By Tyson Strutzenberg, senior vice president of asset management and development, and Marc Gittleman, senior vice president of third-party management solutions, Rising Realty Partners
NAIOP Development Magazine | Winter 2014
When Rising Realty Partners purchased the historic PacMutual Campus, a 425,000-square-foot beaux arts campus of three interconnected office buildings in downtown Los Angeles, in April 2012, it was a tired structure suffering from years of neglect. Once a jewel of downtown LA and host to many prominent citizens, from Laurel and Hardy to Richard Nixon (long before he became president), the aging complex had faded into obscurity.
Although the PacMutual Campus (PacMutual) offered some of the lowest rental rates in the booming downtown, its occupancy rate hovered around 50 percent. The traditional office layout found throughout the building, punctuated by many suites featuring a dated, 1980s law firm look, simply was not working. Clearly, something needed to change.
Rising Realty Partners (RRP) had a new vision for PacMutual, a local landmark that was designated City of Los Angeles Historic-Cultural Monument No. 398 in 1982. The company saw tremendous potential within PacMutual’s faded yet still ornate walls, but recognized that it had to do something dramatic to revitalize the iconic property. Its plan was to repurpose all three buildings with a new concept that the company calls “lifestyle office.” Lifestyle office space is similar to creative office space, with one important difference: an even greater focus on comfort. Since many companies today encourage workers to spend many hours on the job, lifestyle office has at its core a creative environment with many of the amenities and comforts of home.
The results, following PacMutual’s repositioning to lifestyle office, have exceeded even the company’s lofty expectations. PacMutual has become one of the hottest buildings in one of the hottest real estate markets in America. New companies, including media, e-commerce and technology companies never before seen in downtown LA have flocked to PacMutual. Two popular restaurants, Tender Greens and Le Pain Quotidien, have opened in a recently restored courtyard; Earthbar, which features healthy smoothies and packaged foods, has opened up along Sixth Street; and a wine bar is expected to open soon. Most importantly, the campus’s occupancy rate has soared to more than 90 percent and rental rates have more than doubled.
The Los Angeles Times described the change as follows: “In a sign that the definition of prime office space is undergoing a dramatic shift, an old downtown Los Angeles office complex — once considered second rate — is now outperforming many of its newer, glitzier competitors.”
How did the development team facilitate this dramatic change? The story begins with the structure itself.
PacMutual has a rich history and strong bones. While previous owners saw its advanced age as a liability, RRP saw it as an asset.
Originally constructed in 1908, with additions in 1921 and 1926, PacMutual was the first financial building in what is now known as downtown LA’s financial district. Home to the Pacific Mutual Life Insurance Co. until 1979, the complex also was occupied by notable tenants such as California Senator Samuel Hayakawa, comedy duo Laurel and Hardy, and the law office of future U.S. President Richard Nixon. In addition, PacMutual became a popular filming site for movies and television shows: Angelina Jolie jumped off its roof in “Mr. and Mrs. Smith” and Showtime’s “House of Lies” shoots scenes inside and outside the buildings. PacMutual has even appeared on “Star Trek.”
When its first addition was constructed in 1921, the two 12-story towers required what was at that time the single largest order of terra cotta ever placed on the West Coast to complete their facades. The campus interiors were flush with marble from Italy and Alabama, a material rarely found in office buildings at the time. Unfortunately, previous owners had carpeted over much of the marble and plastered over many of the windows and other building features that let in natural light.
RRP recognized that to reposition the campus as lifestyle office space, it would need to make significant changes to PacMutual’s interior and exterior. The owner removed plaster from exterior walls and increased the size of open floor plates by collapsing corridors. That change had an added benefit: it increased the campus square footage from 425,000 to 460,000 square feet.
RRP discovered the buildings’ beautiful marble flooring when the company pulled up carpeting during its due diligence process. The development team decided to use the original marble floors as a trendy base, and worked hard to refurbish the buildings’ original details. RRP also scraped plaster off interior walls to expose brick surfaces, creating a cool, urban feel in the building that is more typically found in places like SoHo or San Francisco than in Los Angeles.
RRP worked with its largest new tenant, e-commerce fashion company Nasty Gal, to execute a unique and creative vision for its space. The team eliminated walls and reconfigured several floors, which resulted in a several-story-tall “cathedral” that serves as the centerpiece of the firm’s 60,000-square-foot suite.
To make the entire office experience feel like a second home to workers, RRP built out “lifestyle layout” kitchens in new suites, which include dining areas that also can function as work areas. Other office spaces, furnished with couches and televisions, feel more like living rooms than typical office conference rooms. Believing that office space should not “stress out” employees, RRP provided more natural lighting and created open and collaborative workspaces that help facilitate impromptu meetings. But reducing stress also meant creating opportunities for privacy, with dedicated telephone and conference rooms.
The company also altered the campus exterior. Most dramatically, RRP bulldozed a one-story structure hosting a Verizon store that had buffered two of PacMutual’s buildings. In its place, RRP created an outdoor dining courtyard that now houses the complex’s two restaurants.
Creating lifestyle office space also involves providing amenities that can replicate almost anything office workers can find in their homes, either within the building or in the surrounding neighborhood. This includes restaurants, cafes and other venues that serve breakfast, lunch, snacks and dinner. Even access to nightlife matters, as workers are spending ever longer hours in the office.
Fitness options also are necessary. While PacMutual does not currently have a gym, Equinox, 24 Hour Fitness and Gold’s Gym facilities all are within walking distance. A walkable neighborhood also helps workers stay active and fit. Making the campus “pet friendly” is yet another way to ensure that tenants have the “at home” feel of lifestyle office space. PacMutual’s lease terms allow tenants to bring certain pets to the building, under certain conditions. (See “The Dog Clause.”) It’s not uncommon to encounter a dog in an elevator or see dog friends greeting each other in the hallway.
RRP understands that to attract high-tech tenants, a building must provide the latest in technological amenities. Media companies, particularly those focused on video production, need to be able to edit and send massive files to their clients via the Internet. This is only possible with the highest-speed fiber optic cable, which RRP had installed.
Wi-Fi service is imperative. As workers shift from desktop computers to laptops and tablets, they must have the ability to stay mobile. By providing high-speed Wi-Fi capabilities at the property — and extending that service beyond the property’s borders, to a neighboring park and other public areas — PacMutual is helping tenants to maximize available space and take their meetings outside of the four walls of their offices.
Sustainability and Beyond
The millennial generation is also the greenest generation. Younger people are committed to using less energy and water, and to using alternative forms of transportation.
PacMutual is uniquely situated near a massive transportation hub, the 7th Street/Metro Center Station, which offers access to four distinct metro rail lines. Office tenants do not need an automobile to get to the building, and many workers take public transit. In fact, the majority of building tenants (63 percent) travel to work using an alternative form of transportation such as walking, biking, public transportation or carpooling.
The campus is now the oldest building and the only historic building in Southern California to garner LEED E-B (Existing Building) Platinum certification, the highest attainable level. RRP is continuing its sustainability efforts at PacMutual. To increase its green footprint, RRP is converting unused space on the campus’ east side into a green space by installing a pocket park and an 80-foot-tall LiveWall green wall system. This will be the tallest living wall of its kind in downtown Los Angeles and one of the largest in California.
One clear indication of the repositioning’s success is the fact that RRP has signed more than 50 new leases. Tenants include online retailers, fashion companies, professional firms, video game makers, entertainment companies like visual effects firm Magnopus and the nonprofit Los Angeles Conservancy.
The Future of Lifestyle Office
With the success of PacMutual, RRP has dedicated itself to repositioning other buildings with similar potential. The firm already has transformed a 60,000-square-foot, three-building historic complex in Old Pasadena that was only about 50 percent leased when RRP partnered with technology entrepreneur David Sacks to purchase the complex in 2013. RRP and Sacks then worked with 5x5 Telecom to install fiber optic cable, giving tenants access to the highest-speed Internet service available. Prospective tenants have responded; RRP currently is building out the second location of Cross Campus, Los Angeles’ largest co-working space, and has boosted occupancy at the complex to almost 100 percent.
Rising Realty’s principals understand that the lifestyle office concept will not work for every building in every location today. As the workforce grows ever younger, however, tenant demand for these amenities will continue to accelerate.
The Dog Clause
PacMutual’s leases include a “Dog Policy” section, which specifies under what conditions tenants may bring their dogs into the building, as well as the tenants’ and landlord’s responsibilities. These conditions include the following (paraphrased from the lease):
- Tenant shall be permitted, during the term of the lease, to bring fully domesticated and trained dogs, kept by Tenant’s employees as pets, into the premises, on the following terms and conditions:
- All dogs shall be strictly controlled at all times so as not to foul, damage or otherwise mar any part of the building and/or the project (including the premises) or cause any loud noise whether through barking, growling or otherwise.
- All dogs shall be brought into the building through the loading bay and freight elevator only.
- All dogs shall remain in the premises and not wander throughout the building and/or the project or otherwise be left unattended.
- While outside the premises (i.e., in any common areas of the building and/or the project), all dogs shall be kept on leashes.
- Upon Landlord’s request, Tenant shall provide landlord with evidence of all current vaccinations for dogs having access to the premises and the building.
- Tenant shall be responsible for any additional cleaning costs and all other costs that may arise from the dogs’ presence in the building and/or the project.
- Tenant shall be liable for, and agrees to indemnify and hold Landlord harmless from any and all claims arising from any and all acts (including but not limited to biting and causing bodily injury to or damage to the property of another tenant, subtenant, occupant or employee of Landlord).
- If Landlord receives complaints from other tenants regarding the dogs’ activities, noise level or allergic reactions suffered as the result of the presence of any dog, and such complaints are not remedied by Tenant to Landlord’s reasonable satisfaction after five days following Landlord’s delivery of written notice, Landlord may revoke Tenant’s rights under this Section of the Lease.