024

Downtown’s New Law of Attraction

When Managing Partner Chris Stouder started scouting around for space for his Westchester law firm last year, he put a new location on his radar: downtown Los Angeles.

Stouder’s firm, Haight Brown & Bonesteel LLP, had left downtown more than 30 years ago for Santa Monica and hadn’t looked back. Even 10 years ago, when the company’s lease was up in Santa Monica, downtown didn’t even come close to making the final cut: It lacked the amenities offered on the Westside and simply “wasn’t as desirable,” as Stouder put it. Instead, the law firm signed a 10-year lease in the Howard Hughes Center.

But by last year, as the lease expiration approached, perceptions of downtown had clearly changed. After considering options in 10 different submarkets across Los Angeles County, Haight Brown’s partners unanimously chose to move the firm downtown.

“Downtown is where the action is, the vitality and where the young legal talent wants to go these days,” Stouder said. “So if a law firm like ours wants to grow, that’s where you want to be.”

Haight Brown signed a 10-year sublease for 27,280 square feet at 555 S. Flower St. from law firm Jones Day. Financial terms of the deal were not disclosed, but sources familiar with the downtown office market put its value at $8 million to $10 million.

Haight Brown has good company. Several law firms have either moved downtown or located offices there in the last couple of years, and it hasn’t been just happenstance.

They have been drawn by the availability of young lawyers, newly bustling nightlife, easy access to mass transit for associates and staff, proximity to the major courthouses and large chunks of high-quality office space at rates 15 percent to 20 percent cheaper than the Westside.

Among the notable examples are Boston-based Goodwin Procter LLP, which consolidated its Century City office into its downtown office; Seyfarth Shaw LLP, a Chicago firm that has long had a Century City office, which opened an office on Hope Street; Crowell & Moring LLP, a Washington, D.C., law firm, which used its acquisition of a downtown firm to enter the L.A. market; and recently formed Fitzpatrick & Hunt Tucker Collier Pagano Aubert LLP, which last year moved into the US Bank Tower.

With these and other law firms opening up offices, downtown appears to be reemerging as the primary center for law firms in Los Angeles, staking a claim on a title that it held throughout much of the last century. Century City and adjacent sections of the Westside remain legal powerhouses, but now cater primarily to the entertainment industry.

“Law firms with significant entertainment practices remain on the Westside, closer to their clients and to the partners’ homes,” said Jonathan Larsen, executive managing director of the downtown office of commercial real estate brokerage Transwestern. “But the business litigation and corporate transaction law firms that left downtown 10 or 20 years ago are now returning.”

That’s not to say that the glory days have returned. During the recession and continuing today, law firms downtown and throughout the region have retrenched, cut staff, reduced space and consolidated operations. The effect on downtown’s commercial real estate market has been noticeable.

Several major law firms in downtown put excess space on the market last year, such as the Jones Day space that attracted Haight Brown. It was a key reason the market gave up 593,000 more square feet than it absorbed, pushing up the vacancy rate to 16 percent. It has since come down to 15 percent in the first quarter.

“The coming of law firms to downtown has helped offset somewhat all this excess space being put on the market. But we will need a lot more law firms and other firms coming back downtown to take up all this space,” said David Eades, senior vice president at Jones Lang LaSalle, which represented Haight Brown in its recent downtown lease.

The excess space could get worse. Last month, Washington, D.C.-based Howery LLP announced it was dissolving, effective immediately. Howery had more than 100,000 square feet of space on four floors in the 550 S. Hope building. That space, larger than any covered in recent deals for law firms coming downtown, will probably come on the market during the second quarter.

Nonetheless, the arrival of several law firms to the area is welcome news for landlords, who have struggled the last three years with increasing vacancy rates.

“We look to see more national and regional firms coming into the market, and that’s an encouraging trend,” said John Barganski, vice president of Southern California leasing at Brookfield Office Properties, which owns several buildings downtown that have benefited from the entry of law firms. “Whether it’s reusing old space or building out new space, any new demand helps solidify and grow market rents over time,” Barganski said.

Flight to Westside

Back in the 1990s, downtown was not an attractive place for professionals. There were few places to congregate after work or to entertain clients. Lawyers leaving work at night had concerns about crime and the burgeoning homeless population. Commuting from the suburbs had turned into a nightmare.

“There was a 10-year stretch when some of the amenities and atmosphere that one would expect in a vibrant downtown just weren’t there,” said John Vandevelde, managing partner of the L.A. office of Crowell & Moring, who has worked as an attorney downtown for more than 25 years.

But the main reason law firms left was to be closer to lucrative clients. Since the late 1970s, firms looking to expand entertainment law practices decamped to Beverly Hills, Century City, Westwood and even Santa Monica to be closer to movie studio chieftains and A-list actors.

Then with the Wall Street booms of the 1980s and 1990s, investment firms eyed the tremendous untapped wealth in Los Angeles and set up shop on the Westside.

Among the law firms that left during this period was Loeb & Loeb LLP, which was founded in downtown Los Angeles back in 1909. The entertainment, media and corporate law firm closed its downtown office in early 2002 and moved roughly 200 employees to Century City offices, which now serve as headquarters.

Yet downtown remained home to the county’s major courts and a long-established legal services industry to serve them. So many law firms chose to remain, including some of the biggest. Among them were O’Melveny & Myers LLP, the county’s oldest law firm, and Latham & Watkins LLP.

That’s why – unlike the insurance industry that dominated Wilshire Boulevard in the 1960s, but had mostly disappeared by the 1990s – the legal industry retained a strong presence downtown. So when a renaissance finally arrived about six or seven years ago, there was a substantial base of legal talent for new and returning firms to tap.

Tide turns

Several trends converged to lure law firms downtown. Residential development, especially in the South Park area, has drawn in several thousand well-educated young professionals eager for the urban lifestyle.

The opening of L.A. Live, and several restaurants and bars brought night life back to major sections of downtown, making it more attractive for young associates and staff after work. Walt Disney Concert Hall and Staples Center have become popular places for law partners to entertain clients.

“Downtown is now a much more interesting place for people to stay after work,” said Fernando Villa, partner at law firm Pircher Nichols & Meeks and a board member of area booster the Central City Association. “Young associates are looking at downtown as a place with a vibe. It’s become more of a real city like Chicago, New York, Boston or San Francisco.”

Another factor: The recession has forced major established downtown law firms to downsize, often putting entire floors on the market –suitable for other law firms to sublease. This space has also kept lease rates downtown affordable.

Eades, the Jones Lang LaSalle broker, said that downtown lease rates of about $3.15 per square foot are roughly 50 cents per square foot cheaper than on the Westside – about a 14 percent difference.

“If you have 75,000 square feet or 100,000 square feet, that’s a lot of money to a firm,” he said.

Meanwhile, ever-increasing congestion on the Westside has made that region less attractive for young associates who can’t afford to live nearby.

“Being on the Westside, it’s difficult to recruit. If you don’t live on the Westside, these days you don’t want to drive to the Westside,” said Stouder, the Haight Brown managing partner. “But going downtown, there’s lots of public transportation options for associates and staff. That allows us to draw for talent from a much wider geographical area for talent.”

But for those who drive their cars to downtown law offices, parking remains one of the biggest sticking points. Parking rates in downtown office towers can be as high as $40 an hour, which can be a big tab for law firms to pick up on behalf of clients. Many junior associates, paralegals and staff who drive in are forced to park in offsite lots. Visitors especially are hard hit.

“It’s a huge issue, spending $40 per hour to park, even for those who are relatively well-off,” Villa said.

Consolidating downtown

One of the first law firms to open an office in downtown after the revitalization began was Milwaukee-based Foley & Lardner LLP, which had its main local outpost in Century City. In February 2007, the firm announced it had signed a lease for nearly 53,000 square feet of space at the 555 S. Flower building at City National Plaza, owned by Thomas Properties Group.

The Business Journal reported at the time that the 10-year deal was worth at least $18 million, including options to expand. The firm then moved 55 of its 70 L.A.-area attorneys to the offices downtown.

In announcing the deal, Foley & Lardner Chief Executive Ralf Boer said a downtown presence was proving essential.

“After serving clients in Los Angeles for more than a decade, we determined the expansion of our corporate and litigation practices would benefit from a downtown location, particularly in light of the area’s tremendous growth, and importance as a hub to the business and legal communities,” he said.

Boer also said the Century City office would continue to focus on intellectual property and entertainment. But eight months later, Foley & Lardner closed it, and consolidated the attorneys and staff from there downtown.

Foley & Lardner isn’t the only law firm to consolidate downtown. Boston-based Goodwin Procter first opened an office in Century City in 2006, then a year later opened an office at 601 S. Figueroa St. Last year, the firm closed its Century City office and consolidated staff from there to the downtown office.

Goodwin Procter’s managing partner in Los Angeles, Lew Feldman, said a major factor behind the decision to consolidate was the increased number of companies locating downtown. He mentioned the recent announcement that architectural firm Gensler would be moving from Santa Monica to the area.

Downtown entry

Unlike several years ago, downtown Los Angeles is viewed as the key entry point for national law firms looking at the L.A. market.

D.C.’s Crowell & Moring had long had an Irvine office and was looking for the right opportunity to enter Los Angeles, primarily downtown. In 2008, it merged with small yet long-established downtown firm Lightfoot Vandevelde Sadowsky Crouchley Rutherford & Levine LLP. The joint firm took the Crowell & Moring name.

For several months, attorneys from both squeezed into the former Lightfoot Vandevelde’s offices while a search got under way for a bigger space. Crowell & Moring told its broker to only look downtown.

“While we briefly considered alternatives, our consensus from the beginning was that we wanted to remain downtown,” Partner John Vandevelde said. “We had a strong identity already here, and the courts and agencies that we customarily deal with are downtown. It felt to us and to our clients that this is where we wanted to be.”

Today, Crowell & Moring has 22 attorneys in its office at 515 S. Flower; Vandevelde said there’s space for up to 40.

More recently, another newly formed law firm decided to locate downtown. New York law firm Fitzpatrick & Hunt Tucker Collier Pagano Aubert was formed last year by former partners of Mendes & Mount LLP, which had offices in New York and downtown Los Angeles. When the new firm started looking for space in Los Angeles, downtown was the only market on its list.

“The revitalization of downtown Los Angeles has made us comfortable with remaining downtown, and there’s lots of space available,” said James Hunt, equity partner.

The estimated $4.5 million deal for 17,500 square feet at the US Bank Tower included $250,000 worth of free used-office furnishings supplied by landlord MPG Office Trust.

Of course, it’s easier for law partners to remain downtown than to pick up and move, as Haight Brown is preparing to do. The shift means several of the firm’s partners, including Stouder, will have longer commutes.

“I live in Hermosa Beach, so my own commute time will more than double,” the 45-year-old Stouder said. “But it’s more than worth it to move downtown for the opportunity we have to tap into a larger talent pool. And with all the dinner and entertainment opportunities now downtown, it’s a much more desirable place to be than at any time in my memory.”

Still, in a 32 million-square-foot office market that had 4.8 million square feet vacant at the end of the first quarter, law firms can’t do it all. The market will need all sorts of professional firms, financial companies and other tenants to move in.

Some of that happened last quarter when Gensler announced it was taking 45,000 square feet at City National Plaza.

For now, MPG, the largest owner of Class A office space in downtown and which has been struggling since an ill-advised expansion into Orange County at the height of the real estate boom, is content to fill vacancies with law firms, such as the 17,500 square feet taken by Fitzpatrick & Hunt.

“We love having law firms as tenants, so we’re very pleased with this trend and we hope it continues,” said Peter Johnston, the REIT’s senior vice president of leasing. “They are eating away at the space.”

Legal Moves

Law firms have been consolidating, moving and expanding in downtown in recent years. Here are some notable deals.

  • Crowell & Moring LLP acquired a downtown law firm and moved into 515 S. Flower St.
  • Fitzpatrick & Hunt Tucker Collier Pagano Aubert LLP chose the U.S. Bank Tower for its only L.A. office.
  • Foley & Lardner LLP leased nearly 53,000 square feet at 555 S. Flower St. and closed its Century City office.
  • Goodwin Procter LLP consolidated its Century City office into its downtown office at 601 S. Figueroa St.
  • Haight Brown & Bonesteel LLP moved from Westchester into 555 S. Flower St. in space sublet from Jones Day.
  • Seyfarth Shaw LLP, which long had a Century City office, opened a second L.A. office at 333 S. Hope St.

Howard Fine
Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.

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