Urban Infill: L.A.'s Historic Core Attracts Investment

Charles, as a long-time real estate player and commentator on Los Angeles development activities, and now partner of Tom Gilmore, bring our readers up to date on Gilmore Associates' current vision and what precisely is on your plate for Downtown's historic core.

The three Gilmore Associates partners-Tom, Jerri Perrone, and myself-have the same vision of revitalizing downtowns, though we come from different worlds to get there.

Most real estate people specialize in one product type-housing, retail, commercial, etc. Our "product type" is a neighborhood. And the challenge is attracting the critical mass so that we can get retail on the ground floor (including resident-serving and destination retail), housing above it, hotels, entertainment uses, and everything else that makes a neighborhood.

And how do these pieces of the real estate puzzle actually fit together to give you what you need to accomplish gentrifying this neighborhood?

We started last year with zero inventory and we now own over a million square feet. Our Downtown holdings go from St. Vibiana's in the north to the Palace Theatre on the south-all centered around the Old Bank District, which is 240 loft apartments with about 50,000 sq. ft. of neighborhood-serving ground floor retail.

St. Vibiana's fits into the puzzle really as an educational/cultural piece. There will probably be a library, perhaps a continuing education component, some housing, and maybe a small hotel. All this will be built around use of the old cathedral itself by a university as a performance space for about 200 nights per year. It really allows us to provide the educational and cultural platform for the target market we're trying to attract Downtown.

The hotel piece is the El Dorado on Spring, which will be 120 boutique hotel rooms. And the Palace Theatre is a 2,000-seat venue that's currently a movie house, but which we want to convert to a live theatre. We'll get some really cool acts in there and start rocking the joint with shows oriented to young, creative "urbanites" who want to live and play Downtown.

There have been 50 years of redevelopment efforts in Downtown, with many ups and downs in the marketplace. How did our urban core get to the beginning of the 21st Century with so little successful reinvestment? What stars have to align for you to actually accomplish Gilmore's vision in the near term?

The stars really have aligned for us. One, there's now a very strong regional housing market. Specifically, Downtown L.A. is one of the best kept secrets in real estate-its market-rate housing stock has high rents and a 1% vacancy rate. So, the overall market dynamics are in our favor.

Second, the City of Los Angeles has really come through. The Mayor's Office recognizes that having a residential base helps Downtown attract businesses. And the Building and Safety Department has come to the table with a lot of creativity and flexibility.

And finally, this has already been done in places like Boston, Chicago, Dallas, Denver-lots of cities. We are not pioneering. So we can copy from a great playbook, which puts us on solid footing.

Regarding why this kind of project hasn't been done here, Downtown redevelopment has often focused on the "big ticket" item-Staples Center, the Cathedral, Disney Hall-and not much attention was paid to smaller infill developments. So, we're trying to deliver neighborhood material-the little pieces of housing, retail, dry cleaners, etc. Let the City do the big ticket stuff.

When we last interviewed Tom Gilmore in December of 1998, he said, "I love the City, I love all the Council Members, but this is not an effort that can be directed by the City. It has to be run by private enterprise and driven by real market demand." Can you update us-does he still love the City and the Council Members, and do you still believe the private sector will get this done without public assistance?

Same answer, but even more so. The City has been great to us. The Community Development Department-which has a reputation for being tough to work with-was great with us, and came through with funding for us last year. Everybody at City Hall was great-we just can't say enough good things about the folks we worked with at the City.

And Rita Walters' office was there every step of the way, making sure the City delivered what we needed.

A recent L.A. Times magazine profile of Tom Gilmore says that his "outsize character and penchant of talking without editing can cause strains with his two partners." Hyperbole aside, is there any truth to this, and how does responsibility break down in your partnership?

The vision is basically shared, although Tom sets the tone and directs our acquisition activity. Tom also brings great deal making skills, and tremendous construction experience. Jerri has a lot of transaction experience, with a strong legal and accounting background. And I bring a finance background, along with planning and entitlements experience. So it's fairly well-rounded.

People are beginning to notice that place matters, whether it's the Trust for Historic Preservation's efforts or Joel Kotkin's commentary on the role and value of place in a competitive real estate market. What are the unique characteristics of this place we call Downtown's historic core, and will it ever be a magnet for Los Angeles' revitalization efforts?

The historic core offers the opportunity to have a great street life, largely because it was built in an era when people walked and weren't auto-dependent. This opportunity hasn't been realized yet, but we hope to take the initial step when our first units and ground floor retail come on-line this summer. And I think that opportunity to create community is what most of the population that move Downtown will be looking for.

Many of our tenant inquiries are from people who grew up here and maybe went to college in another city like Seattle or Boston or Chicago, where they discovered a city life that they hadn't known existed. Now, they are looking for that here and show up on our doorstep. So most of the tenants who have come to us have actually been West L.A. or Valley people, as opposed to Downtown office workers.

The new economy, technology-based businesses also have a similar outlook. There's ample space in Bunker Hill corporate office towers, but that's not what they want. They want more aesthetic appeal-in terms of the existing historic fabric-and a street life. So if they're working from 3 a.m. to 3 p.m., they can go down to the all-night coffee shop, meet some friends and go back up to work or home to their loft next door. It's an old-world appeal for a new economy.

Ten years ago, the Grand Central Market renovation had a difficult time attracting a supermarket. What's different today as your projects come on-line?

Downtown has a regional luster that it hasn't had in a long time, for a variety of reasons-the attention we've gotten, the City's efforts, as well as Staples, Disney Hall, and the other large developments. So supermarket chains and other retailers who had shunned Downtown in the past have actually come to us, looking to establish a foothold here.

I expect a large format supermarket to be in Downtown within three years.

Financial investors have shied away from the historic core in the past. What equation makes sense to them in the year 2000 that's different from the past?

They shied away because nobody could deliver buildings at a low enough cost. We actually went to HUD and the City for funding last year because we determined that it would be very difficult to convince private lenders to lend to the Old Bank District.

The difference between 1999 and this year is that we're completing construction on-budget and on-schedule. We'll be able to show people that you can rehab these buildings for less then $100 a square foot, all in. And, because the rents are there, it really is about delivering the buildings at the right cost. Track record will be the difference.

What are the conditions that now allow you to do it for $100/square foot?

As I alluded to, the City generally and the Building and Safety Department specifically have a different attitude now than they did 5 years ago. And the adaptive reuse ordinance has made a huge change in terms of allowing performance-based as opposed to prescriptive code criteria.

Also, the engineering community has learned a lot, especially about how not to over-engineer these projects. For instance, our seismic retrofit costs were about half what's been estimated in the past. That's a reflection of the capabilities of both our structural engineer and the City's people. So it's the private and public sector people sharpening their pencils together.

Flesh out that five-year vision. Paint the attractive picture for us.

In the area between Main and Spring, and Broadway from the Civic Center down to around 7th Street, you'll see a large percentage of buildings either turned around or in play. There could easily be 1,000-2,000 new housing units-mostly market rate, but with a good dose of mixed-income.

There will be an active street life and an active nightlife. There will be bookstores, coffee houses, video stores-all the residential services.

And Downtown will be one of L.A.'s hot spots-people will talk about the Historic Core the way they talk about 3rd Street or Old Pasadena. Except hopefully, it will have a little edgier and hipper quality.

Charles, one more question-is there confirmation in the marketplace today that your urban core development strategy works?

Yes. Since we got our funding and started construction in January, a lot of folks are taking a hard look at Downtown. That includes well-known, brand name firms in L.A. who have not previously considered the historic core as a place to invest. Some of those moves will be announced very shortly.

The other change, which is even more of a confirmation for us, is that development firms who have done this elsewhere-in places like Soho, Lower Manhattan, Denver, Miami-now see L.A. exactly as they saw those other places five or ten years ago. They're coming in here, and they know how to make neighborhoods. So we're very excited that they're confirming our vision.