Outlook on downtown Los Angeles real estate 2015

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CityWest

Chinatown

JewelryDist.

FinancialDistrict

Westlake

Pico/Union

HistoricCore

BoyleHeights

WashingtonBoulevardCorridor

SouthPark

FashionDistrict

CentralIndustrial District

CivicCenter

LittleTokyo

ArtsDistrict

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Olympic Blvd.

Los Angeles River

Downtown Los Angeles

Abbreviations used in this documentADR Average daily rateBR BedroomDCBID Downtown Center Business Improvement Districtn/a Not available or not applicable

PSF Per square footRevPAR Revenue per available roomSF Square feetTBD To be determined

Downtown Los AngelesForeword Downtown Los Angeles is growing up, literally and figuratively, before our very eyes. From our vantage point in the EY office at the corner of “7th and Fig,” we’ve had a front‑row seat for the amazing transformation happening all around us.

In the past, downtown Los Angeles was viewed primarily as a financial and professional services hub. Recent changes in ordinances and strong demographics have sparked a revitalization, opening up development activities to a world of creative possibilities.

With all the new development in the past 15 years, the perception of the city has changed. Creative office spaces are luring entertainment and high‑tech tenants. Tonight, thousands of people will be out and about downtown, enjoying dinner at eclectic eateries, shopping at traditional or trendy retail stores, attending concerts or enjoying sporting events. With approximately 6,500 hotel rooms in place, and more under construction, downtown Los Angeles has become both a business and a tourist destination. And as these new amenities encourage more professionals to move downtown, residential developments are increasing to meet the growing demand.

One of the recent trends we’ve noted is the increase in mixed‑use developments, often rising from what were formerly large surface parking lots. Instead of separate office buildings, residential towers, malls and hotels, today’s developments combine these options to offer workers, visitors and residents more amenities than ever before.

Domestic and overseas investors are taking note. Over the past year, we have seen an increase in international investment due to the development opportunities, the rise in urban residential living and the growth of entertainment options.

In this report, we provide insights into the various real estate sectors, current trends and changing market dynamics. As you navigate real estate opportunities in downtown Los Angeles, let us know how we can help.

Michael J. Gillmore Partner and West Real Estate, Hospitality and Construction Market Segment Leader Ernst & Young LLP

New, mixed‑use development is helping tourists, residents and workers embody the Downtown Center Business Improvement District tagline of “Live, Work & Play.” That’s the real story of downtown.

Contents1 Market overview

8 Residential market

13 Office market

16 Retail market

18 Hotel market

22 Market summary

24 Contacts

Downtown Los Angeles is ripe for innovative and contemporary mixed‑use development. With an exploding number of tourists and residents, the city once portrayed in a television series as “Boomtown” is living up to that nickname once again.

As the film capital of the world, the Los Angeles area has drawn creative people from all over the planet. But in the past, the creative community typically shunned downtown, which has historically been seen as the financial center of Southern California. That perception changed with the openings of Staples Center in 1999, the Walt Disney Concert Hall in 2003 and the L.A. LIVE sports and entertainment complex in 2007.

L.A. LIVE brought new glamor to downtown. The Primetime Emmy® Awards have made the Nokia Theater at L.A. LIVE its new home. “Red carpet” film premiere events are routinely featured outside the theater on Nokia Plaza, which sits across the street from a different set of celebrities: the athletic stars of the Los Angeles Lakers, the Los Angeles Sparks, the Los Angeles Clippers and the Los Angeles Kings teams, who call Staples Center home. “The future of downtown Los Angeles is not professional services — it’s entertainment, it’s bars, it’s restaurants,” said José Huizar,1 the City Council member representing the downtown area. Councilman Huizar has been one of the biggest supporters of renewed development downtown.

For decades, few sought to live downtown. Amenities were few and supply was limited. Due to a 1999 ordinance that allowed for “adaptive reuse” conversion projects for historical buildings that also lifted

certain parking-space restrictions, trendy new lofts and other multifamily residences have been springing up in the downtown area. New restaurants and retail have often been incorporated into residence projects in a mutually beneficial relationship.

In addition to new development projects, the downtown skyline is poised for significant change as well, as new towers will sport spires, slanted rooftops and other innovative designs. This is in large part due to the Los Angeles Fire Department’s dropping of a long‑standing regulation requiring all tall buildings to have a helipad.

Although there are areas named the Arts District and the Financial District, arts and finance are not confined to one or the other, but are feeding off of each other to infuse both

areas with creative office space projects and innovative residential units. With the new developments going up, Bunker Hill isn’t just for businesses and South Park isn’t just for residents. New, mixed‑use development is helping tourists, residents and workers embody the Downtown Center Business Improvement District (DCBID) tagline of “Live, Work & Play.” That’s the real story of downtown.

Market overview

Over the last 17 years, according to the DCBID, property values increased 151.2%. The following chart shows overall investment across sectors from 1999 to 2013.

Investment in downtown Los Angeles 1999 –2013 (in millions)

Arts and entertainment $ 1,164

Civic and institutional $ 2,605

Commercial $ 799

Mixed‑use $ 5,229

Residential $ 6,015

Figueroa Corridor/Expo Park $ 1,500

Total $ 17,312Source: “Downtown LA 2014 Year‑End Market Report,” DCBID, February 2015

1 Adam Nagourney, “Rule Change Lets Los Angeles Dream of Spires,” New York Times, http://www.nytimes.com/2014/10/22/us/rule‑change‑lets‑los‑angeles‑dream‑of‑spires‑and‑sky‑high‑gardens.html?_r=0, 21 October 2014.

1Outlook on downtown Los Angeles real estate

Market overview

Recent developmentsSeveral large and exciting mixed‑use developments are underway and proposed in downtown Los Angeles, including the following projects in South Park, the Financial District, the Bunker Hill area, along Broadway (which runs through several districts), and in the Arts District and the Fashion District.

South Park

Rendering of MetropolisSource: Greenland USA and Gensler

Metropolis Greenland USA, a subsidiary of Greenland Group based in Shanghai and one of the largest developers in China, is currently developing a $1‑billion‑plus project on approximately 6.3 acres of land just north of L.A. LIVE. The project is divided into two separate phases:

• The first phase broke ground in July 2014 and is expected to feature two towers, including a full-service hotel tower with approximately 350 guestrooms and a residential condominium tower with 308 units, along with about 8,000 SF of retail space.

• The second phase broke ground in December 2014 and is expected to feature two residential condominium towers with 1,250 units and 70,000 SF of retail space.

Greenland anticipates completing construction on phase one in 2016 and phase two in 2017.

The eastern side of Metropolis is bordered by Francisco Street, which developers and city boosters have proposed turning into an active pedestrian promenade to be named “Avenue of the Angels.” Upon completion, this street would link the Financial District to the Sports and Entertainment District within downtown Los Angeles.2

Rendering of Oceanwide Plaza Source: RTKL Associates Inc.

Oceanwide PlazaIn December 2013, Oceanwide Holdings Co., Ltd., a Chinese developer based in Beijing, purchased a 4.6 acre site in South Park across from Staples Center for a reported $175 million.3 Oceanwide’s current proposal, updated in late 2014, describes plans for three towers (two towers with 40 stories and one tower with 49 stories) and a retail galleria featuring a long light‑emitting diode (LED) ribbon along Figueroa Street for advertising and noncommercial uses. The complex, initially referred to as “Fig Central” by local media, will include 504 condominium units and 183 hotel guestrooms. The galleria is anticipated to include two levels of approximately 167,000 SF of retail space. Shops are planned on Flower and Figueroa Streets, connected by a paseo.4 A groundbreaking ceremony took place March 19, 2015, where the official name of the development was announced.

Many of the large‑scale mixed‑use developments were made possible by the availability of large surface parking lots in downtown Los Angeles, a unique characteristic relative to other city centers.

2 Adrian Glick Kudler, “Plans For “LA’s French Quarter” Between South Park and FiDi,” Curbed LA, http://la.curbed.com/archives/2012/04/plans_for_las_french_quarter_between_south_park_and_fidi.php, 17 April 2012; Ryan Vaillancourt, “Business Group Imagines Downtown in 2020,” Los Angeles Downtown News, http://www.ladowntownnews.com/news/business‑group‑imagines‑downtown‑in/article_cd3d95d4‑43be‑11e1‑8bda‑0019bb2963f4.html, 20 January 2012.

3 Eddie Kim, “New Plans Revealed for Huge South Park Project,” Los Angeles Downtown News, http://www.ladowntownnews.com/news/new‑plans‑revealed‑for‑huge‑south‑park‑project/article_dfc42212‑58b1‑11e4‑ac6c‑2fa73689473f.html, 20 October 2014.4 Andrew Khouri, “Work gets underway on stalled Fig Central complex near L.A. Live,” Los Angeles Times, http://www.latimes.com/business/realestate/la‑fi‑1225‑property‑report‑fig‑central‑20141225‑story.html, 24 December 2014.

2 Outlook on downtown Los Angeles real estate

Rendering of 1200 Figueroa Source: 1200 S. Figueroa Development, Inc.

1200 FigueroaJust south of Oceanwide Plaza, another major development has been proposed for the property at 12th and Figueroa by a consortium of investors that include Jamison Services and Hankey Investment Company President W. Scott Dobbins. Architecture firm Harley Ellis Devereaux has revealed designs for two twin curving condominium towers that would hold 648 units. The development would include a 90-foot-tall podium for parking and 50,000 SF of retail space.5

Rendering of Mack Urban’s developmentSource: Togawa Smith Martin Residential

Mack Urban’s developmentMack Urban and AECOM are developing a $750 million mixed‑use megaproject, spanning six acres of land in South Park, which will be built in multiple phases. Preliminary plans include more than a thousand new residential units, a hotel, and ground‑floor retail and office space, with a completion date in 2024.6

L.A. LIVE’s continued expansionL.A. LIVE opened in 2007 and houses a number of popular dining and entertainment establishments, including the Staples Center, which is home to three basketball teams (the Los Angeles Lakers, the Los Angeles Clippers and the Los Angeles Sparks) and a hockey team (the Los Angeles Kings). The 7,100‑seat Nokia Theater at L.A. LIVE, which opened in October 2007, holds major music, sporting and awards show events all year, and the adjacent Nokia Plaza has become a

favored location for hosting film premieres. Nokia Theater is contracted to host the Primetime Emmy® Awards through 2018.

L.A. Live added the JW Marriott Hotel and Ritz‑Carlton Hotel and Residences, which opened in 2010. In March 2015, AEG announced plans to expand the existing JW Marriott Hotel, which would provide more rooms near the Los Angeles Convention Center. (See the “Hotel market” section.)

5 Eddie Kim, “Twin 35‑Story Towers Proposed for South Park,” Los Angeles Downtown News, http://www.ladowntownnews.com/news/twin‑‑story‑towers‑proposed‑for‑south‑park/article_2f3cac82‑19ca‑11e4‑bcb1‑0019bb2963f4.html, 5 August 2014.

6 “Eddie Kim, “Mack Urban Plan Envisions More ‘Park’ in South Park,” Los Angeles Downtown News, http://www.ladowntownnews.com/news/mack‑urban‑plan‑envisions‑more‑park‑in‑south‑park/article_12f95b68‑99cf‑11e3‑9a56‑001a4bcf887a.html, 20 February 2014.

3Outlook on downtown Los Angeles real estate

Financial District

Rendering of the Wilshire Grand Center Source: AC Martin/Wilshire Grand Project

Wilshire Grand CenterThe new Wilshire Grand Center’s tower is rising at the corner of 7th Street and Figueroa Street. The $1 billion‑plus project, owned by Korean Air, a subsidiary of the Hanjin Group, will consist of a 73‑story tower of office and hotel space. The structure will be the first downtown building without a flat top since the Fire Department dropped its long‑standing helipad requirement. A spire that can change colors seasonally will make this the tallest building west of the Mississippi. The 900‑room hotel will be operated by InterContinental Hotels & Resorts and will feature a rooftop pool. The development includes 400,000 SF of office space and 45,000 SF of retail space in an adjacent ground‑level shopping and dining structure.

Rendering of The BlocSource: The Ratkovich Company

The BlocMacy’s Plaza is currently undergoing a $160 million renovation into a new experience called The Bloc. In 2013, the Ratkovich Company acquired the retail plaza as well as its adjoining properties of the 485‑room Sheraton Hotel and the 33‑story office building. A $40 million renovation to the Sheraton Hotel will include increasing the hotel’s capacity to 495 rooms. Additionally, Ratkovich is in the process of converting the closed-in mall to an open‑air experience. Once renovations are complete, the Macy’s‑anchored development will feature 150,000 SF of additional retail and restaurant space in an open‑air setting. The Bloc will also feature a new movie theater, the Alamo Drafthouse Cinema, an Austin-based chain famous for its beer and in-seat food and beverage service. The company has said that it is most excited about the growing residential sector within the neighborhood.7

Market overview

7 Richard Verrier and Roger Vincent, “Alamo Drafthouse Cinema plans downtown L.A. theater,” Los Angeles Times, http://www.latimes.com/entertainment/envelope/cotown/la‑fi‑ct‑alamo‑theater‑20140813‑story.html, 12 August 2014.

4

Rendering of The Broad Source: Exterior of The Broad from 2nd Street and Grand Avenue; image courtesy of The Broad and Diller Scofidio + Renfro in collaboration with Gensler

The BroadConstruction on The Broad, the $140 million museum designed by Diller Scofidio + Renfro and featuring the art collection of Eli and Edythe Broad and The Broad Foundation, began in 2012. The 120,000 SF museum will include a 24,000 SF public plaza and a restaurant developed by noted Los Angeles restaurateur Bill Chait. The museum is expected to open in the third quarter of 2015.11

Philanthropists Eli and Edythe Broad and The Broad Foundation have been significant forces in the downtown Los Angeles scene. Eli Broad helped secure $50 million to create what is now Grand Park, a popular downtown park that features concerts and other events throughout the year.

Bunker Hill

The GrandRelated Companies is planning to develop a mixed‑use project along Grand Avenue in downtown Los Angeles called The Grand. As William Witte, President of Related’s California division, said, “The notion of bringing together this diverse mix of uses, and allowing for a lot of public spaces and public events, has proven to be very powerful in the right locations and with the right planning.”8

“The notion of bringing together this diverse mix of uses, and allowing for a lot of public spaces and public events, has proven to be very powerful in the right locations and with the right planning.”

— William Witte, President of Related’s California division

The first building of the development, The Emerson, a 20‑story, 271‑unit luxury apartment building, opened its doors in October 2014.9 The next phase will include: a 300‑unit apartment building (20% of the units being affordable housing), 130 premium condominiums, approximately 200,000 SF of retail and a 300‑room full‑service Equinox hotel. Construction is set to begin in December 2016.10

11 Donna Evans, Eddie Kim and Jon Regardie “10 Downtown Projects Opening This Year,” Los Angeles Downtown News, http://www.ladowntownnews.com/news/downtown‑projects‑opening‑this‑year/article_8133d2f2‑87db‑11e4‑b576‑3bcbb3f66df4.html, 5 January 2015.

8 Nadja Brandt and John Gittelsohn, “Gehry‑Designed Project Seen Bringing NYC Vibe to L.A.,” Bloomberg, http://www.bloomberg.com/news/2014‑04‑15/related‑plans‑a‑time‑warner‑center‑for‑l‑a‑real‑estate.html, 15 April 2014.9 Ibid.10 Jon Regardie, “Gym Operator Equinox Picked to Run Hotel in Grand Avenue Project,” Los Angeles Downtown News, http://www.ladowntownnews.com/news/gym‑operator‑equinox‑picked‑to‑run‑hotel‑in‑grand‑avenue/article_dc0ac710‑ed1d‑11e4‑b25a‑db614b7fac31.html, 27 April 2015; EY discussions with market participants.

5Outlook on downtown Los Angeles real estate

Market overview

Historic Core/South Park

The “Bringing Back Broadway” initiative In 2008, the “Bringing Back Broadway” initiative, sponsored by City Councilman José Huizar, was launched to revitalize Broadway street, which cuts through the Historic Core and South Park, and which is home to many historical architecture elements and landmarks, including Art Deco theaters, colorful terrazzo entrances, glass block basement skylights and “Broadway Rose” streetlight bases.

“Eventually, we’re going to see thousands of people strolling on Broadway … People will sit with their coffee at tables surrounded by these beautiful buildings. That’s good for Downtown, good for business and good for the city.”

— City Councilman José Huizar

In August 2014, the first phase of development, billed as a $1.5 million “dress rehearsal,” of the Streetscape Master Plan was completed. The street was narrowed from six lanes (two bus lanes and four car lanes) to three car lanes (two northbound and one southbound) using temporary materials so the effect on traffic flow can be evaluated before changes are made permanent. The sidewalk area has been expanded to be more pedestrian‑friendly and to encourage sidewalk cafes.

“Eventually, we’re going to see thousands of people strolling on Broadway,” Councilman Huizar said in August 2014. “People will sit with their coffee at tables surrounded by these beautiful buildings. That’s good for Downtown, good for business and good for the city.”12

Arts District

Rendering of One Santa FeSource: Bernards

One Santa FeLocated in the Arts District, One Santa Fe is a $160 million development, designed by Michael Maltzan. The development is anticipated to feature 438 rental units, approximately 80,000 square feet of commercial space, a family-owned Manhattan Beach-based grocery store called GROW and a 99‑seat theater.13

The development features a retail area known as “The Yards at One Santa Fe” because it faces an old railway yard, and a few prominent boutique vendors have already been signed.

Fourth and TractionAnother prominent project underway in the Arts District is the renovation of the old Coca-Cola building, purchased for $19 million in 2014 by GPI Companies of Los Angeles and New York‑based Atlas Capital. The joint venture plans to spend another $15 million turning the 1915 building, a 123,600 SF manufacturing facility for the soft drink brand, into creative office spaces. The property has been renamed Fourth and Traction, which is also its location, and the renovations are expected to be completed by the end of 2015.14

12 Donna Evans, “Broadway’s Big Changes Begin,” Los Angeles Downtown News, August 29, 2014, http://www.ladowntownnews.com/news/broadway‑s‑big‑changes‑begin/article_1d2e0588‑2f12‑11e4‑90b8‑001a4bcf887a.html, accessed 26 November 2014.

13 Eddie Kim, “One Santa Fe and Its 438 Apartments Lands in the Arts District,” Los Angeles Downtown News, http://www.ladowntownnews.com/news/one‑santa‑fe‑and‑its‑apartments‑lands‑in‑the‑arts/article_96792006‑4026‑11e4‑8b39‑77175e83194c.html, 22 September 2014.14 Donna Evans, “New Image, Details Revealed for Coca‑Cola Building Project,” Los Angeles Downtown News, http://www.ladowntownnews.com/news/new‑image‑details‑revealed‑for‑coca‑cola‑building‑project/article_05d34d30‑6ab3‑11e4‑a3f2‑dbd8a3b69deb.html,12 November 2014; Roger Vincent, “Old Coca‑Cola building in L.A. to be refreshed as plush office complex,” Los Angeles Times, http://www.latimes.com/business/realestate/la‑fi‑property‑report‑coke‑20141113‑story.html, 13 November 2014.

6 Outlook on downtown Los Angeles real estate

Fashion District

Rendering of City MarketSource: The City Market of Los Angeles; Design by Douglas Hanson, AIA of HansonLA; Landscape Design by OLIN Studio

City MarketCity Market, a $1 billion, mixed‑use, 10 acre, multiphase development, recently began phase one construction.15 The project, which is expected to take 20 years to complete, will feature an urban campus designed to support one or more creative arts colleges, a 210-room business-class hotel, 225,000 SF of retail, 295,000 SF of creative and professional office space and 945 residences.16

“With new academic facilities, creative office space, residences, hotel rooms, restaurants, nightspots, and event and exhibit spaces, the new City Market seeks to transform the 10-acre site into a globally recognized destination for visitors from around the world, helping turn the Fashion District into a 24‑hour destination,” according to the design team of HansonLA and OLIN.17

The projected opening for phase one is summer 2015.

The streetcarA streetcar line connecting the Civic Center and Bunker Hill area to South Park and L.A. LIVE has been planned. The route would be as depicted in the map on this page, and the streetcars are anticipated to run 18 hours a day. The project cost, which had increased to $327 million last fall, was trimmed in September 2014 to $270 million. Last fall, voters approved a tax that could potentially raise $85 million for the streetcar project.18

Environmental review documents are being prepared, and a draft project report states that, money issues aside, the streetcar could be carrying passengers as early as the end of 2019.

Proposed streetcar route Source: Los Angeles Streetcar, Inc. (www.streetcar.la)

15 Bianca Barragan, “Work Starting on Fashion District’s Gamechanging City Market,” Curbed LA, http://la.curbed.com/archives/2014/06/work_set_to_start_on_fashion_districts_gamechanging_city_market.php, 3 June 2014.16 “Development Vision,” The City Market of Los Angeles website, http://www.citymarketla2.com/vision/, accessed 27 October 2014.17 “Development Vision,” The City Market of Los Angeles website, http://www.citymarketla2.com, accessed 3 November 2014.

18 Laura J. Nelson, “Downtown L.A. streetcar line cost estimate is shaved by $55 million,” Los Angeles Times, http://www.latimes.com/local/cityhall/la‑me‑streetcar‑cost‑20140903‑story.html, 2 September 2014.

7Outlook on downtown Los Angeles real estate

Residential marketLos Angeles is one of the “Sexy Six” markets for multifamily developments, the other five being Boston, New York, San Francisco, Seattle and Washington, DC.19 The demand for multifamily units in downtown Los Angeles is related in large part to the rise in entertainment, retail, dining and other amenities now available.

The transformation of downtown Los Angeles has been driven in part by the increase in residents who want to live, eat and shop close to where they work. “Downtown L.A. is a great example because it’s under transformation, urban living is on the rise, it’s culturally vibrant, and the residential market is undersupplied,” said I‑Fei Chang, CEO of Greenland USA, the developer of the Metropolis complex just south of the Financial District.20

The demographics of downtown Los Angeles residents are attractive. The median age is 34, and the average income of $98,700 is nearly double the national figure.21 Approximately 90% of them are employed. More than half the residents live and work downtown, and approximately 42% of them have at least one pet.

A key driver for growth in development in the southwestern quadrant of downtown was the opening of Staples Center in 1999, a 20,000-seat sports and entertainment arena that is home to the Lakers and Clippers NBA basketball teams, the Los Angeles Sparks women’s basketball team, and the Kings, who recently won two Stanley Cups.

Also in 1999, the Adaptive Reuse Ordinance (ARO) was adopted by the Los Angeles City Council. The ordinance provides for both the preservation of historical buildings and the redevelopment of those properties while significantly streamlining the approval process and waiving certain density, parking and other restrictions. As a result, a number of beautiful and historic buildings have been converted into loft-style residences, some of which feature rooftop pools and ground‑level commercial establishments.

Residential unit inventory (market rate only)

Rental Condominium Total

As of December 31, 1998 2,426 829 3,255

Constructed since ARO 13,636 4,807 18,443

Under construction 6,509 830 7,339

Proposed 11,841 2,174 14,015

Total 34,412 8,640 43,052Source: “Downtown LA 2014 Year‑End Market Report,” DCBID, February 2015

19 “Hot or Not? Market Researchers Check Out the ‘Sexy Six,’” National Multifamily Housing Council website, https://www.nmhc.org/Content.aspx?id=7597, accessed 3 October 2014. 20 “Architect Drawn to Business Side,” Los Angeles Business Journal, 1 September 2014.21 Lauren Schuker Blum, “Downtown L.A. Goes From Gritty to Glitzy,” Wall Street Journal, http://online.wsj.com/news/articles/SB10001424052702303532704579477374278821010, 10 April 2014.

8 Outlook on downtown Los Angeles real estate

“Downtown L.A. is a great example because it’s under transformation, urban living is on the rise, it’s culturally vibrant, and the residential market is undersupplied.”

— I-Fei Chang, CEO of Greenland USA

The downtown Los Angeles residential marketNumber of residents: 57,797

Rental occupancy rate: 95%

Average rental rate: $2,325

Average condominium price per square foot (PSF): $623

Median household income of residents: $98,700

Percent employed: 90%

Percent who work downtown: 56%

Percent that own pets: 42%

Current residential unit inventory: 33,776Source: “Downtown LA 2014 Year‑End Market Report,” DCBID, February 2015

9Outlook on downtown Los Angeles real estate

Residential market

Growth at a glance from 1999 to 2014Population Average condominium price PSF Residential units

(excludes affordable units)

0

5,000

10,000

15,000

20,000

25,000

$0

$100

$200

$300

$400

$500

$600

$700

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

1999 2014 1999 20141999 2014

3,255

21,698

$169

$623

667% increase

369% increase

18,700

57,797

309% increase

0

5,000

10,000

15,000

20,000

25,000

$0

$100

$200

$300

$400

$500

$600

$700

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

1999 2014 1999 20141999 2014

3,255

21,698

$169

$623

667% increase

369% increase

18,700

57,797

309% increase

0

5,000

10,000

15,000

20,000

25,000

$0

$100

$200

$300

$400

$500

$600

$700

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

1999 2014 1999 20141999 2014

3,255

21,698

$169

$623

667% increase

369% increase

18,700

57,797

309% increase

Source: “Downtown LA 2014 Year‑End Market Report,” DCBID, February 2015.

Condominium prices and sales, comparing fourth quarter 2013 to fourth quarter 2014

TypeFourth quarter 2013

number of salesPercent of

totalFourth quarter 2014

number of salesPercent of

total

Fourth quarter 2014 average condominium

price PSF

Studio 12 16% 1 4% $599

1 BR 36 49% 15 54% $592

2 BR 24 33% 12 42% $650

3 BR 1 2% 0 0% n/a

Total sales 73 28 Average condominium price PSF: $623Source: “Downtown LA 2014 Year‑End Market Report,” DCBID, February 2015.

10

Select proposed residential projects

Project name Address Units

Entitled

Metropolis Phase 2 8th and Francisco 1,250

1200 Figueroa 1200 S Figueroa St 648

950 E Third St 950 E Third St 472

Onyx 500 W Pico Blvd 419

No plans submitted

City Market 9th and San Pedro 795

5-OH Fifth and Olive 615

Forest City South Park 156 W 11th St 450

La Plaza Broadway and Cesar E Chavez Ave

384

Medallion 2.0 Fourth and Main 300

920 Hill Street 920 S Hill St 239

1400 S Figueroa 1400 S Figueroa St 106

916 Georgia St* 916 Georgia St 29

Plans submitted

Mack Urban 11th, Grand, Pico, Hill 1,700

Onni 1212 Flower adjacent 730

Onni tower 820 S Olive 589

SB Omega 601 Main 500

The Grand 2nd and Grand Ave 430

Fourth and Broadway Fourth and Broadway 400

Herald Examiner 11th and Hill 391

1027 Wilshire 1027 Wilshire Blvd 376

801 S Olive 801 S Olive St 363

Industrial Street Lofts 1525 Industrial St 360

Spring Street Apartments Spring Arcade adjacent 252

Title Insurance Building* 433 S Spring 250

Barry Shy Ace Hotel adjacent*

955 S Broadway 250

AMP Lofts 695 Santa Fe Ave 240

Vibiana Lofts 114 E 2nd St 238

720 W Cesar E Chavez Ave 720 W Cesar E Chavez Ave 225

Banco Popular* 354 S Spring 212

1133 Hope tower 1133 Hope 208

1050 Grand 1050 Grand 151

Barry Shy Broadway and Olympic

Broadway and Olympic 150

1249 Grand Ave 1249 Grand Ave 112

Alameda & 4th Street Lofts 360 South Alameda 63

The Chelsea* 216 W Fifth St 28

Total proposed units: 13,925Source: “Downtown LA 2014 Year‑End Market Report,” DCBID, February 2015; EY discussions with market participants*Adaptive reuse

Select residential projects under construction

Project name Address Units Construction start date

Estimated completion

New construction

Financial District 1,817

8th & Grand 770 S Grand Ave 700 Jan. 2013 Fall 2015

888 Hope 888 S Hope St 526 Sep. 2014 2016

Metropolis Phase I Francisco and James M Wood

308 Feb. 2014 Fall 2016

Onni tower 888 S Olive St 283 Feb. 2013 Summer 2015

Historic Core 905

Olympic and Broadway

Olympic and Broadway

686 Aug. 2014 TBD

Topaz 550 S Main St 159 Sep. 2014 TBD

430 Broadway 430 S Broadway St 60 Early 2013 TBD

Chinatown 240

Blossom Plaza 900 N Broadway St 240 Sep. 2013 2015

City West 858

6th and Bixel 6th and Bixel 640 Sep. 2014 2016

Valencia 1501 Wilshire Blvd 218 April 2014 2016

South Park 2,075

Olive and Pico 1200 S Grand Ave 640 Sep. 2014 2016

Oceanwide Plaza 11th and Figueroa 504 Nov. 2014 2018

1000 Grand 1000 S Grand Ave 274 April 2014 2016

Olympic & Olive 924 S Olive St 263 Aug. 2014 2016

1001 Olive 1001 S Olive St 201 Oct. 2014 2016

Avant Phase 2 1500 S Figueroa St 193 April 2013 2015

Little Tokyo 240

Block 8-D 2nd and San Pedro 240 June 2013 Fall 2015

Arts District 320

Garey Building 905 E 2nd St 320 Sep. 2013 Fall 2015

Fashion District 150

City Market South 9th and San Pedro 150 Aug. 2014 2016

Adaptive reuse

The Garment Lofts (Fashion District)

217 E 8th St 77 June 2013 TBD

Pershing Apartments (Historic Core)

502 S Main St 69 May 2013 TBD

Singer Sewing Building (Historic Core)

806 S Broadway St 9 Sep. 2012 TBD

Totals New construction: 6,605 units

Adaptive reuse: 155 units

Source: “Downtown LA 2014 Year‑End Market Report,” DCBID, February 2015; EY discussions with market participants

11Outlook on downtown Los Angeles real estate

12 Outlook on downtown Los Angeles real estate

The recession took a bite out of the downtown Los Angeles office market. Companies downsized and consolidated, leaving a number of unoccupied spaces in their wake. But the outlook for the office market has been surprisingly positive in 2014, with a number of notable transactions. The average asking rent per square foot for Class A properties has experienced year‑over‑year increases since 2011, and rental rates surpassed the pre‑recession high starting in 2012.

While some investors point to the fact that Los Angeles lags the expansion rate seen in San Francisco, Houston, Seattle and other markets, others note that not only is Los Angeles poised for a breakthrough, there’s still room to buy in before prices rise even more. Investors and developers from New York to Asia are seeing this potential, as they are investing in the downtown office market, with an emphasis on “office of the future” workspaces, especially in South Park, City West and the Financial District.

Creative office space is drawing new tenants downtown. For example, AEG made waves in July 2014 when it moved more than 500 employees from a Mid-Wilshire location to The Desmond Building, the downtown auto showcase warehouse built in 1916 but recently renovated.22

The overall office vacancy rate for downtown Los Angeles is still in the double digits at 15.5%,23 although the overall vacancy rate in the fourth quarter of 2014 was down 10 basis points from the fourth quarter of 2013. The average asking and effective rents at the end of 2014 were up 6.0% and 6.1%, respectively, from the end of 2013. Brookfield’s acquisition of MPG Office Trust, Inc. (MPG), which gave Brookfield a 43% share in the core Class A downtown properties, created a measure of protection for other property owners against potential rental rate wars.

In 2014, New York investments in Los Angeles County increased by 23%. As Greg Vilkin, President of Related California Urban Residential noted in October 2014, “Los Angeles has hit critical mass in downtown. Firms from New York show up and say, wow, I see the potential I saw in Hell’s Kitchen a decade ago. I watched TriBeCa, and the High Line, and I see what’s going to happen.”24

The table at left illustrates recent lease activity.

Office market

Selected new lease activity in the fourth quarter of 2014

Tenant Building Address SF

Lewis Brisbois US Bank Tower 633 W 5th St 215,230

Deloitte The Gas Company Tower 555 W 5th St 112,028

NationBuilder Biltmore Court 500 S Grand Ave 54,780

WeWork Fine Arts Building 811 W 8th St 46,542

JAMS The Gas Company Tower 555 W 5th St 33,406

rhubarb studios US Bank Tower 633 W 5th St 8,329Source: “Downtown LA 2014 Year‑End Market Report,” DCBID, February 2015

Average asking rents and vacancy rates for Class A office space, 1999–2014

5%

10%

15%

20%

25%

30%

$10

$15

$20

$25

$30

$35

$40

$45

% va

canc

y

Ave

rage

ask

ing

rent

PSF

Avg. asking rent PSF Vacancy

$27.23

$37.10

$40.44

14.3%

9.5% 10.1% 10.5%

14.7%

14.6%

Source: Reis

22 Roger Vincent, “L.A. County office market improves as new leases edge out renewals,” Los Angeles Times, http://www.latimes.com/business/realestate/la‑fi‑property‑report‑20140724‑story.html, 24 July 2014.23 “Reis Observer, Office – February 13, 2015, Metro: Los Angeles,” Reis Inc., 13 February 2015. The DCBID puts the rate at 19.4% as of fourth quarter 2014. “Downtown LA 2014 Year‑End Market Report,” DCBID, February 2015.24 Roger Vincent, “Downtown L.A. real estate is drawing N.Y. investors’ interest,” Los Angeles Times, via http://www.latimes.com/business/la‑fi‑new‑york‑investors‑20141005‑story.html, 4 October 2014.

13Outlook on downtown Los Angeles real estate

Office market

Significant recent salesThe largest sale by total price in the last three years was the sale by the California State Teachers’ Retirement System (CalSTRS) and Thomas Properties Group to CommonWealth Partners of City National Plaza, a two‑tower complex at 515 Flower Street for $858 million (at approximately $325 per SF) in September 2013.

Since the recession, the largest sale by price per square foot for a downtown Los Angeles office property took place in July 2013, when the California Public Employees’ Retirement System (CalPERS) and GI Partners purchased One Wilshire, a 31‑floor tower at 624 S Grand Ave. The price (approximately $439 million) represented approximately $675 PSF.25

Sales in 2013 and 2014

0 500 1,000 1,500 2,000 2,500 3,000 3,500SF (000)

0

100

200

300

400

500

600

700

800

900

1,000

Tota

l pri

ce ($

m)

City National Plaza

US Bank Tower

Two California Plaza

Aon Center

One Wilshire

801 Tower

KPMG Center

$325PSF

$268 PSF

$236 PSF

$430 PSF

$245PSF$406

PSF

$675PSF

Source: Real Capital Analytics

25 Real Capital Analytics

14

In the spotlight

Significant sales — 2013 to 2014

Date Property name Address SF Price in $m $PSF Buyer

December 2014 KPMG Center 550 Hope 566,434 240.0 406 Morgan Stanley

October 2014 Aon Center 707 Wilshire 1,095,488 269.8 245 Shorenstein Properties

September 2014 801 Tower 801 Figueroa 458,570 177.2 430 Cornerstone Real Estate Advisers

February 2014 Two California Plaza 350 Grand 1,277,588 301.0 236 CIM Group

September 2013 City National Plaza 515 Flower 2,639,493 858.0 325 CommonWealth Partners

July 2013 One Wilshire 624 Grand 650,275 438.8 675 GI Partners and CalPERS

June 2013 US Bank Tower 633 5th 1,371,483 367.5 268 Overseas Union EnterpriseSource: Real Capital Analytics, CoStar Group

Brookfield

Brookfield Office Properties Inc. (Brookfield), through its fund DTLA Holdings, acquired MPG in October 2013, giving DTLA Holdings ownership of Wells Fargo Center, The Gas Company Tower and 777 Tower. DTLA Holdings owns 8.3 million SF of Class A office space in downtown Los Angeles, including Bank of America Plaza, 601 South Figueroa and Ernst & Young Tower. Brookfield is now the single largest owner of office space in the downtown market.

City National Plaza

Fifth Street Properties LLC acquired City National Plaza, the 2.6 million SF property consisting of the City National Tower and the Paul Hastings Tower. The purchase was one of the largest office property transactions in downtown in 2013. The $858.0 million sale was made as part of a liquidation by the previous owner, a joint venture between CalSTRS and Thomas Properties Group Inc.

US Bank Tower

In June 2013, Singapore‑based Overseas Union Enterprise Ltd. purchased the US Bank Tower for $367.5 million from MPG prior to Brookfield’s acquisition of MPG. This transaction was part of a greater disposition strategy that included selling MPG’s other downtown Los Angeles office properties to alleviate MPG’s debt.

Two California Plaza

In February 2014, CIM Group acquired a portfolio of seven properties, which included the Two California Plaza office tower on Bunker Hill. Although office activity has recently shifted from the Bunker Hill area toward the Financial District and South Park, CIM Group believes Bunker Hill is poised for a comeback as owners invest millions of dollars in property improvements, and as new attractions, such as The Broad and The Grand, come to life.

801 Tower

In September 2014, Cornerstone acquired the 801 Tower, a Class A office building with 446,534 SF of office space and 12,036 SF of retail from Mani Brothers Real Estate Group for approximately $177.2 million, per Real Capital Analytics. The purchase was completed after its anchor tenant, the law firm of Manning & Kass, Ellrod, Ramirez, Trester, renewed its lease for 80,328 SF. The 25‑story building was 85% occupied as of January 2015, per Real Capital Analytics.

15Outlook on downtown Los Angeles real estate

FIGat7thSource: Brookfield

FIGat7thOne property tells a large part of the story of retail in Los Angeles pre- and post-recession: the open-air mall at Figueroa and Seventh known as FIGat7th. Prior to the recession, the mall featured a second Macy’s store just a city block from the anchor store at Macy’s Plaza. Other tenants included Ann Taylor, Godiva Chocolates and a handful of boutique shops. The food court on the bottom level offered local and chain fare.

During the recession, after stores disappeared one by one until the mall was empty, Brookfield decided to use the downturn as an opportunity to reinvest. The mall was physically restructured to become more pedestrian‑visible. The first major tenant secured was Target, which launched the first of its City Target brand of stores there in 2012. Over the next two years, fashion brands Zara, H&M and Victoria’s Secret moved in. A new food court populated by local establishments rather than international chains was installed and given the collective name “Taste.”

The explosion of retail development, driven by the increase in visitors, workers and residents, is an exciting part of the downtown Los Angeles story. Real Capital Analytics reports that Los Angeles Metro is the second most active city area for retail transactions in the United States, behind only New York City Metro.

DCBID reports that more than 700 new restaurants, stores and bars have opened downtown since 2008. In the last two years, new entrants included Urban Outfitters, Acne Studios, Sport Chalet, Smart & Final and a Walmart Neighborhood Market. The renovation project at the below-street-level mall at Figueroa and Seventh Streets (FIGat7th) is now home to stores that include City Target, Victoria’s Secret, Zara and H&M (the last two of which opened in 2014), as well as several restaurants and eateries.

National and local grocery chains are making notable entrances into downtown Los Angeles, a neighborhood that previously lacked quality options for fresh grocery items. In 2007, Ralphs opened its Fresh Fare concept, making it the first new supermarket to enter the downtown market in over 50 years. In July 2013, a Smart & Final Extra opened in a 25,000 SF ground‑floor space at 845 Figueroa Street. Whole Foods will open its first grocery store downtown, at 770 Grand Avenue, in November 2015. Yet another grocery store, GROW, a family-owned Manhattan Beach establishment, announced in January 2015 that construction had begun on its new location at the One Santa Fe mixed‑use complex.

Another proposed project for the increasingly trendy Arts District is a new $61 million open‑air “urban retail center,” with an anchor store, a grocery store, and “artisanal retailers and food purveyors,” according to developers ASB Real Estate Investments and Century City‑based Blatteis & Schnur.26

Downtown Los Angeles is also seeing an increase in high‑profile dining venues, including Sam Marvin’s creation Bottega Louie and Tony Esnault’s Church & State. A prominent strip of premier restaurants along 7th Street in downtown Los Angeles is commonly referred to as Restaurant Row.

The downtown Los Angeles retail marketRetail openings in fourth quarter 2014: 27

New restaurant/bar openings in fourth quarter 2014: 18

Retail space under construction: 1,217,741 SF

Retail space in the pipeline: 497,350 SFSource: “Downtown LA 2014 Year‑End Market Report,” DCBID, February 2015

Retail market

26 Donna Evans, “$61 Million Development Planned for Arts District,” Los Angeles Downtown News, http://www.ladowntownnews.com/news/million‑development‑planned‑for‑arts‑district/article_a2fca8dc‑f325‑11e3‑9779‑001a4bcf887a.html, 13 June 2014.

16 Outlook on downtown Los Angeles real estate

Rendering of The BlocSource: The Ratkovich Company

The BlocThe Bloc is currently undergoing a similar renovation effort. The Ratkovich Company is cutting open the former Macy’s Plaza as part of its plan to remake the indoor mall into a more pedestrian-visible and pedestrian-friendly development called The Bloc.

The mixed‑use development currently includes a Sheraton Hotel and a Class B office tower that was roughly 33% vacant in 2013.27 The Sheraton Hotel will be upgraded with a new pool and gym, and the office tower will be renovated to include creative office space designed to appeal to the high tech and entertainment companies that are increasingly moving downtown.

Ratkovich is removing the glass roof in front of the Macy’s store and opening up the front of the mall to the street to engage pedestrian traffic in the area. New retail space will front the street and a third level of shops will be added that will connect directly with the Seventh and Figueroa Metro Station underground. The popular Austin-based Alamo Drafthouse movie theater chain will open its first Southern California property at The Bloc.

The Bloc is set to debut at the end of 2015.

The Eastern Columbia BuildingSource: Photo by Andreas Praefcke. Creative Commons License: http://en.wikipedia.org/wiki/Eastern_Columbia_Building#mediaviewer/File:LA_Eastern_Columbia_Building.jpg

Other activityA number of other large, mixed‑use developments in the immediate vicinity will make the Financial District and South Park area a virtual hub of retail activity. Some of these include:

• Approximately 45,000 SF of retail space at the new Wilshire Grand Center

• Approximately 78,000 SF of retail space at Metropolis (between Phase 1 and 2)

• Approximately 167,000 SF of retail space at Oceanwide Plaza

• Approximately 50,000 SF of space at 1200 Figueroa

Additionally, across town at the Eastern Columbia Building, the iconic turquoise blue Art Deco tower in the Fashion District, the Swedish clothing retailer Acne Studios recently opened a 5,000‑plus SF flagship store that hosts the chain’s first in‑store café, Il Caffè, a Stockholm favorite.

Over at The Yards at One Santa Fe, retailers already secured include Wittmore, Voyager Shop, a new Asian eatery called BOL and the New York natural hair care brand Malin + Goetz, as well as Van Leeuwen Ice Cream, an artisan brand ranked by Bon Appétit magazine as one of the top ten best ice cream producers in the United States. The emphasis downtown on bringing in unique or boutique retail brands, as opposed to large national chain stores, is anticipated to appeal to Millennials and the above-average-wage-earners around whom much of the new development is targeted.

Retail market

27 Brigham Yen, “Ratkovich Acquires Downtown LA Macy’s Plaza, Will Begin $160 Million Upgrade with New Access to Subway Station,” DTLA Rising, http://brighamyen.com/2013/06/06/ratkovich‑acquires‑downtown‑la‑macys‑plaza‑will‑begin‑160‑million‑upgrade‑with‑new‑access‑to‑subway‑station/, 6 June 2013.

17Outlook on downtown Los Angeles real estate

“We want 4,000 more rooms by 2020, and we think it can be done.”

— Bud Ovrom, Executive Director, Los Angeles Department of

Convention & Tourism Development

Hotel marketIn the past, downtown Los Angeles was primarily a business center, not a tourist destination. But with the opening of L.A. LIVE, the Walt Disney Concert Hall, the numerous red-carpet events at Nokia Plaza and the ease of getting to other regional locations by bus, Metro and rail from Union Station, Los Angeles is now the fourth most popular city for foreign visitors.28

According to the Downtown Center Business Improvement District, downtown Los Angeles receives more than 10 million visitors each year, with a median age of 36 and a median income of $90,580. Just under half of the visitors come for vacation or to visit friends and family. The current occupancy rate is approximately 75.8%.29

The downtown Los Angeles hotel marketNumber of visitors per year: 10,000,000+

Hotel occupancy rate: 75.8%

RevPAR: $138

ADR: $182

Percentage who come to Los Angeles for vacation or to visit family and friends: 45%Source: “Downtown LA 2014 Year‑End Market Report,” DCBID, February 2015, citing LA Tourism for the occupancy rate, the current number of hotel rooms, RevPAR and the ADR.

28 “The Hotel Price Index: Review of global hotel prices January—June 2014,” Hotels.com Hotel Price Index website, http://www.hotel‑price‑index.com/2014/fall/us/chapter‑5/, September 2014.29 “Downtown LA 2014 Year‑End Market Report,” DCBID, February 2015, citing LA Tourism.

18 Outlook on downtown Los Angeles real estate

Current lodging supplyThe following table includes major hotel properties downtown and indicates which of these are within an easy half mile walk of the Convention Center.

Many supporters of downtown Los Angeles believe there is a significant need for additional hotel rooms in the area due to the current disparity between lodging supply and demand. For example, in April 2014, the National Cable and Telecommunications Association had to outsource a number of rooms for attendees to its annual conference to hotels in Century City more than 11 miles to the west due to the lack of available high‑end hotel room in the immediate vicinity.30

Even after AEG developed the JW Marriott and Ritz‑Carlton hotels at L.A. LIVE in February 2010, supply near L.A. LIVE and the Convention Center remained constrained, as Marriott executives attending a conference in 2012 discovered when supply at their L.A. LIVE properties wasn’t sufficient to house the people coming to their own event.31 In July 2014, Marriott opened the dual-branded Courtyard by Marriott/Residence Inn property across the street from L.A. LIVE. In March 2015, AEG proposed extensions to the existing JW Marriott, adding another 755‑room tower and additional conference space connected by bridges to the original property. This $500 million expansion, if approved by the city, will make the JW Marriott (and the connected Ritz‑Carlton) a 1,756‑room hotel and the second largest hotel property in California.32

Marriott isn’t the only one concerned about the lack of hotel offerings in the L.A. LIVE area. “I am charged with getting more hotels within walking distance of the Convention Center,” said Robert “Bud” Ovrom, the Executive Director of the Los Angeles Department of Convention & Tourism Development, at the Hotel Developer Forum in January 2014. “We want 4,000 more rooms by 2020, and we think it can be done.”33

Current hotel supply

Property Rooms

Ace Hotel 183

Courtyard by Marriott* 174

DoubleTree by Hilton Downtown Los Angeles

434

Figueroa Hotel* 285

Hilton Checkers 188

JW Marriott L.A. LIVE* 878

The L.A. Hotel Downtown 469

Luxe City Center Hotel (formerly Holiday Inn)*

175

Millennium Biltmore 683

Miyako Hotel 173

Omni Hotel Los Angeles 453

Residence Inn* 219

Ritz‑Carlton L.A. LIVE* 123

Sheraton Downtown 485

Standard Hotel Los Angeles 207

Westin Bonaventure 1,354

Current supply downtown 6,483

Within a ½ mile of the Convention Center 1,857Source: “Downtown LA 2014 Year‑End Market Report,” DCBID, February 2015; EY*Properties within a half mile of the convention center

30 Hugo Martin, “Lacking sufficient lodging, L.A. tourism growth lags rivals,” Los Angeles Times, http://www.latimes.com/business/la‑fi‑tourism‑wars‑20140423‑story.html, 23 April 2014.31 Jim Butler and the Global Hospitality Group, “JMBM’s Hotel Developer Forum: LA wants 4,000 new hotel rooms stat!” JMBM Global Hospitality Group website, http://hotellaw.jmbm.com/hotel_developer_forum_la.html, 22 January 2014.32 Roger Vincent, “AEG to add 755 rooms to Marriott complex at L.A. LIVE,” Los Angeles Times, http://www.latimes.com/business/realestate/la‑fi‑property‑report‑marriott‑20150305‑story.html, 5 March 2015.33 Jim Butler and the Global Hospitality Group, “JMBM’s Hotel Developer Forum: LA wants 4,000 new hotel rooms stat!” JMBM Global Hospitality Group website, http://hotellaw.jmbm.com/hotel_developer_forum_la.html, 22 January 2014.

19Outlook on downtown Los Angeles real estate

Hotel market

Lodging trendsNew developmentsThe largest hotel project currently under construction is the new Wilshire Grand Center hotel being erected on its old site at the intersection of 7th and Figueroa, just across from the FIGat7th shopping mall and just a block from The Bloc development at the old Macy’s Plaza site. Managed by InterContinental Hotel Group, the new tower is anticipated to feature approximately 900 guestrooms with a “sky lobby” on the 70th floor. A high‑speed elevator will take guests from the street level to the sky lobby, from which other elevators will take them down to their guest rooms. Ballrooms, which are typically windowless, will instead be built with glass walls that look out upon floral gardens.36

In addition to the new Wilshire Grand Center hotel, another hotel, located approximately two blocks away, is currently under construction. Greenland USA’s Metropolis mixed‑use project will include a full-service, internationally branded hotel with approximately 350 guestrooms.

Additionally, a few blocks south on Figueroa, construction on the Oceanwide Plaza development, across from the Los Angeles Convention Center and L.A. LIVE, began in March 2015. The project is anticipated to include a luxury hotel with approximately 183 guestrooms.

Ovrom presented hotel supply data to the Economic Development Committee in 2013 to demonstrate the paucity of hotel rooms near the Convention Center compared with supply near other comparable venues.34 Ovrom noted that while Los Angeles could not be expected to compete with Las Vegas or Orlando, Los Angeles should at least be competitive with San Diego and Anaheim. Both cities have at least 9,000 rooms within walking distance of their convention centers. Los Angeles has fewer than 3,200 rooms within the same radius.

Robert Kleinhenz, chief economist of the Los Angeles County Economic Development Corporation, reiterated this point in April 2014: “One big constraint I’ve seen in the last several years is that we don’t have enough rooms in the vicinity of the Convention Center.”35

Hotel rooms within walking distance of the Convention Center

Facility Hotel rooms within walking

distance (rounded)

Las Vegas Convention Center 19,200

Moscone Center (San Francisco) 17,000

Orange County Convention Center (Orlando) 10,700

Anaheim Convention Center 10,700

San Diego Convention Center 9,100

Ernest N. Morial Convention Center (New Orleans) 8,600

Georgia World Congress Center (Atlanta) 8,300

George R. Brown Convention Center (Houston) 5,200

Los Angeles Convention Center 3,200

McCormick Place (Chicago) 2,700

Jacob K. Javits Convention Center (New York) 1,700Source: “The Future of the Los Angeles Convention Center,” Department of Convention and Tourism Development, December 2014

Hotel pipeline (select properties)

Property Rooms Status

InterContinental hotel (Wilshire Grand Center)

900 Under construction

Metropolis hotel 350 Under construction

Oceanwide Plaza hotel 183 Under construction

Equinox hotel (The Grand) 300 Pre-construction

Expansion for the existing JW Marriott

755 Planning

Total 2,488Source: “Downtown LA 2014 Year‑End Market Report,” DCBID, February 2015; EY

34 Testimony of Bud Ovrom to the Economic Development Committee, Office of the City Clerk of Los Angeles, http://clkrep.lacity.org/onlinedocs/2013/13‑0991_MISC_8‑27‑2013.pdf, 27 August 2013.35 Hugo Martin, “Lacking sufficient lodging, L.A. tourism growth lags rivals,” Los Angeles Times, http://www.latimes.com/business/la‑fi‑tourism‑wars‑20140423‑story.html, 23 April 2014.

36 Brigham Yen, “Breaking News: Downtown LA’s New Landmark Tower, Wilshire Grand, to Become West Coast’s Tallest,” DTLA Rising, http://brighamyen.com/2013/02/07/renderings‑revealed‑new‑1100‑foot‑wilshire‑grand‑tower‑in‑downtown‑los‑angeles, 7 February 2013.

20 Outlook on downtown Los Angeles real estate

InvestmentsIn July 2014, the nine‑story Luxe City Center Hotel was sold to a Chinese-based company, Hazens Real Estate Group, for approximately $104.2 million or $585,000 per key.37 There was significant interest in this property due to its prime location directly across from L.A. LIVE and the adjacent vacant land.

A block north, a joint venture of GreenOak Real Estate and Urban Lifestyle Hotels acquired the Figueroa Hotel on Figueroa Street. In September 2014, the 285‑room hotel was acquired for approximately $65 million, and the owners are looking to invest up to $35 million for a major renovation.38

In May 2015 the Ace Hotel building sold for approximately $103 million to Chesapeake Lodging Trust. The hotel opened in January 2014, and Chesapeake anticipates the recently renovated

theater, with its restored Spanish-Gothic interior, will net over $2 million in 2015 from screenings and live events.39

Major renovationsNew properties aren’t the only story downtown. Two existing hotels are currently undergoing major renovations. The Sheraton at Macy’s Plaza is undergoing extensive renovation for its debut as part of The Bloc when that opens later this year. Several blocks north, the L.A. Hotel Downtown located at 333 South Figueroa, soon to be rebranded the WH Grand Hotel, recently completed $20 million in renovations.

In 2014, Ace Hotel opened as a 183‑room boutique hotel on Broadway after a complete restoration and renovation. Previously, the building was known as the United Artists Theater. Similarly, there are two smaller hotel restoration projects that had been stalled for years that may open in 2015: Hotel Clark near Pershing Square and the Embassy Hotel/Trinity Auditorium.40

Adaptive reuse projects continue to add more guestrooms to the lodging pipeline. Over the past 12 months, the New York‑based developer Sydell Group LLC acquired two 1920s office buildings, Giannini Place and the Commercial Exchange Building, and is converting them into boutique hotels. The Commercial Exchange Building is undergoing a $40 million renovation to transform it into a 200-room Freehand hostel property, and Giannini Place is being converted into a 250‑room hotel, possibly under Sydell’s NoMad brand. The Commercial Exchange renovation is expected to be completed by late 2016, with Giannini Place to be completed a year later.41

“One big constraint I’ve seen in the last several years is that we don’t have enough rooms in the vicinity of the Convention Center.”

— Robert Kleinhenz, Chief Economist, Los Angeles County Economic Development Corporation

Rendering of the proposed JW Marriott expansion at L.A. LIVESource: AEG

37 Real Capital Analytics38 “$100 Joint Venture for Acquisition of Figueroa Hotel,” Loeb & Loeb website, http://www.loeb.com/experience‑jointventureacquisitionoffigueroahotel, accessed 21 January 2015; Jeffrey Howe, “The Figueroa Hotel Sells for $65M,” CoStar website, http://www.costar.com/News/Article/The‑Figueroa‑Hotel‑Sells‑for‑$65M/163378, 5 September 2014.

39 Source: Roger Vincent, “Ace Hotel in downtown Los Angeles sold for $103 million,” Los Angeles Times, http://www.latimes.com/business/la‑fi‑re‑ace‑hotel‑sold‑20150501‑story.html.40 Eddie Kim, “Long‑Stalled Hotels Could Open in 2015 ,” Los Angeles Downtown News, http://www.ladowntownnews.com/news/long‑stalled‑hotels‑could‑open‑in/article_897a35a2‑711d‑11e4‑a656‑9fa128ed06cf.html, 21 November 2014.41 Roger Vincent, “Downtown L.A. revival continues with remake of opulent Giannini building,” Los Angeles Times, http://www.latimes.com/business/la‑fi‑property‑report‑giannini‑20150416‑story.html, 16 April 2015; Roger Vincent, “Downtown L.A. office building to be converted to hip hotel,” Los Angeles Times, http://www.latimes.com/business/la‑fi‑downtown‑hotel‑20140718‑story.html, 17 July 2014.

21Outlook on downtown Los Angeles real estate

Market summaryDowntown Los Angeles has reached a tipping point. In January 2014, GQ Magazine dubbed Los Angeles “America’s next great city,” and noted that “Downtown has approached a critical mass of cool.”

The combination of the passing of the Adaptive Reuse Ordinance, the lifting of the helipad restriction and the entrance of a major sports and entertainment center into downtown have created a new pull, luring creative enterprises as well as the traditional business community, and increasing demand for hotel rooms and residential units.

City planners are ensuring new developments promote a greener, more attractive, pedestrian‑friendly atmosphere. Increased public transportation options have made getting around downtown Los Angeles without a car easier than ever before. Between the popular and low‑cost DASH buses to the regular and express city buses and the heavily traveled Metro rail lines, you can park for the day or the week and get around the city easily. The proposed new Streetcar line to connect the Civic Center area to the Los Angeles Convention Center and L.A. LIVE area would increase transportation options for visitors, workers and residents, as well as developers and retailers seeking to bring new audiences to their properties.

In the next few years, major mixed‑use developments will change the downtown skyline and provide new amenities for residents, visitors and workers, from restaurants and clubs to new retail centers. New office spaces and renovations are including creative

office spaces to keep pace with the changing times and the desire of companies for “untethered” workspaces.

While the Sports and Entertainment District and its vicinity are seeing a plethora of mixed‑use megaprojects, such as Metropolis and Oceanwide Plaza, all areas of downtown Los Angeles are seeing upgrades, from the Financial District to Bunker Hill, from South Park to the Arts District and beyond. The “Bringing Back Broadway” initiative is well under way, changing a long-neglected area into a desirable environment filled with rich examples of Art Deco architecture and historic design elements, as well as chic boutique properties such as the Ace Hotel and the Acne Studios clothing

Summary of major mixed‑use projects currently under way and estimated completion dates.

Property Type Estimated completion

City Market Office, residential, retail, hotel

Summer 2015 (Phase 1)

The Bloc Hotel, office, retail Fourth quarter 2015

Metropolis Residential, hotel, retail 2016 (Phase 1) 2017 (Phase 2)

Wilshire Grand Center

Hotel, office, retail 2017

Oceanwide Plaza Hotel, residential, retail 2018

The Grand Hotel, residential, retail TBD

Mack Urban Residential, retail, hotel All phases by 2024Source: EY research

22 Outlook on downtown Los Angeles real estate

store. Wider sidewalks are begging for sidewalk cafes, and narrower streets remind drivers to consider using public transit options.

Los Angeles has long been a destination for foodies. But now, the retail and entertainment amenities beckon as well. And whereas before, residents had to leave town to get their groceries, major national and local chains are moving in, providing residents, visitors and workers with a plethora of grocery options. Resident income tends to be higher than the national average, so many new developments are including higher‑end retail and dining options.

Although new hotel developments had been fairly stagnant in recent years, 2014 welcomed the opening of the Ace Hotel on

Broadway and the Courtyard by Marriott and Residence Inn properties at L.A. LIVE. With lodging fundamentals improving, hotel developments are expected to rise over the next few years. In addition, the Los Angeles Convention Center and hotel properties feed off each other. As Convention Center bookings increase, the demand for hotel rooms rises. As hotel supply rises, the Convention Center can book larger‑scale events.

In short, downtown Los Angeles is growing up, both literally and figuratively, as new developments will give Los Angeles a more varied and interesting skyline than ever before. Downtown is Boomtown here in 2015.

Los Angeles: “America’s next great city … Downtown has approached a critical mass of cool.”

— GQ Magazine, January 2014

23Outlook on downtown Los Angeles real estate

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About EY’s Global Real Estate SectorToday’s real estate sector must adopt new approaches to address regulatory requirements and financial risks while meeting the challenges of expanding globally and achieving sustainable growth. EY’s Global Real Estate Sector brings together a worldwide team of professionals to help you succeed — a team with deep technical experience in providing assurance, tax, transaction and advisory services. The Sector team works to anticipate market trends, identify their implications and develop points of view on relevant sector issues. Ultimately, this team enables us to help you meet your goals and compete more effectively.

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SCORE No. CE0872 CSG No. 1503‑1411990 West

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For more information about any of these developments, please contact:

Michael J. GillmorePartner and West Real Estate, Hospitality and Construction Market Segment Leader Ernst & Young LLP

+1 213 977 3232 mike.gillmore@ey.com

Troy JonesPrincipal and West Region Real Estate Sector Leader Transaction Advisory Services Ernst & Young LLP

+1 213 977 3338 troy.jones@ey.com

Sara LoSenior Manager, Transaction Real Estate Transaction Advisory Services Ernst & Young LLP

+1 213 240 7094 sara.lo@ey.com

Contacts