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Equity Office Daily Brief: December 18, 2017

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Daily Brief

December 18, 2017

  EquilityOffice

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Will the GOP tax bill stall California's economic growth?

Los Angeles Times

 

  Republicans have said that by slashing business taxes, they will supercharge the American economy, benefiting both C-suite executives and the average American. Economists generally expect a short- term boost to growth, though they doubt the cuts will be a game changer...

 


Molina Healthcare to Vacate Office Space as Part of Massive Restructuring

Los Angeles Business Journal

 

 To help save hundreds of millions during a large-scale company overhaul, Molina Healthcare has scrapped plans to move into a San Pedro office tower and is now vacating an office building in Long Beach. The Long Beach–based managed care health insurer had...

 


No Market Indicator in Dip on Priciest Properties

Los Angeles Business Journal

 

The total value of the top 50 highest assessed properties in L.A. County dropped 4.6 percent in 2017, according to the Business Journal’s list this week – but that’s not any indicator of a dip in the real estate market. The entire...

 



BLOG & ONLINE NEWS

 

More Offices Proposed for Vacant Property in El Segundo

Urbanize LA

 

A large vacant property on Rosecrans Avenues is slated for a mixed-use development featuring commercial offices, production space, and retail, according to an environmental report now being compiled by the City of El Segundo. The Beach Cities Media Campus, proposed for a six-acre...

 


Property in LA's City West/Westlake Area Bought for Creative Office/Production Use

RENTV

 

Rideback Ranch LLC paid $4.6 mil for a two-building office/flex property totaling 13.9k sf ($331/sf) in the heart of LA’s City West/Westlake submarket. The new owners have already begun a major renovation at the property to better meet market demand for...

 


Inside El Segundo's Hot Office Market

Globe St.

 

It’s no new story that El Segundo’s office market has been benefiting from activity in West L.A.—but the activity seems to be heating up, with escalating pricing, better yields and high interest from a diverse investment pool. Campus 2100, a 203,946-square-foot...

 


New City Incentive Encourages More Transit-Oriented Development

Globe St.

 

The city’s new Transit-Oriented Communities Incentive is intended to promote more transit-oriented development. We sat down with Andrew Starrels, is a partner with Holland & Knight LLP and a member of the firm’s West Coast Land Use and Environment Group, to talk about the...

 


Report: Virgin Hyperloop One Raises $50M, To Set Richard Branson As Chair

SoCal Tech

 

A report this morning says that Los Angeles-based Virgin Hyperloop One is getting set to announced a new, $50M investment, and will be installing Sir Richard Branson as its new chairman. According to Axios, the funding comes as Virgin Hyperloop One was "running...

 


Never leave the office: Why owners are adding 'third spaces' to the workplace

The Real Deal

 

When completed, the massive mixed-use development known as Hudson Yards will be a city within a city. It’s designed with the idea that residents can live, work, exercise, dine, lounge and admire public art within its 28 acres. “It’s literally a city...

 


CRE Values Will Hold Steady In 2018

Globe St.

 

HOUSTON—Commercial real estate values are widely expected to hold the line in 2018, according to valuation experts surveyed by Situs RERC. Meanwhile, most expect the “tremendous” CRE price growth we’ve seen over the past cycle to continue, and also that “the...

 

FULL TEXT


Will the GOP tax bill stall California's economic growth?

Los Angeles Times

 

 

Republicans have said that by slashing business taxes, they will supercharge the American economy, benefiting both C-suite executives and the average American. Economists generally expect a short- term boost to growth, though they doubt the cuts will be a game changer for either the larger economy or the typical worker.

But for California, there are particular challenges buried in the tax bill, and some economists believe that could ultimately prove a drag on growth and harm the state’s competitiveness.

“I am a little bit gloomy,” said Dave Smith, an economist at the Pepperdine University Graziadio School of Business and Management. 

The downbeat assessments reflect the various ways Republicans have chosen to help offset the cost of their tax cuts for businesses and individuals. Reducing key deductions is expected to raise the cost of living for many middle- and upper-income households in an already pricey state.

The tax plan includes capping the deduction for state and local taxes as well as reducing it for mortgage interest on new loans. Critics say both changes are weapons aimed at Democratic states with high state taxes and housing costs.

Already, Californians are leaving for lower-cost states such as Arizona, where the median home price is nearly $285,000 less than what it is in the Golden State, according to data from Zillow. Last year, 105,037 more people left for another state than moved here from elsewhere in the U.S., down slightly from the year before but three times the number who decamped in 2012, according to the California Assn. of Realtors.

The tax changes may lead even more people and businesses to pack up, said Edward McCaffery, a tax law expert at USC.

“I think it shifts industries, resources and people away from California,” McCaffery said.

Since emerging from the Great Recession, California has outpaced the nation in job growth, adding 2.3 million new jobs, an increase of 15.5% since 2012, versus 10.3% for the U.S. overall. Home prices have also been booming, especially in Southern California and the Bay Area. The median home price in California stood at $512,800 in October, 68% higher than at the beginning of 2012 — nearly double the increase seen nationally.

Steven Mento, who runs Conatus Pharmaceuticals, a biotech firm out of San Diego, said he isn’t about to flee because of lost tax deductions. But he noted it’s already a struggle to convince “top-notch” people to relocate from out of state.

Reduce a deduction for state income taxes, make a home more expensive, and Mento worries it will be even more “miserable” to recruit employees to work on Conatus’ experimental liver disease drug. “It’s certainly not going to make it easier,” he said.

Under the GOP’s tax bill released Friday — a compromise between plans that previously passed the Senate and House — a strong majority of Californians would pay less taxes in 2019, according to the left-leaning Institute on Taxation and Economic Policy. But the share of people who will pay more is higher in California than in most states: 11%, or nearly 1.9 million taxpayers.

Carl Davis, research director for the group, said the share of residents seeing an increase would rise over the years. The bill changes how inflation is calculated, thus slowly pushing people into a higher tax bracket. By 2027, when most of the individual changes will have also expired, nearly 5.5 million, or 28% of California taxpayers, would see a higher tax bill.

The compromise plan, while hitting California harder than many other states, does lighten the effect on some residents and businesses compared with plans that previously passed the House and the Senate, which respectively were expected to result in 18% and 14% of Californians paying higher taxes in 2019.

For example, under the compromise bill, people buying homes could deduct interest paid on the first $750,000. That’s down from $1 million under current law and the Senate plan, but up from the $500,000 cap in the House bill.

The corporate alternative minimum tax would also be repealed, pleasing Silicon Valley tech companies who feared its inclusion in the Senate bill would hammer their ability to use a research and development tax credit.

Individuals could also deduct up to $10,000 in combined property and state income taxes, rather than up to $10,000 in only property taxes under both the Senate and House bills. That’s important to California, where property taxes tend to be lower than in other states.

That won’t take away all the sting, though. The average state and local tax deduction taken in California in 2015 was nearly $8,500 more than the new proposed cap, according to the Tax Policy Center.

“It slightly softens it,” USC’s McCaffery said. But “the fundamental direction of the tax policy stays the same — it’s an attack on liberal, blue states and their forms of financing.”

Smith, the Pepperdine economist, said there could be a small short-term boost to the economy as taxes fall for businesses and most taxpayers. But tax hikes are likely to be concentrated among people living near the coast — where the state’s high-paying jobs are being created — Smith said. And by adding an expected $1.5 trillion to the U.S. deficit over 10 years, the tax bill is likely to put upward pressure on interest rates.

“I think it could be a little bit of a restraint on growth,” he said. “It won’t necessarily lead us to a turnaround or heading to a negative direction, but it will certainly pull back some of the positive things.”

Potential impacts of the tax bill go far beyond what happens on Californians’ 1040s.

In the future, state and local lawmakers would presumably face heightened pushback if they sought to raise taxes that couldn’t be deducted at the federal level. That would limit the ability of California to tax itself to fund more services or to close a budgetary gap, as it did in 2012 when voters approved higher income taxes on the state’s wealthy residents.

And some national Republican leaders have made no secret about wanting to cut back spending on Medicaid and Medicare to offset deficits. Already, rules that are in place to control deficits are projected to force a $25- billion cut to Medicare in 2018 if the tax plan passes and Congress doesn’t stop the health cuts.

Medicaid spending is highest in California, the nation’s most populous state, topping $81.9 billion last year, according to the Kaiser Family Foundation.

“This is potentially damaging to the fiscal health of the state,” said Chris Hoene, executive director of the California Budget & Policy Center. “The state would have to decide to pick up the tab or reduce the services to those households.”

State officials — including Gov. Jerry Brown — lobbied against the tax bills, arguing that they would harm some of the state’s top priorities.

One example: A provision in the House bill eliminated a tax break on a special type of bond frequently used to fund below-market housing. In a letter sent Wednesday to California’s congressional delegation, the state Department of Finance said that if the cut held, an “important tool” that helped fund nearly 20,000 affordable units last year would vanish.

The compromise bill, expected to be voted on this week, retains the tax-free bonds, though Matt Schwartz of the California Housing Partnership Corp. still expects around 4,000 fewer units to be built annually, because reducing the corporate tax rate would make affordable housing tax credits less valuable.

California’s renewable energy industry was also worried about proposals to eliminate an electric vehicle tax credit and reduce a wind credit. A complicated provision — the Base Erosion Anti-Abuse Tax — was designed to keep profits in the country and was expected to harm a financing tool used for solar and wind projects.

State Finance Director Michael Cohen said in his letter that the proposals would “threaten California’s programs to meet its air quality, climate, and renewable energy goals, and would jeopardize thousands of jobs in these sectors.”

The compromise bill keeps the current wind and electric vehicle credits in place. It retains a version of the base erosion tax that would minimize the harm to solar and wind projects but still make financing harder to obtain, according to the trade group Advanced Energy Economy.

Some economists are more upbeat about the tax bill because they expect an investment boost from slashing the U.S. corporate rate to 21% from 35%.

Lynn Reaser, chief economist of the Fermanian Business & Economic Institute at Point Loma Nazarene University, acknowledged the state’s economy would see less of a benefit than the nation as a whole. But she said the economy should still grow faster than it otherwise would, in part because large tech companies such as Apple would have an incentive to bring home billions of dollars they have stashed overseas.

“California should still end up ahead,” she said.

Skeptics, however, point to research that suggests the benefits of corporate tax cuts flow mostly to shareholders through stock buybacks or increased dividends. Christopher Thornberg, founding partner of Beacon Economics, predicted that’s how most corporations would spend their extra cash this time around.

But Michael Riley said he would invest money from a lower tax bill back into AMRO Fabricating Corp., a South El Monte metal fabricating company he runs. AMRO makes aluminum panels for NASA’s new heavy-lift rocket, the Space Launch System.

Riley said he plans to spend the money on things AMRO has been putting off because they’ve been too costly, such as boosting employee training programs and buying new equipment.

He said a tax cut wouldn’t automatically result in him hiring more people but added that buying new machines could allow his company to bid on projects it otherwise couldn’t.

If AMRO then won those bids, Riley said, he would need more workers.

-Andrew Khouri 

 

 

Molina Healthcare to Vacate Office Space as Part of Massive Restructuring

Los Angeles Business Journal

 

 To help save hundreds of millions during a large-scale company overhaul, Molina Healthcare has scrapped plans to move into a San Pedro office tower and is now vacating an office building in Long Beach.

The Long Beach–based managed care health insurer had planned to move hundreds of employees into four floors of the Topaz office tower at 222 W. Sixth St. in San Pedro. But now the company has decided to sublet the 100,000 square-feet of space instead.

At the same time, the publically traded Fortune 500 firm is moving workers out of similar offices at 1 World Trade Center into its nearby Long Beach headquarters on Ocean Boulevard.

“Due to the restricting that we announced earlier this year, Molina no longer needs the additional space,” said Molina spokeswoman Sunny Yu, in an email.

Molina develops health plans for needy residents on Medicare or Medicaid who buy insurance through subsidized markets such as Covered California.

But hit by lower enrollments and higher costs, the company posted a net loss of $97 million in the third quarter ended Sept. 30. The company reported a $42 million profit during the same period last year.

As part of an announced restructuring to save $200 million annually beginning Jan. 1, Molina Healthcare closed primary clinics outside California; laid off 10 percent of its workforce, or 1,400 employees; and replaced the company founder’s sons with a new chief executive

The cost of restructuring led to a $250 million loss in the first nine months of this year, company officials said.

On Wednesday, Molina announced that Dr. J. Mario Molina, son of the late Dr. C. David Molina, founder of the company, had stepped down from its board of directors after more than 20 years as chief executive.

Molina Healthcare stock closed at $76.27 on Friday, up 71 percent since its 2017 low of $44.68 on March 20.

-Dana Bartholomew 

No Market Indicator in Dip on Priciest Properties

Los Angeles Business Journal

 

The total value of the top 50 highest assessed properties in L.A. County dropped 4.6 percent in 2017, according to the Business Journal’s list this week – but that’s not any indicator of a dip in the real estate market.

The entire decline of $1.57 billion –which took the total for the list down to $32 billion – was accounted for by an anomaly in the reported value of the J. Paul Getty Center.

The assessed value of the renowned art museum and research center at 1200 Getty Center Drive in Malibu was down by $2 billion to $2.19 billion this year, according to the Los Angeles County Office of the Assessor.

The difference on the Getty Center property was the result of a decision to assess the value of its land and buildings separately from other “unsecured” property, such as the artwork, equipment and furniture, said Robert Kalonian, spokesman for the Assessor’s Office.

All told, Getty Center did appreciate slightly, if counting the unsecured property, for a total of $4.308 billion in 2017, Kalonian said.

And the land and building on their own retained its perennial standing in the No. 1 spot on the list.

The value of several oil refineries saw wide swings from year to year. Chevron Corp.’s refinery at 324 W. El Segundo Blvd. in El Segundo ranked No. 2 on the list, with a value of $2.186 billion. The figure represents a 22 percent jump for the refinery’s value, up from $1.79 billion the year previously.

The property with the biggest gain in value in this year’s list was the PBF Energy Torrance Refinery at fifth place. The property, at $1.107 billion in 2017, saw a 77 percent leap in value from last year’s listing at $624 million.

Ed Velez, a supervising appraiser at the Assessor’s Office, said the value of the refinery, which had been owned by ExxonMobil prior to PBF Energy’s 2016 acquisition of the property, had been down because of an explosion at the facility in 2015. The property value rose again after repairs and it was made operable again last year, Velez said.

“That affected the value, but they repaired it since then, Velez said.

Two more oil refineries came in at sixth and seventh place with the Valero Corp.’s refinery, at 2402 E. Anaheim St. in Wilmington, dropping 9.07 percent to a value of $932 million. That was followed by the Tesoro Corp.’s Carson refinery, at 1801 E. Sepulveda Blvd. in Carson, dropping 10.06 percent to $885 million for seventh place.

Cedars-Sinai Medical Center, at 8700 Beverly Blvd., was third on this year’s list with a value of $1.829 billion, up 18.31 percent from its 2016 value of $1.546 billion.

The Universal Studios entertainment production studios at 100 Universal City Plaza, Universal City was fourth on this year’s list at $1.15 billion, down 22.89 percent from last year’s value of $1.5 billion.

Rounding out the top ten were two more hospitals. Providence St. John’s Health Center at 2121 Santa Monica Blvd. in Santa Monica came in at 8th place with a 2017 value of $797 million, representing an 8.14 percent rise in value from the previous year.

That was followed by City National Plaza, a property with two office buildings in downtown Los Angeles at 515 S. Flower St. City National Plaza, which at 9th place was valued this year at $784 million for a 2.08 percent rise in value from last year.

Children’s Hospital Los Angeles at 4650 Sunset Blvd. ranked 10th with a value of $733 million in 2017, up 1.81 percent from last year.

L.A. County’s total assessed property for 2017, according to the Assessor’s Office, was a record $1.474 trillion, or a 6.04 percent net increase over 2016, according to a release in July from the office.

“The 2017 Assessment Roll provides a comprehensive view of the strength of the Los Angeles real estate market,” Assessor Jeff Prang said in a statement. “The Roll reveals that in the last year, every city in Los Angeles County recorded an increase compared to 2016. I am pleased to report the 6.04 percent increase for assessed property values in Los Angeles County represents the seventh consecutive year of growth.”

-Neil Nisperos 

More Offices Proposed for Vacant Property in El Segundo

Urbanize LA

 

A large vacant property on Rosecrans Avenues is slated for a mixed-use development featuring commercial offices, production space, and retail, according to an environmental report now being compiled by the City of El Segundo.

The Beach Cities Media Campus, proposed for a six-acre site near the intersection of Rosecrans and Nash street, calls for the construction of a five-story, 240,000-square-foot office building, a 66,000-square foot studio and production facility and two single-story buildings comprising 7,000 square feet of retail space.  These uses would be served by structured parking or 1,100 vehicles, as well as limited surface parking.

Two different site plans are under consideration for the project, both of which could include a pedestrian bridge between the proposed office building and an existing office building at 2041 Rosecrans Avenue.

Adjacent properties are listed among the portfolio of Continental Development Corporation, an El Segundo-based firm with projects in the Los Angeles and San Francisco areas.

-Steven Sharp

Property in LA's City West/Westlake Area Bought for Creative Office/Production Use

RENTV

 

Rideback Ranch LLC paid $4.6 mil for a two-building office/flex property totaling 13.9k sf ($331/sf) in the heart of LA’s City West/Westlake submarket. The new owners have already begun a major renovation at the property to better meet market demand for creative entertainment and production campus properties. 

 Built in 1954 and located at 1670-1680 Beverly Blvd, the buildings are one and two stories respectively. The property is adjacent to a 21k sf building and 40k sf parking lot at 1660 Beverly Blvd that this owner acquired in December, 2016. 

John Anthony, Chris Steck and Chris Giordano of Charles Dunn Company represented the seller, Roscoe Associates LLC. The buyer was repped by LS Capital.  “The City West/Westlake submarket is becoming a more economical alternative to the pricey and adjacent Hollywood and Downtown markets for entertainment and production companies,” said Anthony, a senior managing director out of Charles Dunn’s Downtown Los Angeles office. “As this market emerges, we are seeing an increased amount of investor interest for redevelopment opportunities and expect property values and rents to rise over the next 12 to 24 months.” 

Inside El Segundo's Hot Office Market

Globe St.

 

It’s no new story that El Segundo’s office market has been benefiting from activity in West L.A.—but the activity seems to be heating up, with escalating pricing, better yields and high interest from a diverse investment pool. Campus 2100, a 203,946-square-foot class-A office campus in the market, recently traded hands for $117 million—the second highest price tag per square foot in the market. The asset garnered interest from domestic core funds, REITs, and some foreign investors, and Kevin Shannon, West Coast president of capital markets at NKF and the lead broker on the deal, says that competition was fierce. We sat down with Shannon to talk about the growing activity in the market and why investors are rushing in.

GlobeSt.com: What does the high price tag on this property say about the office market in El Segundo?

Kevin Shannon: The per square foot value is high for El Segundo but this is a best-in-class asset. Which means it also generates best-in-class rents higher than much of the El Segundo market. The yields offered by Campus 2100 are far superior than those found on most West Los Angeles office sales and dramatically lower on a per square foot than other prominent parks such as Playa Vista.

GlobeSt.com: How has pricing in the El Segundo market changed in the last year?

Shannon: Pricing in El Segundo has been escalating the last two years. Capital continues to recognize the increased attraction of this marketplace to tenants who have historically preferred West LA. El Segundo’s rents have risen dramatically, especially for renovated product such as Campus 2100, but remain much lower than West LA markets without LA city taxes. Rising rents have resulted in rising sales prices, which have been augmented by a tremendous increase in the amount of capital available from all buyer groups who have put El Segundo on their A-market shopping list.

GlobeSt.com: What is driving activity in the market?

Shannon: El Segundo has superb transit access in a coastal climate only minutes from the beach. The quality amenity concentration along Rosecrans and Sepulveda is conducive for companies looking to attract the best local talent from USC, LMU, UCLA etc. These new graduates love locating in the neighboring Beach cities of Manhattan Beach and Hermosa. There is an abundance of executive housing in the South Bay as well without the magnitude of traffic issues found in West LA.

GlobeSt.com: Outlook for El Segundo next year?

Shannon: El Segundo is clearly on an upward trajectory and will continue to improve from both a rental and pricing perspective. The per square foot value in El Segundo appears cheap compared to recent West LA sales comps. The market has a lot of momentum.

-Kelsi Maree Boorland

New City Incentive Encourages More Transit-Oriented Development

Globe St.

 

The city’s new Transit-Oriented Communities Incentive is intended to promote more transit-oriented development. We sat down with Andrew Starrels, is a partner with Holland & Knight LLP and a member of the firm’s West Coast Land Use and Environment Group, to talk about the new incentive and how it will impact development in the coming year.

GlobeSt.com: What is the Transit Oriented Communities Incentive?

Andrew Starrels: The Transit Oriented Communities Incentive, or TOC Program, is a relatively new set of guidelines adopted by the Los Angeles Department of City Planning as part of the implementation of Measure JJJ, passed by the voters in November 2016. Measure JJJ sought to trigger the construction of more affordable housing by requiring City officials to create incentives for building housing near transit resources. The implementation of the TOC Program represents the City’s required response to the voter mandate to promote development of affordable housing near transit—essentially within one-half mile of major transit points (rail or bus stations, or the convergence of two or more major bus lines). The TOC program establishes “tiers” by increasing the permitted density for projects as the affordable housing within the project increases. To some extent, the Program mirrors the statewide “density bonus” program, in which additional density, expressed as a percentage of the otherwise allowable number of units in a proposed development, is permitted if a developer includes a specified percentage of affordable units set aside for residents meeting certain income qualification requirements. At its basic level, the Program incentives echo the state density bonus, and provide a similar menu of additional incentives (setback relief, reduced yard requirements, additional height or density, etc.) for projects that provide more affordable housing. The TOC Program attempts to go further than the original statewide density bonus and the existing City density bonus program by providing additional incentives for greater density or building allowances if greater percentages or affordable housing are developed and when projects fulfill certain more onerous requirements, including paying “prevailing wage” for project labor. Some of the additional incentives afforded by the TOC Program are pretty significant, and increase the amount of density that will be allowed by a project that includes an affordable housing element located near transit.

GlobeSt.com: Do you expect this to fuel TOD activity in the coming year?

Starrels: It’s been well documented that Los Angeles has a severe shortage of multifamily housing, and the shortage of affordable housing is particularly critical. In that light, any program to incentivize the production of affordable housing is a step in the right direction, and the TOC Program will likely fuel some new projects. The City reports that in the few weeks since the final guidelines were released, they have already taken several applications for TOC Program projects; however, I fear the step in the right direction may be a small one. There remain too many significant systemic impediments and barriers to the production of new housing, including affordable units in transit areas, to generate much optimism within the real estate community. And the TOC Program actually creates additional barriers. To begin with, land costs in areas with the greatest need for affordable housing remain high. So, a for-profit developer must be able to justify the provision of affordable units in a project as a “cost of entry” for getting a development project while otherwise keeping the project profitable. The rents that an owner can collect for an income-restricted affordable unit will fall substantially short of the costs of building and operating the unit so the developer will not build the development unless the additional density allowed by the affordable housing incentive generates sufficient income to offset the shortfall.   For example, in a Westside neighborhood where a new 2-bedroom market rate apartment might rent for $3,500 per month, the rent for an income-restricted unit in that building (the “affordable rent” is tied to a qualifying tenant’s income based upon the median income levels in the County) would probably be around $1,000 per month. So, if a developer received an incentive allowing them to build 20 additional units in a development, they might have to set aside 8 of those units for income-qualified tenants, meaning that only 12 of the additional units will generate market rents sufficient to pay for the additional development costs.

The “density bonus” program has been in existence for more than 30 years and over its lifetime has been hugely successful in spurring the development of mixed-income projects that have contributed significant amounts of affordable housing. These incentives and programs should continue. The problem is that land values in Los Angeles, especially in the areas in greatest need of affordable housing, are so inflated that the developer must pay huge amounts just to acquire the land. Construction costs in the current climate are skyrocketing, and at its highest levels of incentive, the TOC Program requires developers to pay higher labor costs in the form of “prevailing wage” in order to obtain the greatest development incentives. It remains to be seen at this point if the incentives being offered will prompt a developer to build significantly more affordable units, and some in the development community have suggested that developers may opt not to take advantage of all the incentives offered. With high land costs, high costs of labor and materials, and greater time required to complete permitting and construction, I fear that many developers will conclude that developments containing additional affordable housing units do not “pencil,” or generate sufficient returns to justify the additional costs.

There is still significant community opposition, as well as structural and political impediments, to the type of development posed by TOC Program projects. Many communities, and some elected officials, remain steadfastly opposed to increased building density, even in transit areas. Challenges and lawsuits seeking to stop development projects under the California Environmental Quality Act (CEQA) continue to be an effective for community groups, “NIMBY forces” and opponents of infill and higher density development to oppose new housing developments.

There are other changes that the City could adopt, which I believe would be effective in achieving the City’s goals. Streamlined permitting, for example, for otherwise compliant projects that achieve these goals for affordability would be meaningful incentives that could cut time from costly development schedules and money from development budgets, thus offsetting some of the costs of the affordable housing. And, while it would require action in Sacramento, the provision of affordable housing and appropriate increased density in areas well-served by mass transit seem to me at least as deserving of CEQA relief (through streamlining or exemption) as professional sports stadia, which have benefitted repeatedly from such legislative largesse in recent years.

GlobeSt.com: Transit-oriented has been popular this year. What was the impetus for the city to develop an additional incentive?

Starrels: Actually, transit oriented development has been discussed for many years, and the City has several examples of successful and innovative high density projects near transit resources that have invigorated communities, prompted economic revitalization and provided affordable housing. As I said, the real impetus for the TOC Program guidelines introduced recently are the mandates set by Measure JJJ, through which voters overwhelmingly confirmed that they seek expanded opportunities for affordable housing near transit, want the City to create real incentives for these projects, and want to ensure that laborers working on these projects are paid a prevailing wage. These transformative projects are possible, and can be successful, but there are still many impediments.

-Kelsi Maree Boorland

Report: Virgin Hyperloop One Raises $50M, To Set Richard Branson As Chair

SoCal Tech

 

A report this morning says that Los Angeles-based Virgin Hyperloop One is getting set to announced a new, $50M investment, and will be installing Sir Richard Branson as its new chairman. According to Axios, the funding comes as Virgin Hyperloop One was "running very low on cash". The report also says that Branson will replace Shervin Pishevar, who is in the midst of dealing with claims of sexual misconduct, which he alleges is a "smear campaign" against him--but have resulted in his departure from Sherpa Capital. The funding reportedly came from Caspian Venture Capital and DP World; the company had not yet formally announced the funding. Virgin Hyperloop One is working on developing a futuristic, high speed transportation system based on a giant, pneumatic-like tubes, for rapid transportation between cities. The company's technology is based on an idea originally championed by Elon Musk.

Never leave the office: Why owners are adding 'third spaces' to the workplace

The Real Deal

 

When completed, the massive mixed-use development known as Hudson Yards will be a city within a city. It’s designed with the idea that residents can live, work, exercise, dine, lounge and admire public art within its 28 acres.

“It’s literally a city that you do not have to leave,” Stephen Winter, Related Companies’ vice president of commercial leasing, said.

That concept is being replicated — albeit at a much smaller scale — throughout the city. Property owners and businesses are incorporating features like cafés, bars, billiards tables and other types of amenities within their workplaces. These perks function as a sort of “third space,” a term coined by critical theorist Homi Bhabha (in a different context) and commonly used to describe a place between the office and home. In practice, it’s your version of a Cheers bar. So, essentially, a place that you frequent regularly but in which you don’t live or work.

As people spend more time in the office and as commercial design evolves, the demand for such spaces has grown.

Third spaces have taken myriad forms. Nike’s NYC headquarters at the Durst Organization’s 855 Sixth Avenue, for example, has an indoor basketball court and a rooftop terrace. RXR Realty’s Starrett-Lehigh is positioned as a community within a building: It has a Twitter account that announces neighborhood news and the schedule for rotating food trucks stationed on certain floors. Industry City, a 16-building campus of 450 businesses, has a food court, a mini-golf course and a vodka distillery. Designers include these features in their own offices: SHoP Architects, for instance, has a billiards table and bar in its office in the Woolworth Building. Snøhetta has a separate room for ping pong at its 80 Pine Street digs.

Jean Anderson, a principal and design director in Gensler’s New York office, said that Boston Consulting Group’s office at 10 Hudson Yards includes a large café with an in-house barista. The idea is to give employees who don’t normally interact somewhere to introduce themselves and chat.

“It’s not just about having a sofa,” Anderson said. “It’s about the culture. But sometimes the space helps create the culture.”

Related redesigned 10 Hudson Yards for Coach, creating a 15-level, column-free atrium for the company. “They wanted to work in a connected place. They wanted it to feel loft-like,” Winter said.

The company also created an outdoor area for L’Oréal.

Douglas Hocking, a principal at KPF who worked on Hudson Commons — an office building being redeveloped by Cove Property Group and Baupost Group — said developers and property owners aren’t just incorporating these features at the behest of specific tenants: They are also including them in spec office buildings.

At Hudson Commons, for example, KPF designed outdoor spaces that connect to “grand” indoor areas whose use will be determined by the future tenants.

The key, though, is not just “flotsam and jetsam floating around a floorplate” in the name of cool, he said.

Hocking said he’s seen companies litter their offices with game tables and other gimmicks without considering how these perks will function within workspaces. Positioning a café too close to cubicles can mean smelling food all day. Placing a ping pong table a few steps away from workstations can annoy workers or clients who are in earshot of the game, he noted.

“Thinking about sound, thinking about smell is an artform, but it’s not rocket science,” he said. “If you design the ping pong table central to where everyone is working, it may never be used because people are too afraid to play. Or you’re going to see the same people playing ping pong all day long and that says something else.”

-Kathryn Brenzel

CRE Values Will Hold Steady In 2018

Globe St.

 

HOUSTON—Commercial real estate values are widely expected to hold the line in 2018, according to valuation experts surveyed by Situs RERC. Meanwhile, most expect the “tremendous” CRE price growth we’ve seen over the past cycle to continue, and also that “the eventual correction in values will be minimal.”

Eighty percent of those surveyed said CRE values would remain the same next year, while 20% predicted they will increase by 1%. The experts surveyed by Situs RERC also felt that cap and discount rates lately have moved from being “reasonable” to “aggressive,” reversing a trend they’ve seen over the past two years, although they’re expected to remain generally flat over the next 12 months.

Along similar lines, Situs RERC’s valuation trends experts considered CRE overall to be overpriced relative to value during the third quarter, a shift of opinion that represents “a significant change” from Q2, when they believed assets were fairly priced relative to value. In fact, Situs RERC says the overall value vs. price rating for Q3 was the lowest recorded since the company began compiling the ratings in Q2 2014.

“During most of the quarters, CRE has been slightly overpriced or fairly priced,” with the notable exception of Q4 ‘14, when Situs RERC’s experts said CRE was underpriced, according to the firm’s Q3 Real Estate Report. “With high liquidity and cheap debt in the market, these ratings come as no surprise.”

At the property sector level, industrial was deemed to represent the greatest value relative to price for the fifth quarter in a row. More precisely, industrial tied with retail for this distinction. Although industrial value dropped slightly in Q3 from the previous quarter, it still represented one of the highest ratings since Situs RERC began collecting the data, and held enough value to come in on par with retail, which jumped in value from Q2.

Despite concerns about the future of certain segments of the retail sector, ValTrends experts were more optimistic about values supporting prices for the overall retail sector than the office, hotel and apartment sectors, according to Situs RERC. Relative value vs. price ratings declined for the office and hotel sectors but rose slightly for the apartment sector between Q2 and Q3.

Similar to the industrial sector, Q3 2017 retail rating was among the highest since Situs RERC began collecting these data. However, “investors should be particularly cautious about the retail sector as the industry continues to evolve in order to compete in a digital world,” according to Situs RERC’s report.

Indeed, Situs RERC notes that “the world is now built on Amazon,” which represents both a boon for the industrial sector as online retailers need more space for logistics and fulfillment centers and a serious challenge to retailers as shoppers are doing more of their purchasing online. “The market is penalizing all retail for e-commerce’s effect on brick-and-mortar retail,” says Ken Riggs, president of Situs RERC. “Pricing for high-quality retail is holding up although the market is quiet on the transaction side. The reality is that e-commerce is clearly having an impact, but we are way over-retailed by 40%; many malls were built 40 years ago, and retail has always been a Darwinian environment.”

As the sector “shakes off the oversupply of retail space,” investors will need to consider property-level factors such as location, infrastructure and tenant improvement costs to determine where to find the best opportunities,” according to Situs RERC. “Retention and quality of the anchor tenant is very important as many traditional mall anchors become obsolete. Investors still want shopping centers, but their preference is straying from the traditional enclosed, two-story centers toward open-air lifestyle centers with theaters, hotels, offices, restaurants and shops that are siphoning tenants from traditional malls.”

-Paul Bubny

Daily Brief December 18, 2017 unsubscribe

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