Overbuilding of office buildings and virtually every other form of real estate is making urban redevelopment--already a difficult task--even more complicated as the 1990s approach.
This was one of the messages at a Feb. 13 seminar on "The Art of Deal Making" as it applies to redevelopment. The seminar, at the Sheraton Grande Hotel, was conducted by Keyser Marston Associates Inc., a San Francisco-based real estate consulting firm with offices in Los Angeles and Carlsbad.
Michael Conlon, a former head of the Long Beach Redevelopment Agency now working for Keyser Marston, told the more than 50 persons attending the session that there is about a 20% vacancy rate nationally for office and other space. This is high historically, he added, but will get even higher as an additional 175 million square feet of space opens this year.
This "tremendous oversupply" of buildings will be absorbed very slowly, much like the 1970-72 period when real estate was in one of its recessions.
Because of this oversupply, redevelopment officials must "really get to know your market, your financing, your windows of opportunity," Conlon added. These "windows of opportunity" are opening--and closing--at a quick pace, so redevelopment agencies must move fast to take advantage of them.
He said that location will become even more important in any market marked by an excess of product, adding that in many cities, the suburban markets are even more overbuilt than downtown ones.
"In Los Angeles, there are some opportunities for retail and there is good demand for industrial space in the traditional manufacturing district of the city," Conlon said. Types of real estate that are overbuilt here include office space, research-and-development buildings and hotels.
Preparing for Changes
Be prepared to make many changes from the time the project is proposed to the time the construction begins, advised Gerald Trimble, executive vice president of San Diego's Centre City Development Corp.
Using San Diego's Horton Plaza mixed-use shopping/retail/hotel project as an example, Trimble showed a slide illustrating the metamorphosis of the project from a traditional downtown "shopping fortress" when it was proposed in the 1970s, to the decidedly different project that opened last summer.
Trimble said that these changes indicate that the renegotiation process is probably more important than the original negotiations: "I don't believe I've seen a deal that hasn't been renegotiated," he added.
Stanley Moore, president of Overton, Moore & Associates Inc., Carson, said that redevelopment agencies should consider the kinds of projects a developer has built before concluding the deal. Most important, he advised, try not to choose a developer who is eager to gain experience in a new kind of project--at the agency's expense.
He advised developers to spend time and money on models and graphics, since a professional scale model makes a project much easier to visualize than reams of printed material.
Richard L. Botti, co-manager of the Los Angeles office of Keyser Marston and an architect by training, said that phased projects should be developed so that each phase will work on its own, not depending on future phases for success.
He added that increased density is not necessarily the answer to projects, especially residential ones where there is often great resistance to very high density.
Susan Shick, deputy director of the Glendale Redevelopment Agency, illustrated the complexities of deal making and the need for a redevelopment plan with a summary of a 92,000-square-foot parcel of land adjacent to the Ventura Freeway at the southwest corner of Brand Boulevard and Arden Avenue.
Adjacent to the parcel is a high-rise office complex developed in 1979 by Allstate Insurance Co. The firm wanted to build a 15-story building on the parcel, but the redevelopment agency voted to let a local developer build a retail project on the site.
"We did this without completing our plan," Shick conceded, admitting that choosing a local developer was a popular decision in Glendale, an extremely conservative city. "When we learned that the retail village would require a $4-million subsidy, we decided that retail uses were best suited to the area south of the Ventura Freeway."
Luckily for the city, she added, Allstate was still interested: The company submitted a proposal to build a 285,000-square-foot office building with three levels of underground parking and a large landscaped urban plaza integrated with the existing development.