Portland, Oregon, Condo Developers Bringing ‘Cool' Urban Living to Downtown L.A.

All of you are based in Portland, Oregon. No one has ever suggested that Los Angeles is Portland South. What is the opportunity that has inspired you to come to L.A. and invest in a downtown, pedestrian-friendly, urban infill development like Elleven?

Tom Cody: I grew up here in Los Angeles, so "coming down here" is really returning here for me. One reason that we chose to invest in Downtown Los Angeles is that this urban lifestyle decision is sweeping the nation. Angelenos are realizing that urban living is cool, and they want to be in a place like downtown with energy and excitement, and live in a loft, and be part of a vibrant space.

The second part of it is that city officials, many community-based organizations, and other developers have made strategic investments in Downtown that have better positioned it recently. Great examples are the transit system, Disney Concert Hall, the new cathedral, and the new Caltrans facility. There have been numerous high-profile public and private investments in downtown that really are paving the way for people like us to come in and help to take the next step.

The third and final element, I think, is what I call the "livability sink," or vacuum. People have really finally reached the limit – that kind of magical moment where people realize it's not worth it to spend hours in the car anymore away from their families, breathing smog, just deteriorating their lifestyle and going home to this homogenous row of houses that are simply not that affordable anymore. There was a point in time where you could drive an hour and be in something affordable, and maybe that was worth it. I think the American Dream is really starting to change, and it's changing toward an urban lifestyle, with urban amenities, and having a more compact, sustainable life, where you have a higher quality of life - that doesn't mean going to the outer suburbs.

Homer Williams: This town is right on the cusp. It's kind of interesting; if you look at most urban cities, the upper end of the apartment market has been a little soft. With low interest rates, it makes more sense for some of them to be living in condominiums. If you look at the market here, it's very robust, very high rent. And really it's because people don't have a choice. So we felt that, number one, the market was underserved.

James Atkins: One other reason to invest I would add is the jobs-housing imbalance as a key factor that speaks to the depth of the market and why we think our vision will be successful. You look at cities like San Diego and Portland, and you look at the ratio of housing to jobs in the Downtown core. Los Angeles has one-half to one-third the housing of any city west of the Rockies. It should be different. There should be people out there who want to give up that commute.

What return do you need to be successful with this project? What does your Elleven pro forma require?

HW: Price-wise, we have to be at $400 per square foot.

And do you think the current market will support a $400-square-foot cost basis?

HW: If you were to look at it, actually this market will probably settle in north of $500 per foot. What will happen here is no different than what happened in Portland. You'll have your early adaptors, and then you're going to have your younger people who are working down here. And then you'll begin to get the baby boomers. Nobody thinks that baby boomers are interested in downtown, and frankly they aren't right now, but they will be. I don't know if it's three years out or four years or five years, but it's going to happen.

Comparing and contrasting Portland to Los Angeles, it's easy to focus on scale and that the city blocks are laid out differently. Obviously, the "fine-grain" connections are fundamentally dissimilar. That raises the question: How does a developer create livable, pedestrian places in Downtown L.A.?

HW: They are different. Portland's 200-by-200 blocks are well-scaled for urban development. Every 200 feet you have a corner. And we have wonderful infrastructure for urban life. It will begin to happen here, but it is going to be different. The other aspect of urban housing is the streets get safer. People will do what they do in Portland, they'll ride bicycles and they'll walk more.

But this is never going to become a Portland. L.A.'s Downtown has long blocks. And so, these types of developments will be a big improvement, but they're going to be two different cities. It's not like Portland will just be recreated and brought here.

TC: Downtown L.A. has the large scale infrastructure – there's a great bus system, the subway has grown a lot and has a lot of momentum now, and the commuter rail is doing great. Our site is two blocks from a Metro station, so that was an important part of our vision. But I think what Downtown really needs are small-scale, fine-grain investments. It's that pedestrian, human scale that really is the seed from which the small retail and the boutiques and the fine-grain urban fabric is germinated. A streetcar that goes up the middle of Figueroa from USC to Bunker Hill would be a great addition. Smaller scale infrastructure helps to create more intimate experiences.

So, how does the L.A. template impact the challenges that you face in schematically laying out this multi-phase building project?

TC: We're working within the existing grid, obviously. We're vacating one alley to provide a parking entry to our project. But, in large part so far we haven't begun to really tamper with that. But I think what we'd like to do as we move into Phase II and Phase III is to create our own internal circulation on our blocks, so people can walk easily from one project through the buildings to the site, creating more of a permeable environment. We're looking at things like pedestrian streets, internal plazas, and internal circulation to help ameliorate that situation.

TPR interviewees over the years have consistently lamented that, in the fiscally constrained and politically charged culture of Los Angeles development politics, city planning has evolved into nothing more than a negotiation with stakeholders. What has been your experience with Los Angeles? Does L.A. value city planning more or less than does Portland?

HW: Portland – I love the City and we're involved with it all the time – plans more than any city on the planet. L.A. does need to do more planning. They need to rewrite or create a new code. This type of development will trigger it, I think. We're talking about doing a total of 1,500 units down here. It could be as many as 2,000 depending on some variances that Jim's working on. Then you take what Harlan Lee is doing and Forest City and other things, you're going to be talking about several thousand people living there in the next five years. That will be a different dynamic that will require different planning approaches.

TC: The people here get it. I can name names – our point person at the CRA, Ayahlushim Hammond; our point person at the Planning Department, Emily Gabel Luddy; and our city councilwoman, Jan Perry. The problem is, the code isn't there to support this type of development yet. The people are there. They make the right decisions. They understand what it takes to build good cities. But the code isn't there. So, I think what is really needed, which is a huge, ominous task, is a fresh look at kind of the nuts and bolts of the planning and zoning code.

JA: Con Howe and his staff are beginning to look at some of these issues. In Portland, as an example, we have maximum parking requirements. Here it's exactly the opposite – there are minimum parking requirements. Here the streets, even a large street like Grand, required further dedication. The Planning Department is beginning to examine the things that fight against that pedestrian friendly, livable kind of environment they are looking to create. So, they are beginning the process of thinking about how do we change our code to facilitate and incentivize these kinds of urban, smart-growth, homeownership projects.

I gather that the task that you've outlined in the development of Elleven and its adjoining buildings is to build a livable place, not necessarily an architectural gem. Can you share the instructions that you gave your design architect?

TC: We've paid a lot of attention to the design of our building at the 30-foot and below mark – the part of the building that really interfaces the most with the public with pedestrians, with traffic, and passers-by. We've gone to great lengths to shield the parking from the street. We're trying to create a program on the street with live/work townhome units, where people can operate businesses, and to combine that with retail. We feel that the 30-foot and below mark is the most important part of the project architecturally.

HW: Again, you're going to have that kind of urban pioneer in the beginning at Elleven. You're going to have that group with huge pent-up demand that has been created here, which we don't have in Portland, from the apartment residents. And then maybe by the third building – and we'll be tracking this very carefully – you could be looking at the beginnings of the empty nesters starting to come down here. Once that happens the empty nesters will be probably the biggest driving force in the city, at some point in time. Right now, we're about 40% empty nesters, versus 65/35 in the overall housing market. So, it will be a very significant turning point.

JA: The first project, Elleven, is 13 stories, 172 to 179 units. We're still debating the design of the ground floor, but it will definitely have a retail component. About three-fourths of the units are the 900 to 1,100 sq. ft. loft-type products we talked about. The corner units are large, two-bedroom with 12th and 13th floor penthouses. The second building is 236 units, 19 stories. It's a little bit narrower building, so the units will be a bit wider relative to their area than the first building, which means a little bit more glass, a little bit more opportunity for demising walls. They won't be quite the traditional, narrow, loft-type product. With the third building, as Homer mentioned, if you begin to see a baby-boomer market emerging this becomes a more traditional-type building with larger units.

And the timetable for building out all phases of the project?

JA: The first building is under construction now. Occupancy is expected in February 2006. The target for the second building, obviously depending on the market, is to break ground in spring of next year, with occupancy in late 2006 or early 2007. The third building, once again depending on market conditions, to break ground in Fall of 2005 with occupancy in 2007. We're trying to bring these out on every six to nine months.

Lastly, what have each of you learned about infill development in the last seven or eight years in Portland that is now being put to good use to support your investment in Los Angeles' downtown real estate market?

JA: The devil is in the details. You're creating a master homeowners association to help maintain and nurture the neighborhood along, so that there's a vehicle in place to help take care of trash pickup and all the other things. But at the same time, you have to worry about "What do the door handles look like? Where do the electrical receptacles go?" So, it's this combination of the inside of the building details, and outside details, because it's 179 homes. 179 people are living here.

HW: What Jim is talking about cannot be overemphasized. It's one thing to develop a building and sell it and be gone, and it's another thing to have multiple projects. The guy that's in the building is either your best sales agent or your worst nightmare, number one. Number two, when you're trying to make a neighborhood work, the issues and the complexity are much greater than just trying to fit a building into a place.

JA: So, what we intend to do is create a Master Homeowner Association, where these three buildings, and perhaps others that we create in South Park, become part of it. We've done this in Portland in the Pearl District and the South Waterfront. And, just as Homer said, then that master association has a means to collect money to go to the park department and say, "We'd like to fund people to go around and make sure the streets are clean. We'd like to spend money to make sure our parks are kept safe and clean." Fiscally the city doesn't have money or the wherewithal to do some of those things. It creates a vehicle that the neighborhood can take care of those things that are important to them over the long term.

HW: We think probably the single most important thing we've learned in the last seven years is that if you're going to be involved in urban development on a large scale, and you're going to be involved in public-private endeavors, you as a private developer had better be able to quantify what the public benefit is. No public agency or individual is going to grant a decision for the sole purpose to enrich a developer. That's not their job, and they shouldn't do that. So there needs to be a clear reason why granting a particular decision or approval or regulatory interpretation relates to a clear public benefit that is being provided.