DTLA $2 Billion Development Plans for Fourth & Central - Continuum Partners’ Mark Falcone

Mark, share what attracted Continuum to DTLA and your development plans for Fourth & Central in the Arts District. 

Mark Falcone: Our interest in Downtown LA began five years ago. We have been involved in several large transit-driven projects in our home market of Colorado, and we are the master developer on a large project in Portland, Oregon, immediately adjacent to the train station there.  We have always understood the role that infrastructure investments like fixed rail transit play in shaping communities and neighborhoods. 

Once LA doubled down its transit bet with Measure M, we leaned in and began looking for more property in the central city area.  That led us to the east side of Downtown, and we began looking at opportunities between the central Alameda corridor and the L.A. River.  We  bought two different properties there, and then we started looking for a larger-scale opportunity closer to the Little Tokyo Station.  That's what drove us to the Fourth & Central opportunity.

Elaborate on Continuum’s draft Fourth & Central plans and how the project is being configured as a redevelopment.

The Draft 2040 Downtown Community Plan that's been circulating for some time looks to increase density around these large transit infrastructure investments. The draft plan calls for moving FAR densities in this corridor from 1.5 up to 6, even 7 in some cases. We feel that 6 to 7 FAR is a sweet spot with a good balance of density, placemaking, pedestrian activation, and still provide adequate parking, which the market is going to need for some period of time before it transitions to less car-dependent product.

Fourth & Central site lies just west of Alameda Street, adjacent to the Arts District. Question: What LA City Community Plan now governs your development—given the site is not within the Arts District? 

The city is taking their cues from the Draft 2040 Plan, which has been moving its way through a public comment process for a few years. I think the city's expecting that there will be an ultimate adoption of the plan for these neighborhoods that will look close to what’s in that draft document.  This has been the guiding framework that most projects in this neighborhood are following.

Before drilling down on your specific plans,  share Continuum Partners’ investment and development experience in Denver, Colorado, and Portland, Oregon. What have you learned from those two cities about what and how to build dense urban infill development?

We have been involved in several large-scale, multi-phased projects .These large neighborhood-scale projects may take 8, 10, 12 years to create. The first phases of development have to perform and function in an appropriate way while you're still building out the balance of the neighborhood.  

We understand  how to phase a project in a way that creates a functioning neighborhood while it is still being completed. We have a sophisticated knowledge  about infrastructure finance and how to sequence and phase the improvements. 

We are comfortable building everything from for sale housing to rental housing to office space to hotels. We also have  deep retail competencies.  When you are building a neighborhood, you have to create a diversified mix of activities that  give a community the energy it needs. If you are building something over an 8-, 10-, 12-year time frame, you have to anticipate what the macro market will send your way.

Given Continuum is partnering with Larry Rauch and actually replacing the existing Los Angeles Cold Storage building, which has long anchored the City’s produce market, speak both to where Cold Storage (refrigeration) might relocate and your take on the future land uses of the Alameda Corridor and the Arts District?

That industry has been an important part of that neighborhood, but it's not a dense industry from an employment standpoint. The opportunity is there, as  the neighborhood transitions to more creative, office-driven enterprises, which will significantly increase the density of employment This is great for the city of Los Angeles. It just doesn't make sense to have this massive transit infrastructure feeding a truck logistics apparatus. 

Larry has refrigeration systems that are decades old. The refrigeration plant on the north side of Fourth Street, runs under Fourth Street and connects to the rest of the buildings, so LA Cold Storage cannot move piecemeal.  They will need to eventually  upgrade and modernize their plant. With our arrangement he can take the next few years to carefully plan what that transition looks like and by the time we are ready, he will have a relocation plan worked out.  

Let's turn back to the opportunities in the DTLA market that you see. Obviously, if you took a snapshot today, both the commercial and street retail markets in LA are both struggling. What does Continuum Partners envision going forward? 

Real estate is a long term investment.  You cannot enter projects of this scope if you don’t have the stomach for the macro market disruptions which are inevitable.  When we look at LA,  we see a region which has the potential to be the most progressive city in the United States over the next 100 years.   The city’s $120 billion transit investment stands apart from any other major gateway city in the United States.  The accompanying densification presents an epochal opportunity to shift the balance of equitable housing in the region for generations.

You already have an incredibly diverse economy. You have a highly diverse workforce. You have a tremendous amount of manufacturing. You have this remarkable entertainment and content industry.  LA has everything and continues to be the city that defines culture. Angelenos have a hard time seeing how  remarkable an apparatus this city is. We see it, and we think it's got phenomenally exciting years ahead of it—its best years, in fact.

While you truly sound like a candidate for Mayor of LA, share whom you have chosen to design Fourth & Central. 

We were introduced to Studio One Eleven through this project. They had done early studies for LA Cold Storage. We looked at the work and were impressed. We have now been working closely with them for over a year, and we're thrilled with the team. This site has a certain kind of profile, so there is also  value and opportunity to introduce some important iconic markers here as well. 

 We have had a long, exciting and rewarding relationship with David Adjaye and his team. In one of our Denver projects, we built a little neighborhood around a new museum of contemporary art in the early 2000s. David was brought in to be the architect of the museum. It was his first significant project in the US.  We found in him a sensitivity you rarely find in people with his kind of profile. We felt that understanding and compassion needs to be part of the way our cities evolve.

With the Arts District’s adjacency to Skid Row, Continuum’s  walking into a challenging & important homeless housing policy conversation. How, as a developer, are you engaging in this civic challenge?

The best opportunity LA has to address its structural housing shortages are in the Central City area.  The new transit infrastructure will increase mobility and access to jobs for people in both directions.  The key to upward mobility is proximity to increasingly better jobs.  I can imagine that over time that transit will not just be about bringing people in outlying areas into the Central City for jobs, but it can work in the other direction too.  

The challenges with homelessness we are confronting in all high-value markets is tough. Denver is dealing with it, Portland is dealing with it, LA is dealing with it; every high-value Western city is working hard right now  to find the right solutions. Homelessness is  going to be an ongoing problem that we all need to work  together to solve. However, we have other challenges too. In cities like LA, the ratio of median income to median home price is almost 10. The average nationally is about 2.5 to 3. 

 We create this problem by constraining up zoning to protect lower-density neighborhoods.  The effect of this is that we create inequities in housing.  This policy cuts off pathways to middle-income prosperity.   We have to fix that. And I think the lack of quality middle-income housing is a part of the homeless problem. 

We need  to bring the private sector back into middle-income housing development. We are working on some interesting solutions in Colorado. I hope to bring some of those same strategies to LA. We are all going to have to get smarter at figuring out how to create well-located middle-income housing opportunities. A lot of it will likely be rental housing than ownership for a while. Maybe in 20, 30, or 40 years we will get to a place where we can create better homeownership opportunities, but right now we have to focus on housing security in the most urgent way we can.  There are 3 to 4 million people in LA who are significantly housing stressed, where the cost of their housing isn't correlating with their income.  This is a problem in many higher-value cities, but for LA it is also an opportunity. LA has a much better chance of addressing that challenge than San Francisco does. LA can completely transform opportunities for middle-income people in a way few gateway Cities can.   

Mark, enumerate on your plans for affordable housing units in the project.

This project falls inside of Measure JJJ, which guides us to a handful of different options. Given the political dynamic, we're likely to focus on the extremely low income affordable segments.  I know some worry about mixing market rate and supportive housing in this neighborhood. I think supportive housing has to coexist with higher-end housing and with high-value employment. 

I would personally like to find an opportunity to introduce a large share of middle-income housing into our JJJ mix. This requires some trade-offs. We would need the support of political leadership to grasp that opportunity.   The most resilient neighborhoods provide the most diverse set of living options.  In our perfect world we would diversify the mix of the affordable to include housing for construction workers, hospital technicians, first-year teachers, alongside of the very-low-income and upper-income units.  The most urgent needs right now are for those earning between 50 and 130 percent of AMI. As this neighborhood densifies, it would be great to find ways to ensure that middle income residents are a permanent part of the mix.

Some leaders in the DTLA Arts District have raised questions with LA City Planning and what the nature of the area ought to be—not an NYC SoHo. How has Continuum responded to those who envision a contextual, less dense Arts District?

The LA Cold Storage property was formerly the Central Station for the Southern Pacific Railroad.  Millions of travelers arrived to California through this site.  As interstate passenger train travel declined,  this neighborhood was converted to an industrial logistics hub.  Passenger rail travel is once again returning to this neighborhood which sits at the center of the 3rd largest urban economy in the world.  The one- and two-story warehouses which now dominate the neighborhood are clearly not the best long-term land use for this area.   

The Little Tokyo Regional Connector is a $2 billion investment. Candidly, I'm surprised that the City is not pushing for densities even higher than the 6 to 8 FAR that is generally talked about. There is a sweet spot though at 6 to 7 FAR.  It gets you a good critical mass of activity with a good balance of parking and it can still be a nicely scaled pedestrian- environment. We're in full support of this approach in the 2040 draft plan. 

We also support the vision of the early movers in the Arts District that this should all be Type 1 construction. The character established by some of the early developments which key off of the original post and beam prewar industrial buildings here is exciting and a large part of the neighborhoods appeal.   

I know there has been pushback against this from groups that want to allow Type 5 construction; but there are plenty of other parts of LA which accommodate that building type. I think this neighborhood is too strategically important to build with narrow purpose-built buildings. This more ambitious vision is part of what attracted us to invest here.

On climate change, how are you addressing the drive to decarbonize the built environment, which, given the size of this development, would seem appropriate.

We made the commitment to sustainability as a firm over 20 years ago when we built the first LEED silver rated multi-tenanted spec office building in the country. We also installed 1.8 megawatts of solar panels on top of parking structures in one of our projects in the early 2000s. I personally have been deeply concerned and committed to the ecological sustainability of our habitat for my entire adult life.

 A few years ago, when it became clear there was a pathway to creating a fully renewable electric grid in— California, Colorado, Oregon—we began a shift to fully electric buildings. We always worry about the embedded carbon in the construction materials we're using, but you can't solve every problem on every building; it's an incremental thing.

 Our industry is remarkably impervious to innovation and for some key reasons. If you attempt to reinvent air conditioning on a 50-story building and you're wrong, you have a real problem. This industry is incredibly capital intense, and it requires decades to return the investment. I’m excited to see the grid provide the innovation because it makes the risk of moving to a carbon-free building and getting the operations right so much more tolerable. 

Many of the cold storage buildings in this neighborhood have very old, inefficient heating and cooling plants. There are a massive number of trucks coming in and out of the neighborhood as well. The existing carbon footprint of these buildings is quite high.  We have a real opportunity to demonstrate how a significant densification of the neighborhood can actually be carbon-neutral.

Last question: Have you waded into the LA River planning issues – given its adjacency to DTLA and the Arts District;  what ought the County be including in their master plan?

One of the first properties we owned in the area is the parking lot adjacent to the Toy Factory Lofts so I got to know Yuval Bar-Zemer. I'm so impressed with the leadership that people like Yuval and Mark Borman and others have brought to the neighborhood over the years. Their vision for the river is extraordinary.  We are not directly involved in those efforts but applaud the work being done.

In fact,  we have a handful of photographs in our office in Denver of the LA River in its current state. If you looked at the Hudson River waterfront in New York City 20 and 30 years ago, you could have never imagined what's there today. We often underestimate how transformative an opportunity we have with assets and resources like the LA River, and thankfully there's some remarkably good citizen leadership helping to guide it.