Outlook on downtown Los Angeles real estate 2016

101

5

5

510

101

101

110

110

110

10

10

110

BunkerHill

Temp leBeaudry

E cho Park

C ityWest

C hinatown

J ewelryDist.

F inancialDistrict

Westlake

Pico/U nion

HistoricC ore

Boy leHeights

WashingtonBoulevardC orridor

SouthPark

F ashionDistrict

C entralI ndustrial District

C ivicC enter

L ittleToky o

A rtsDistrict

L os A

ngel e

s St.

Ala

med

a St

.

W il sh ire B l vd .

1st St.

7th St.

Figu e

roa S

t.

San P

edro

St.

B ro a

d way

O l ym p ic B l vd .

Los Angeles Riv er

Downtown L os A ngeles

A b b reviations used in this document2Q Second quarter3Q Third quarter ADR A verage daily rateBR BedroomDCBID Downtown C enter Business I mp rovement Districtn/a N ot availab le or not ap p licab le

PSF Per square f ootRevPAR R evenue p er availab le roomSF Square f eetTBD To b e determinedYTD Y ear- to- date

Downtown L os A ngelesFo rew o rd 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 develop ment in the p ast 15 y ears, the p ercep tion of the city has changed. Creative office spaces are luring entertainment and high‑tech tenants. Tonight, thousands of p eop le will b e out and ab out downtown, enj oy ing dinner at eclectic eateries, shop p ing 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 L os A ngeles has b ecome b oth a b usiness 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 develop ment op p ortunities, the rise in urban residential living and the growth of entertainment options.

I n this rep ort, we p rovide 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 R eal E state, Hosp itality and C onstruction Market Segment Leader E rnst & Y oung L L P

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.

C ontents1 Market overview

8 Residential market

13 Office market

16 Retail market

18 Hotel market

22 Market summary

24 C ontacts

Downtown Los Angeles is ripe for innovative and contemporary mixed‑use development.

As the film capital of the world, the Los Angeles area has drawn creative people from all over the planet. But in the p ast, the creative community ty p ically shunned downtown, which has historically b een 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 glamour to downtown. The Primetime Emmy® A wards have made the Microsof t Theater (formerly the Nokia Theatre) at L.A. LIVE its new home. “Red carpet” film premiere events are routinely f eatured outside the theater on Microsof t Square, which sits across the street f rom a dif f erent 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. And with the announced return of a maj or N F L f ranchise to L os A ngeles, the sp orts scene downtown and throughout the region will get a new infusion of energy. “The future of downtown Los Angeles is not professional services — it’s entertainment, it’s bars, it’s restaurants,” said José Huizar,1 the C ity C ouncil memb er rep resenting the downtown area. Councilman Huizar has been a major supporter 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. N ew restaurants and retail have of ten b een incorp orated into residence p roj ects in a mutually beneficial relationship.

I n addition to new develop ment p roj ects, the downtown skyline is poised for significant change, as new towers will sp ort sp ires, slanted rooftops and other innovative designs. This is in large p art due to the L os A ngeles Fire Department’s dropping of a long‑standing regulation requiring all tall b uildings to have a helipad.

A lthough there are areas named the A rts District and the F inancial District, arts and finance are not confined to one or the other, b ut are f eeding of f of each other to inf use 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.”

Market overview

Over the last 17 years, according to the DCBID, property values increased 151.2%. The f ollowing chart shows overall investment across sectors from 1999 to 2014.

I nvestm ent in d o w nto w n L o s Angel es 1999 – 2014 (in millions)

A rts and entertainment $ 1.2

C ivic and institutional $ 2.6

C ommercial $ 1.0

Mixed‑use $ 5.7

R esidential $ 7.3

Figueroa Corridor/Expo Park $ 1.5

Total $ 19.3Source: “Downtown LA Market Report 3Q 2015,” DCBID, December 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.

1O u tl o o k o n d o w nto w n L o s Angel es real estate

Market overview

R ecent develop mentsSeveral 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: G reenland U SA and G ensler

Metrop olis G reenland U SA , a sub sidiary of G reenland G roup b ased in Shanghai and one of the largest develop ers in C hina, is currently develop ing 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 f eature two towers, including a Hotel I ndigo 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 1,247 units and approximately 70,000 SF of retail and commercial space.

G reenland anticip ates comp leting construction of p hase one in late 2016 or early 2017 and phase two in 2018.

The eastern side of Metrop olis is b ordered b y F rancisco Street, which develop ers and city b oosters have p rop osed 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 Plaz aIn 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 seven‑story podium that will include a retail galleria featuring a long light‑emitting diode (LED) ribbon along Figueroa Street for advertising and non‑commercial uses. The complex will include 504 condominium units and 183 hotel guestrooms. The galleria is anticipated to include two levels of approximately 160,000 SF of retail, commercial and entertainment space. Shops are planned on Flower and Figueroa Streets, connected by a paseo.4 Completion is expected in 2018.

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 Oceanwide Plaz a R etail L easing I nf ormation, http://oceanwideplazaretail.com; 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; ”Design Team Grows for $1 Billion Oceanwide Plaza in Los Angeles,” CTBUH G lob al N ews, http://www.ctbuh.org/News/GlobalTallNews/tabid/4810/Article/2854/language/en‑US/view.aspx, 13 May 2015; Andrew McIntyre, “$1B LA Project Faces Tight Timeline, Oceanwide GC Says,” Law360.com, http://www.law360.com/articles/711993/1b‑la‑project‑faces‑tight‑timeline‑oceanwide- gcsay s, 14 October 2015.

2 O u tl o o k o n d o w nto w n L o s Angel es real estate

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

C ircaJust south of Oceanwide Plaza, another major development is under construction at 1200 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 36‑story condominium towers that would hold 648 luxury units. The development would include a two‑acre amenity deck, a Figueroa‑facing LED ribbon, parking and nearly 50,000 SF of retail space.5 Circa is anticipated to open in late 2017.6

Rendering of Mack Urban South ParkSource: Togawa Smith Martin R esidential

Mack Urban South ParkMack Urban and AECOM are developing a $750 million mixed‑use megaproject, spanning six acres, which will be built in multiple phases in South Park. The first phase will include 362 units and 4,000 SF of retail space. The second and third phases, which will include 770 apartments and 13,000 SF of retail, are finishing the entitlement and approvals processes. The first building is expected to open in early 2017, with a project completion date in 2024.7

G round- up develop ments in South Park continue to appear, given the availability of large surface lots and underutilized land. One example is the Downtown Car Wash site opposite L.A. LIVE, which investor Ben Neman purchased for approximately $25 million in 2014. In December 2015, Neman filed plans to build a mixed‑use development on the 0.8‑acre site at the northwest corner of Olympic and Figueroa featuring 374 residential units, a hotel with 373 guestrooms, 33,500 SF of office space, 10,800 SF of conference center space and 65,000 SF of commercial space.

A nother maj or p roj ect located at the southeast corner of the same intersection is Shenzhen Hazens Real Estate Group’s redevelopment of the Luxe City Center Hotel. The developer is undergoing city ap p rovals to transf orm the p rop erty to a mixed‑use development with a 250‑guestroom W Hotel, 650 condominium units and 80,000 SF of retail.Source: Steven Sharp, “Mixed‑use development to replace DTLA car wash,” urbanize.la, http://urbanize.la/post/mixed‑use‑development‑replace‑dtla‑car‑wash, 17 December 2015; City News Service, “W Hotel coming to downtown Los Angeles, replacing Luxe Hotel,” Los Angeles Daily News, http://www.dailynews.com/business/20150817/w‑hotel‑coming‑to‑downtown‑los‑angeles‑replacing‑luxe‑hotel, 17 August 2015.

South Park on the rise

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, Heidi Kulilcke, Emily Manthei and Jon Regardie, “Downtown Development: The Latest Updates on 99 Downtown Projects,” Los Angeles Downtown News, http://www.ladowntownnews.com/ develop ment/ downtowndevelop ment- the- latest- up dates- on- downtown- p roj ects/article_6ff37f2e‑58be‑11e5‑9933‑4fdd1b5f8591.html, 14 September 2015.

7 “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.

3O u tl o o k o n d o w nto w n L o s Angel es real estate

F inancial District

Rendering of the Wilshire Grand Center Source: A C Martin/ Wilshire G rand Proj ect

Wilshire G rand C enterThe new Wilshire Grand Center’s tower is rising at the corner of 7th Street and Figueroa Street. The $1 billion‑plus project, owned b y K orean A ir, a sub sidiary of the Hanj in G roup , 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 b y I nterC ontinental Hotels & R esorts and will f eature a roof top 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. The expected completion date is 2017.

Rendering of The BlocSource: The Ratkovich Company

The BlocMacy’s Plaza is currently undergoing a $180 million renovation into a new experience called The Bloc. In 2013, the Ratkovich Company acquired the retail p laz a as well as its adj oining p rop erties of the 485‑room Sheraton Hotel and the 33‑story office building. A $75 million renovation to the Sheraton Hotel will include increasing the hotel’s capacity to 496 rooms. 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. The Bloc will also feature a new movie theater, the Alamo Draf thouse C inema, an A ustin- b ased chain f amous f or its b eer and in‑seat food and beverage service. The company has said that it is most excited about the growing residential sector within the neighborhood.8 Ratkovich also recently signed leases with the headquarters of Nordstromrack.com | HauteLook (44,000 SF) and Golin (24,000 SF) in the office tower.

Market overview

8 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 ; “The Bloc Blooms Into An Open‑Air Plaza With Roof Removal,” PRNewswire, http://www.prnewswire.com/news‑releases/the‑bloc‑blooms‑into‑an‑open‑air‑plaza‑with‑roof‑removal‑300088725.html, 26 May 2015.

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 BroadThe Broad (pronounced “Brode”), the $140 million contemporary art museum f eaturing the art collection of E li and E dy the Broad and The Broad F oundation, op ened to the p ub lic in Sep temb er 2015. The 120,000 SF museum includes a 24,000 SF public plaza and the new restaurant Otium, develop ed b y noted L os A ngeles restaurateur Bill Chait and Chef Tim Hollingsworth, of Napa Valley’s famed French Laundry. Otium opened in December 2015.12

Philanthrop ists E li and E dy the Broad and The Broad F oundation 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 G randRelated Companies has planned 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 p ub lic sp aces and p ub lic events, has p roven to b e very p owerf ul in the right locations and with the right planning.” 9

“The notion of bringing together this diverse mix of uses, and allowing f or a lot of p ub lic sp aces and p ub lic events, has p roven to b e very p owerf ul 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 2014.10 The next phase will include: a 300‑unit apartment building (20% of the units being affordable housing), 130 premium condominium units, approximately 200,000 SF of retail and a 300‑room full‑service Equinox hotel.11

12 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.

9 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 2014.10 Ibid.11 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.

5O u tl o o k o n d o w nto w n L o s Angel es 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 p eop le strolling on Broadway. People will sit with their cof f ee at tab les surrounded b y these beautiful buildings. That’s good for Downtown, good f or b usiness 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 cof f ee at tab les surrounded b y these b eautif ul buildings. That’s good for Downtown, good for business and good for the city.”13

A rts District

Rendering of One Santa FeSource: Bernards

One Santa F eLocated in the Arts District, One Santa Fe is a $160 million develop ment, designed b y Michael Maltz an, that was comp leted in 2015. The development includes 438 residential rental units, approximately 80,000 square feet of commercial space, a f amily - owned Manhattan Beach- b ased grocery store called G R OW and a 99‑seat theater.14 The develop ment f eatures a retail area known as “The Yards at One Santa Fe” because it faces an old railway y ard, and a f ew p rominent b outique vendors have already been signed. Recently added vendors include Van Leeuwen Ice Cream, which opened in November 2015, and Bulletproof Coffee, which will open in 2016.

A t MateoA t the corner of Mateo and Palmetto in the A rts District, A SB R eal Estate Investments and Blatteis & Schnur broke ground on their retail‑office project At Mateo. The red brick and Italian cobblestone open‑air mall and office buildings are projected to include approximately 125,000 SF of retail and 50,000 SF of creative office space. This $80+ million center is scheduled for completion at the end of 2016.15

13 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.

14 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 2014.15 “ASB and Blatteis & Schnur Break Ground on $80+ Million LA Arts District Retail‑Office Project,” PR N ewswire, http://www.prnewswire.com/news‑releases/asb‑and‑blatteis‑‑schnur‑break‑ground‑on‑80‑million‑la‑arts‑district‑retail‑office‑project‑300164851.html, 22 October 2015.

6 O u tl o o k o n d o w nto w n L o s Angel es real estate

F ashion District

Rendering of City MarketSource: The City Market of Los Angeles; Design by Douglas Hanson, AIA of HansonLA; L andscap e Design b y OL I N Studio

City MarketCity Market, a $1 billion, mixed‑use, 10 acre, multiphase develop ment, b egan p hase one construction on the p ortion called City Market South.16 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 residential units.17

“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 glob ally recogniz ed destination f or visitors f rom around the world, helping turn the Fashion District into a 24‑hour destination,” according to the design team of HansonLA and OLIN.18

Three restaurants, including a new concep t f rom C harles Phan of San Francisco’s The Slanted Door, are expected to open here in 2016.

T h e streetcarPlans f or a streetcar line connecting the C ivic C enter and Bunker Hill area to South Park and L.A. LIVE are moving forward. The route would connect the Civic Center and Music Center areas to the Financial District and South Park as shown b elow, and the streetcars are anticip ated to run 18 hours a day. In 2014, voters approved a tax that could potentially raise $85 million for the streetcar project.19 The manager of the p roj ect, A E C OM, revised the cost estimates for the project to approximately $281 million, leaving a funding shortfall of $144 million. The project is seeking a $75 million federal grant and hopes to raise the rest through a public‑private partnership.20

A request f or p rop osals was issued f or p reliminary engineering in August 2015, and the design phase is expected to take a year.

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

16 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 2014.17 “Development Vision,” The City Market of Los Angeles website, http://www.citymarketla2.com/vision/ , accessed 27 October 2014.18 “Development Vision,” The City Market of Los Angeles website, http://www.citymarketla2.com, accessed 3 November 2014.

19 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 2014.20 Dennis Romero, ”Your downtown L.A. streetcar system is about to be designed,” LA Weekly, http://www.laweekly.com/news/your‑downtown‑la‑streetcar‑system‑is‑about‑to‑be‑designed‑5696281, 17 June 2015.

7O u tl o o k o n d o w nto w n L o s Angel es 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.21 The demand f or multif amily units in downtown L os A ngeles is related in large part to the rise in entertainment, retail, dining and other amenities now available.

The transf ormation of downtown L os A ngeles has b een driven in p art b y the increase in residents who want to live, eat and shop close to where they work. “As Greenland USA’s first acquisition, the top‑off of the first tower at Metropolis is a particularly proud moment for us,” said Gang Hu, interim CEO, Greenland USA. “Once complete, Metropolis will invigorate the immediate area and create a whole new dynamic to downtown.” 22

The demographics of downtown Los Angeles residents are attractive. The median age is 36, and the average income of $98,000 is nearly double the national figure.23 Approximately 90% of them are employed. More than half the residents 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.

A lso in 1999, the A dap tive R euse Ordinance (ARO) was adopted by the Los Angeles City Council. The ordinance p rovides f or b oth the p reservation of historical b uildings and the redevelop ment of those properties while significantly streamlining the ap p roval p rocess and waiving certain density, parking and other restrictions. As a result, a number of historic b uildings have b een converted into lof t- sty le residences, some of which f eature roof top p ools and ground- level commercial establishments.

Residential unit inventory (market rate only) as of 3Q 2015

Rental Condominium Total

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

C onstruction since A R O 14,266 4,807 19,073

U nder construction 8,607 2,001 10,608

Prop osed 11,289 2,918 14,207

Total 36,588 10,555 47,143Source: “Downtown LA Market Report: Q3 2015,” DCBID, December 2015

21 “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. 22 “China’s Greenland ‘tops off’ first residential tower in downtown Los Angeles,” Xinhua, english.news.cn, http://news.xinhuanet.com/english/2015‑12/09/c_134898030.htm, 9 December 2015.23 Lauren Schuker Blum, “Downtown L.A. Goes From Gritty to Glitzy,” Wall Street Journal, http://online.wsj.com/news/articles/SB10001424052702303532704579477374278821010, 10 April 2014; “DTLA: The future of urban retail,” DCBID, November 2015.

8 O u tl o o k o n d o w nto w n L o s Angel es real estate

“Once complete, Metropolis will invigorate the immediate area and create a whole new dynamic to downtown.”

— Gang Hu, interim CEO, Greenland USA

The downtown L os A ngeles residential marketN umb er of residents: 58,592

R ental occup ancy rate: 97%

A verage rental rate: $2,337

A verage condominium p rice per square foot (PSF): $574

Median household income of residents: $98,000

Percent emp loy ed: 90%

Percent who work downtown: 56%

Percent that own p ets: 42%

C urrent residential unit inventory : 34,475 (includes affordable housing)

Source: “Downtown LA Market Report: Q3 2015,” DCBID, December 2015; “DTLA: The Future of Urban Retail,” 2015 Downtown LA Retail Report, DCBID, November 2015.

9O u tl o o k o n d o w nto w n L o s Angel es real estate

Residential market

Sel ect resid ential p ro j ects u nd er co nstru ctio n Pro j ect nam e Ad d ress U nits C o nstru ctio n

start d ate E stim ated co m p l etio n

New construction

South Park 5,704

Metrop olis Phase I I

F rancisco and James M Wood 1,247 Dec. 2014 2018

C irca 1200 S Figueroa St 648 Jul. 2015 Winter 2017

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

Oceanwide Plaz a 11th and F igueroa 504 Nov. 2014 2018

Onyx 500 W Pico Blvd 410 Apr. 2015 Summer 2017

Mack Urban Phase 1

11th, G rand, Pico, Hill St 362 2015 2017

Metrop olis Phase I

F rancisco and James M Wood 308 Feb. 2014 Fall 2016

1000 Grand 1000 S Grand Ave 274 Apr. 2014 2016

Oly mp ic & Olive 924 S Olive St 263 Aug. 2014 2016

F orest C ity 12B 1201 S Main St 214 2015 Summer 2017

1001 Olive 1001 S Olive St 201 Oct. 2014 2016

A vant Phase 2 1500 Figueroa 193 Apr. 2013 2015

F orest C ity 11H 156 W 11th St 177 2015 Summer 2017

TEN50 11th & G rand A ve 151 2015 Fall 2016

E on G rand 1249 S Grand Ave 112 Jan. 2015 Fall 2016

Historic Core 1,001

Oly mp ic and Broadway

Oly mp ic and Broadway 686 Aug. 2014 2016

Top az 550 S Main St 159 Sep. 2014 2017

430 Broadway 430 S Broadway St 60 Early 2013 TBD

932 S Hill St 932 S Hill St 18 2015 2016

Pershing A p artments 502 Main 69 May 2013 TBD

Singer Sewing Building 806 Broadway 9 Sept. 2012 TBD

City West 945

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

Valencia 1501 Wilshire Blvd 218 Apr. 2014 2016

1419 W 7th 1419 W 7th St 87 2015 2016

Financial District 889

888 Hope 888 S Hope St 526 Sep. 2014 2016

801 S Olive 801 S Olive St 363 2015 Fall 2017

Pro j ect nam e Ad d ress U nits C o nstru ctio n start d ate

E stim ated co m p l etio n

Arts District 792

950 E. Third 950 E Third 472 2015 2017

G arey Building 905 E 2nd 320 Sept. 2013 Jan. 2016

Little Tokyo 478

Block 8‑D 2nd and San Pedro 240 June 2013 June 2016

Vibiana Lofts 114 E 2nd St 238 2015 2017

Chinatown 470

Blossom Plaz a 900 N Broadway St 240 Sep. 2013 Summer 2016

Da Vinci 909 W Temple St 230 2015 May 2016

Fashion District 395

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

G rether & G rether 730 S Los Angeles St 72 2015 2016

The Maxfield Building 819 Santee St 96 2015 2016

The G arment L of ts 217 8th 77 June 2013 TBD

Total units under construction 10,674Source: “Downtown LA Market Report: Q3 2015,” DCBID, December 2015; Eddie Kim, Heidi Kulicke, Emily Manthei and Jon Regardie,”Downtown Development: The Latest Updates on 99 Downtown Projects,” Los Angeles Downtown News, http://www.ladowntownnews.com/development/downtown‑development‑the‑latest‑updates‑on‑downtown‑projects/article_6ff37f2e‑58be‑11e5‑9933‑4fdd1b5f8591.html, 14 September 2015; LoopNet online database, www.loopnet.com, accessed December 2015.

10

Pro j ect nam e Ad d ress U nits

Entitled

Onni Towers 1212 S F lower St 730

Onni Tower 820 S Olive St 589

A MP L of ts 695 S Santa Fe Ave 320

Title I nsurance Building 433 S Spring St 250

1400 S Figueroa 1400 S Figueroa St 106

A rthouse 1200 S Santa Fe Ave 53

Plans submitted

Medallion 2.0 4th St & Main St 500

SB Omega 601 S Main St 500

Beacon on Hill 4th St & Hill St 428

4th and Broadway 4th St & Broadway 400

Sp ring St Tower 525 S Sp ring St 360

LA Plaza Cultura Village 400 W Caesar Chavez Ave 345

Apex Phase II 900 S Figueroa St 341

E ighth & Sp ring 737 S Spring St 320

5- OH 5th St & Olive St 312

The Alexan 850 S Hill St 305

Hill Tower L of ts 920 S Hill St 239

The Hill 940 S Hill St 232

939 S Broadway 939 S Broadway 163

E tco Homes 118 Astronaut Onizuka St 66

No plans submitted

C ollege Station 924 N Spring St 685

1027 Wilshire 1027 Wilshire Blvd 376

Sap p hire 1111 W 6th St 362

I ndustrial Street L of ts 1525 I ndustrial St 360

732 S Spring 732 S Spring St 308

955 S Broadway 955 S Broadway 250

1135 W 7th St 1135 W 7th St 241

527 S Colyton St 527 S Colyton St 234

Banco Pop ular 352 S Spring St 212

1133 Hope Tower 1133 S Hope St 208

12th and G rand 1201 S Grand Ave 126

1800 E 7th St 1800 E 7th St 125

FLOR 401 Wall St & 7th St 100

Alameda & 4th Lofts 360 S Alameda St 63

Six Four Nine Lofts Wall St & 7th St 55

950 S Broadway 950 S Broadway 30

916 Georgia St 916 Georgia St 29

The C helsea 216 W Fifth St 28

Total proposed units 10,351Source: “Downtown LA Market Report: Q3 2015,” DCBID, December 2015; Eddie Kim, Heidi Kulicke, Emily Manthei and Jon Regardie,”Downtown Development: The Latest Updates on 99 Downtown Projects,” Los Angeles Downtown News, http://www.ladowntownnews.com/development/downtown‑development‑the‑latest‑updates‑on‑downtown‑projects/article_6ff37f2e‑58be‑11e5‑9933‑4fdd1b5f8591.html, 14 September 2015.

Sel ect p ro p o sed resid ential p ro j ects G ro w th at a gl ance f ro m 1999 to 3Q 2015Pop ulation

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 2015 1999 20151999 2015

3, 255

22, 328

$169

$572

5 8 6 % i n c r e a s e

2 3 8 % i n c r e a s e

18, 700

58, 592

213% increase

A verage condominium p rice PSF

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 2015 1999 20151999 2015

3, 255

22, 328

$169

$572

5 8 6 % i n c r e a s e

2 3 8 % i n c r e a s e

18, 700

58, 592

213% increase

R esidential 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 2015 1999 20151999 2015

3, 255

22, 328

$169

$572

5 8 6 % i n c r e a s e

2 3 8 % i n c r e a s e

18, 700

58, 592

213% increase

Source: “Downtown LA Market Report: Q3 2015,” DCBID, December 2015.

11O u tl o o k o n d o w nto w n L o s Angel es real estate

“The more vibrant downtown b ecomes, the more it will attract other office users. People like to be in an area that is exploding, there’s a dynamism you feel, it’s palpable.” — Carol E. Schatz, President and C E O of the C entral C ity A ssociation of L os A ngeles

12 O u tl o o k o n d o w nto w n L o s Angel es 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 was surprisingly positive in 2015, 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 p oint to the f act that L os A ngeles 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.24

The overall office vacancy rate for downtown Los Angeles was 14.2% in the third quarter of 2015, unchanged from the rate in the third quarter of 2014.25 However, the average asking and effective rents in the third quarter of 2015 were up 5.5% and 5.6%,

respectively, from the third quarter of 2014. Brookfield’s acquisition of MPG Office Trust, Inc. (MPG), which gave Brookfield a 43% share in the core C lass A downtown p rop erties, created a measure of p rotection f or other p rop erty owners against potential rental rate wars.

In 2014, New York investments in Los Angeles County increased by 23%. As Greg Vilkin, President of R elated C alif ornia U rb an R esidential 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.”26

While some have expressed concerns that the new develop ment will result in an oversup p ly , others are optimistic. “This is the next area,” said Victor Coleman, the CEO of Hudson Pacific Properties, Inc. Hudson is converting the 150,000 SF old Coca‑Cola building into office space.27

The table at left illustrates recent lease activity.

Office market

Significant new and major renewal lease activity in 2015

T enant B u il d ing Ad d ress SF

C ap ital G roup 400 South Hope 400 S Hope St 106,400

WeWork The G as C omp any Tower 555 W 5th St 92,000

The Executive Office for I mmigration

City National Bank Building 606 S Olive St 72,210

Pillsb ury Winthrop Shaw Pittman L L P

E rnst & Y oung Plaz a 725 S Figueroa St 61,000

DL R G roup The BL OC 700 S Flower St 35,562

C ross C amp us 800 Wilshire Blvd 800 Wilshire Blvd 27,272

Doub leL ine Wells F argo C enter 333 S Grand Ave 25,985Source: “Downtown LA Market Report: Q3 2015,” DCBID, December 2015; “Downtown Los Angeles Office Market Report, Third Quarter 2015,” Avison Young (Canada) Inc.

Average asking rents and vacancy rates for Class A office space, 1999 – 3Q 2015

Avg. asking rent PSF Vacancy

5%

10%

15%

20%

25%

30%

$10

$15

$20

$25

$30

$35

$40

$45

% va

canc

y

Ave

rage

ask

ing

rent

PSF

Q3 20152014

20132012

20112010

20092008

20072006

20052004

20032002

20012000

1999

14.3%

9.5%

13.4% 13.5%

13.1%11.4%

10.1%

11.7%11.0%

10.5%

11.8%

11.8%

12.6%13.8%

14.7%

14.6%

12.6%

$27 $28 $28 $29 $29 $29 $30$31

$35

$37 $36$36$36 $37 $38$40

$42

Source: R E I S

24 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 2014.25 “Reis Observer, Office – 3rd Quarter 2015, Metro: Los Angeles,” Reis Inc., 2015.26 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 2014.27 Eliot Brown, “Office Market Gets Overhaul in Downtown L.A.,” The Wall Street Journal, http://www.wsj.com/articles/office‑market‑gets‑overhaul‑in‑downtown‑l‑a‑1449570600, 8 December 2015.

13O u tl o o k o n d o w nto w n L o s Angel es 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

In the chart below, the bubble size and number represent the sale price in millions of dollars.

Significant recent office sales

0 100 200 300 400 500 600SF (000)

0

100

200

300

400

500

700

600

$PSF

PacMutual

One Bunker Hill

800 Wilshire Blvd

Brunswig Square

The Desmond

$200

$92$81

$61

$49

Source: R eal C ap ital A naly tics

25 R eal C ap ital A naly tics

14

I n the sp otlight

Significant recent office sales

D ate Pro p erty nam e Ad d ress SF Price in $m $PSF B u yer

September 2015 PacMutual 523 W 6th St 464,000 $200.0 $431 I vanhoe C amb ridge, C allahan C ap ital Partners

October 2015 One Bunker Hill 601 W 5th St 284,954 $92.0 $323 L ionstone I nvestments and Hermes I nvestment Management

November 2015 800 Wilshire Blvd 800 Wilshire Blvd 225,728 $80.6 $357 Onni G roup

September 2015 Brunswig Square 360 E 2nd St 135,982 $60.8 $447 Jamestown

December 2015 The Desmond 425 W 11th St 85,000 $48.5 $571 A E G WorldwideSource: R eal C ap ital A naly tics

PacMutual

When R ising R ealty Partners (RRP) p urchased the three nearly 100‑year‑old interconnecting b uildings that f orm the PacMutual complex, the vacancy rate was nearly 50%. A f ter $25 million in renovations, which included increasing the rentab le area f rom 425,000 SF to 460,000 SF , the p rop erty is now nearly 90% leased. RRP, which had p urchased the property for $60 million in 2012, sold it to Callahan C ap ital Prop erties (Chicago) and Ivanhoe Cambridge (Canada) for $200 million.

One Bunker Hill

One Bunker Hill is the original home of the Southern C alif ornia E dison Company. Built in 1931, this was the first building in the western U nited States to b e p owered entirely by electricity. The lobby’s floor is inlaid with 25 dif f erent varieties of marble. RRP and its p artners L ionstone Investments (Houston) and Hermes I nvestment Management (London) are p lanning a restoration, as well as a renovation, to undo p revious “enhancements” to restore its original charm.

800 Wilshire

800 Wilshire marks Onni Group’s seventh property downtown. When Lincoln Prop erties p urchased the building in 2013 for $48.2 million, it was only 60% leased. By the time of Onni Group’s purchase, the b uilding had b een renovated into creative office space that was 95% leased. The sixteen‑story boutique Class A office b uilding has a p rime location in the heart of the F inancial District, within walking distance of the Westin Bonaventure, L.A. LIVE and the Metro station at 7th and Figueroa Streets.

Brunswig Square

Built in the same y ear as One Bunker Hill, the Art Deco b uilding f eatures 30,000 SF of retail and restaurant sp ace, top p ed by 110,000 SF of office space. The property’s current occup ancy is approximately 40% and the owner is p lanning to renovate the p rop erty into creative office space. Jamestown’s President Michael Phillip s stated, “Our goal is to make Brunswig Square a central p iece of the emerging creative hub b ridging the A rts District and L ittle Tokyo in downtown L.A., while also honoring and p reserving its p lace in the historic fabric of the area.”

The Desmond

A E G had initially b id on the Desmond when it was for sale in 2013. When L incoln Prop erties b ought the b uilding, A E G first leased a portion of the 1916 building. In December 2015, AEG p urchased the b uilding f rom L incoln Prop erties and b egan relocating 500 employees from around the city into the newly renovated space. While some exterior f eatures were p reserved, the interior f eatures contemp orary designs, and a new sixth floor, with an outdoor deck area, was b uilt on top of the roof.

15O u tl o o k o n d o w nto w n L o s Angel es real estate

FIGat7thSource: Brookfield

FIGat7thOne p rop erty tells a large p art of the story of retail in L os A ngeles pre‑ and post‑recession: the open‑air mall at Figueroa and 7th 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, af ter stores disap p eared one b y 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 b y local estab lishments rather than international chains was installed and named “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 f or 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 three years, new entrants included Urban Outfitters, Acne Studios, Sport Chalet, Smart & Final and a Walmart Neighborhood Market. The renovation p roj ect at the b elow- street- level mall at F igueroa 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 opened its first grocery store downtown, at 770 Grand Avenue, in November 2015. Y et another grocery store, G R OW, a f amily - owned Manhattan Beach estab lishment, op ened its new location at the One Santa F e mixed‑use complex in October 2015.

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 former chef de cuisine f rom the famous Napa Valley establishment The French Laundry is now tantalizing palates at Otium at The Broad. A prominent strip of premier restaurants along 7th Street in downtown Los Angeles is commonly referred to as Restaurant Row.

I n the A rts District, Blatteis & Schnur and A SB R eal E state Investments broke ground on their project named At Mateo in October 2015. The former industrial site is expected to include approximately 30 new specialty restaurants, boutiques and soft‑goods stores in an open‑air setting. The master plan calls for local artist installations, paseos and public seating.28

The downtown Los Angeles retail marketVacancy rate: 6.0%N et ab sorp tion Y TD: 211,195U nder construction: 1,824,400 SFTotal p rop osed: 1,054,000 SFAverage asking rental rate (per year): $2.64 PSFSource: “Downtown LA Market Report: Q3 2015,” DCBID, December 2015.

Retail market

28 “ASB and Blatteis & Schnur Break Ground on $80+ Million LA Arts District Retail‑Office Project,” PR N ewswire, http://www.prnewswire.com/news‑releases/asb‑and‑blatteis‑‑schnur‑break‑ground‑on‑80‑million‑la‑arts‑district‑retail‑office‑project‑300164851.html, 22 October 2015.

16 O u tl o o k o n d o w nto w n L o s Angel es real estate

Rendering of The BlocSource: The Ratkovich Company

The BlocThe Ratkovich Company has cut 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.

The mixed‑use development currently includes a Sheraton Hotel and a Class B office tower. The Sheraton Hotel has been upgraded with a new 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 has removed the glass roof in front of the Macy’s store and op ened up the f ront 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 shop s is b eing added that will connect directly with the 7th and Figueroa Metro Station underground. The popular A ustin- b ased A lamo Draf thouse movie theater chain will op en its first Southern California property at The Bloc.

The Bloc is set to debut in 2016.

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 G rand C enter

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

• Approximately 160,000 SF of retail, commercial and entertainment space at Oceanwide Plaza (see page 2)

• Approximately 50,000 SF of space at Circa

A dditionally , across town at the E astern C olumb ia Building, the iconic turquoise b lue A rt Deco tower in the F ashion District, the Swedish clothing retailer Acne Studios 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 Y ards at One Santa F e, 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 b ringing in unique or b outique retail b rands, as op p osed to large national chain stores, is anticip ated to ap p eal to Millennials and the ab ove- average- wage- earners around whom much of the new development is targeted.

Retail market

17O u tl o o k o n d o w nto w n L o s Angel es real estate

Hotel marketI n the p ast, downtown L os A ngeles was p rimarily a b usiness center, not a tourist destination. But with the opening of L.A. LIVE, the Walt Disney C oncert Hall, the numerous red- carp et events at Microsof t Square and the ease of getting to other regional locations b y b us, Metro and rail f rom U nion Station, L os A ngeles is now the fifth most popular city for foreign visitors.29

A ccording to the Downtown C enter Business I mp rovement 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.30 A ccording to Smith Travel R esearch, the average occup ancy f or f ull- service hotels in downtown L os A ngeles was 77.2%, with an ADR of $202.36, as of YTD September 2015.31

C urrent lodging sup p lyThe f ollowing tab le includes maj or hotel p rop erties downtown and indicates which of these are within a half‑mile walk of the Los Angeles Convention Center. One of the nearest hotel p rop erties, the Morrocan- themed Hotel F igueroa, is closed temporarily for major renovations by its new owners, GreenOak Real Estate and Urban Lifestyle Hotels.

Many sup p orters of downtown L os A ngeles b elieve there is a significant need for additional hotel rooms in the area due to the current disp arity b etween lodging sup p ly and demand. For example, in April 2014, the National Cable and Telecommunications A ssociation had to outsource a numb er of rooms f or attendees to its annual conf erence to hotels in Century City, more than 11 miles to the west, due to the lack of available high‑end hotel rooms in the immediate vicinity.32

The downtown L os A ngeles hotel marketN umb er of visitors p er y ear: 10,000,000+

Hotel occup ancy rate: 77.2%

A DR : $202.36

R evPA R : $156.32

Percentage who come to L os A ngeles f or vacation or to visit f amily and f riends: 45%Source: “Downtown LA 2014 Year‑End Market Report,” DCBID, February 2015, citing LA Tourism f or the occup ancy rate, the current numb er of hotel rooms, RevPAR and the ADR; “October 2015 Lodging Metrics,” L A Tourism & C onvention Board, http://www.discoverlosangeles.com/blog/october‑2015‑lodging‑metrics, 15 December 2015; Smith Travel Research, Full Service Hotels, YTD September 2015.

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

— Bud Ovrom, Executive Director, L os A ngeles Dep artment of

C onvention & Tourism Develop ment

29 “Hotel Price Index Jan‑Jun 2015,” Hotels.com, http://hpi.hotels.com/usa‑h12015/, 2015.30 “Downtown LA 2014 Year‑End Market Report,” DCBID, February 2015, citing LA Tourism.31 Smith Travel Research, Full Service Hotels, YTD September 2015.32 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.

18 O u tl o o k o n d o w nto w n L o s Angel es real estate

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 C enter 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.33 In July 2014, Marriott op ened the dual- b randed C ourty ard b y Marriott/ R esidence I nn p rop erty 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.34

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 L os A ngeles Dep artment of C onvention & Tourism Develop ment, at the Hotel Develop er F orum in January 2014. “We want 4,000 more rooms by 2020, and we think it can be done.”35

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.36

C urrent hotel sup p ly

Pro p erty R o o m s

Westin Bonaventure 1,358

JW Marriott Los Angeles L.A. LIVE* 878

Millennium Biltmore 683

Sheraton Downtown (The Bloc) 496

The L A Hotel Downtown 469

Omni Hotel L os A ngeles 453

Doub leTree b y Hilton Downtown L os A ngeles 434

Hotel Figueroa* (temporarily closed for renovations) 278

Residence Inn Los Angeles L.A. LIVE* 219

The Standard Downtown L A 207

Hilton Checkers 193

A ce Hotel Downtown L os A ngeles 182

Luxe City Center Hotel* 175

Courtyard Los Angeles L.A. LIVE* 174

Miyako Hotel 174

Ritz‑Carlton Los Angeles* 123

L os A ngeles A thletic C lub Hotel 72

Major hotel supply in DTLA 6,568

Within a ½ mile of the Convention Center 1,847 Source: Smith Travel R esearch *Properties within a half mile of the Convention Center

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

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 2014.34 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 2015.35 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 2014.36 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.

19O u tl o o k o n d o w nto w n L o s Angel es real estate

Hotel market

L odging trendsN ew develop mentsThe largest hotel p roj ect currently under construction is the new Wilshire G rand C enter hotel b eing erected on its old site at the intersection of 7th and Figueroa, just across from the FIGat7th shopping mall and a block from The Bloc development at the old Macy’s Plaza site. Managed by InterContinental Hotel Group, the new tower at the Wilshire G rand C enter is anticip ated to f eature 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 guestrooms. Ballrooms, which are typically windowless, will instead be built with glass walls that look out upon floral gardens.38

Ovrom noted that while Los Angeles could not be expected to compete with Las Vegas or Orlando, Los Angeles should be competitive with San Diego and Anaheim. Both cities have more than 9,000 rooms within walking distance of their convention centers. Los Angeles has fewer than 3,400 rooms within the same radius.

R ob ert K leinhenz , chief economist of the L os A ngeles C ounty E conomic Develop ment C orp oration, reiterated this p oint in A p ril 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.”37

While occup ancy levels are at a high in downtown L os A ngeles (77.2% year‑to‑date through September 2015) due to a shortage of hotel rooms in the market, this trend won’t last long. More than 4,000 guestrooms are currently in the supply pipeline, with over half of these guestrooms under construction.

Hotel rooms within walking distance of a city’s convention center

Pro p erty R o o m s

Moscone Center (San Francisco) 18,925

Las Vegas Convention Center 17,092

A naheim C onvention C enter 11,383

Orange County Convention Center (Orlando, FL) 10,803

Henry B. Gonzalez Convention Center (San Antonio, TX) 9,354

San Diego C onvention C enter 8,996

Ernest N. Morial Convention Center (New Orleans, LA) 8,614

Washington State Convention Center (Seattle, WA) 8,489

Georgia World Congress Center (Atlanta, GA) 8,317

Walter E. Washington Convention Center (Washington, DC) 7,600

Colorado Convention Center (Denver, CO) 6,594

George R. Brown Convention Center (Houston, TX) 5,179

Dallas C onvention C enter 4,055

Music City Center (Nashville, TN) 3,585

Los Angeles Convention Center 3,395

Phoenix Convention Center 3,042

Boston C onvention C enter 1,810

Oregon Convention Center (Portland, OR) 920 Source: “Potential Los Angeles Convention Center Development,” Convention Sports & Leisure, August 2015

Hotel pipeline (select properties)

Pro p erty R o o m s C o nstru ctio n statu s

I nterC ontinental (Wilshire Grand Center) 900 U nder construction

Hotel Indigo (Metropolis) 350 U nder construction

Hotel Clark (to be rebranded Dazzler Clark) 347 U nder construction

N oMad 250 U nder construction

F reehand Hostel 200 U nder construction

Oceanwide Plaz a Hotel 183 Pre- construction

JW Marriott expansion 755 Planning

Equinox Hotel (The Grand) 300 Planning

W (at the Luxe City Center Hotel site) 300 Planning

E mb assy Hotel/ Trinity A uditorium ( to b e reb randed Esplendor Trinity)

183 Planning

Sp ring Street Hotel 176 Planning

Hoxton Hotel 150 Planning

Prop er Hotel 148 Planning

Home2 Suites b y Hilton 143 Planning

Hotel pipeline 4,385Source: Smith Travel R esearch Pip eline R ep ort

37 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.

38 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 O u tl o o k o n d o w nto w n L o s Angel es real estate

I n addition to the new Wilshire G rand C enter hotel, another hotel, located approximately two blocks away, is currently under construction. Greenland USA’s Metropolis mixed‑use project will include a full‑service, 350‑room Hotel Indigo.

Additionally, a few blocks south on Figueroa, construction on the Oceanwide Plaz a develop ment, across f rom the L os A ngeles Convention Center and L.A. LIVE, began in March 2015. The project is anticipated to include a luxury hotel with approximately 183 guestrooms.

In July 2014, the nine‑story Luxe City Center Hotel across from L.A. LIVE was sold to a Chinese‑based company, Shenzhen Hazens Real Estate Group, for approximately $104.2 million or $585,000 per key.39 Shenzhen Hazens is planning a $700 million mixed‑use development on the site that is anticipated to include a 250‑guestroom W Hotel, 650 condominium units and 80,000 SF of retail.

A dap tive reuseA dap tive reuse p roj ects continue to add more guestrooms to the lodging pipeline. In 2014, Ace Hotel opened as a 183‑room b outique hotel on Broadway af ter a comp lete restoration and renovation. Previously, the building was known as the United Artists Theater. Similarly, two smaller hotel restoration projects that had stalled for years will likely open in 2016: Hotel Clark near Pershing Square and the Embassy Hotel/Trinity Auditorium.40 Both will b e run b y the A rgentina- b ased F ë n Hotels and will b e renamed the Dazzler Clark and Esplendor Trinity, respectively.41

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 p rop erty , and G iannini Place is b eing converted into a 250‑room hotel 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.42

A dditionally , The K or G roup acquired the old C ase Hotel, an Italian Renaissance‑style 1920’s building. The hotel will undergo a $50‑million renovation that will preserve parts of the historic building. The Kor Group will reopen the 148‑room hotel as the Downtown L.A. Proper Hotel in 2017.43

A nd across the street, at 11th Street and Broadway , a British hotel operator acquired a historic building for $30 million in December 2015. Plans are underway to convert this building to a Hoxton Hotel, a brand the company describes as the “anti‑hotel.” 44

Maj or renovationsNew properties aren’t the only story downtown. At The Bloc, formerly known as Macy’s Plaza, the Sheraton Hotel just completed a $75 milllion “revitalization” that included guestroom upgrades and a new restaurant concep t called DI STR I C T, which f eatures sustainably grown farm‑to‑table food. Several blocks north, the L.A. Hotel Downtown, located at 333 South Figueroa and to be rebranded the WH Grand Hotel, recently completed $20 million in renovations. Near LA. LIVE, Hotel Figueroa closed temporarily in November 2015 for major renovations.

“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

39 R eal C ap ital A naly tics40 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 Brigham Yen, “Fën Hotels Flag Chosen for Trinity and Clark in Downtown LA,” DTLA Rising, http://brighamyen.com/2015/11/17/fen‑hotels‑flag‑chosen‑for‑trinity‑and‑clark‑in‑downtown‑la/, 17 November 2015.42 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.

43 Roger Vincent, “148‑room Proper to join ranks of boutique hotels in downtown L.A.,” Los Angeles Times, http://www.latimes.com/business/realestate/commercial/la‑fi‑property‑report‑case‑hotel‑20150707‑story.html, 7 July 2015.44 Andrew Khouri, “British firm plans to remake historic downtown L.A. building into a hip hotel,” Los Angeles Times, http://www.latimes.com/business/la‑fi‑downtown‑hotel‑20151230‑story.html, 29 December 2015.

21O u tl o o k o n d o w nto w n L o s Angel es real estate

Market summary

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 Sp orts and E ntertainment District and its vicinity are seeing a plethora of mixed‑use megaprojects, such as Metropolis and Oceanwide Plaz a, all areas of downtown L os A ngeles 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 underway, changing a long‑neglected area into a desirable environment filled with rich examples of A rt Deco architecture and historic design elements, as well as

The comb ination of the p assing of the A dap tive R euse Ordinance, the lif ting of the helip ad restriction and the entrance of a maj or sp orts and entertainment center into downtown are luring creative enterp rises, as well as the traditional b usiness community , and increasing dewmand for hotel rooms and residential units.

C ity p lanners are ensuring new develop ments p romote a greener, more attractive, pedestrian‑friendly atmosphere. Increased public transp ortation op tions 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 C ivic C enter 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

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

Pro p erty T yp e E stim ated co m p l etio n

City Market Office, residential, retail, hotel 2016 (Phase 1)

The Bloc Hotel, office, retail 2016

Wilshire G rand C enter Hotel, office, retail 2017

Metrop olis R esidential, hotel, retail

Late 2016 or early 2017 (Phase 1) 2018 (Phase 2)

Oceanwide Plaz a Hotel, residential, retail 2018

Shenz hen Haz ens develop ment Hotel, residential, retail 2019 (Phase 1)

TBD (Phase 2)

The G rand Hotel, residential, retail TBD

Mack Urban R esidential, retail, hotel TBDSource: E Y research

22 O u tl o o k o n d o w nto w n L o s Angel es real estate

chic b outique p rop erties such as the A ce Hotel and the A cne Studios clothing store.

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

A lthough new hotel develop ments had b een f airly stagnant in recent years, 2014 welcomed the opening of the Ace Hotel on Broadway and the C ourty ard b y Marriott and R esidence I nn

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.

I n short, downtown L os A ngeles is growing up , b oth literally and figuratively. As investors take note and developments rise, downtown L os A ngeles is b ecoming a destination where p eop le “live, work and play.”

Downtown L os A ngeles 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 f or the amaz ing transf ormation happening all around us.

23O u tl o o k o n d o w nto w n L o s Angel es real estate

EY | Assurance | Tax | Transactions | Advisory

Ab o u t E YEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

E Y ref ers to the glob al organiz ation, and may ref er to one or more, of the memb er f irms of E rnst & Y oung G lob al L imited, each of which is a separate legal entity. Ernst & Young Global Limited, a U K comp any limited b y guarantee, does not p rovide services to clients. For more information about our organization, please visit ey.com.

E rnst & Y oung L L P is a client- serving memb er f irm of Ernst & Young Global Limited operating in the US.

Ab o u t E Y ’ s G l o b al R eal E state Secto rToday’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, identif y their imp lications and develop p oints of view on relevant sector issues. Ultimately, this team enables us to help you meet your goals and compete more effectively.

© 2016 Ernst & Young LLP. All Rights Reserved.

SCORE No. CE0872 CSG No. 1511‑1743453 West

ED None.

ey.co m

F or more inf ormation ab out any of these develop ments, p lease contact:

Michael J. GillmorePartner and West R eal E state, Hosp itality and Construction Market Segment Leader E rnst & Y oung L L P

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

Troy JonesPrincip al and West R egion R eal E state Sector L eader Transaction A dvisory Services E rnst & Y oung L L P

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

Sara L oSenior Manager, Transaction R eal E state Transaction A dvisory Services E rnst & Y oung L L P

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

C ontacts