By Ryan Vaillancourt | Downtown News
DOWNTOWN LOS ANGELES - In 2010, with the economy reeling, weary Downtown business groups looking for market prognostications turned to real estate veteran Nelson Rising.
And why not? Rising’s sterling resume — partner in Maguire Partners, a key driver of the 1980s Downtown office boom; executive at major development firm Catellus; chair of the Federal Reserve in San Francisco; key player in the Downtown Strategic Plan and the redevelopment of Pershing Square — uniquely qualified him to opine on local economic issues.
So Rising offered an off-the-cuff prediction that he would repeat at several Downtown-oriented business panels: “It won’t be heaven in 2011,” he said. “But I think it’ll be very keen in 2013.”
Now, Rising is making a serious bet that his rhyming remark was prophecy. Seventeen months after resigning as CEO of MPG Office Trust, he has launched a new real estate venture. Rising Realty Partners, which includes his eldest son Christopher, will focus on buying office properties in San Diego, Orange County, Los Angeles and the Bay Area and industrial sites in the Inland Empire.
The seeds for the new venture were actually sewn in 2008. That’s when Rising, now 70, decided to partner with his son Christopher, 42, a former Cushman and Wakefield director and, since 2003, the owner of his own small real estate company. Their decision to work together came at a low point in the recession, but they assumed they would have opportunities to buy distressed and potentially undervalued properties.
“We were out looking for deals to buy but there was no capital,” Nelson Rising said. “Everybody was shell shocked.”
With no investors to back a new firm, Rising instead cautiously accepted an offer to come on as CEO of Maguire Partners successor MPG Office Trust — he declined at first — shortly after the firm forced out founder Robert F. Maguire. Rising took Christopher with him and during two years at MPG the firm shed about $1.5 billion in debt. However, the relationship ended abruptly in 2010. Rising said he wanted MPG to raise equity, but the board was unwilling to dilute the value of existing shares.
By the time Rising departed (Christopher left as well), the economy had changed dramatically. Capital was available again, Rising said, so the father/son team rebooted their effort to create Rising Realty Partners.
Two weeks ago the company acquired its first property, paying $60 million for the Pacific Center, a stately but somewhat faded three-building office complex on Sixth Street between Grand Avenue and Olive Street. The property is anchored by a 12-story Beaux Arts edifice at 523 W. Sixth St. that was developed in 1921 by Pacific Mutual Life Insurance.
The new company will strive to identify properties where they believe they can add value through careful renovations. In something of a twist for the elder Rising, who built his career on steel and glass office skyscrapers, the new firm is starting with a smaller, historic structure that is 33% vacant. It’s not the kind of digs that would ever lure a Latham and Watkins or an Ernst & Young. But the Risings are not chasing established corporate behemoths.
“The question is, how can you buy a building that can drive rental rates?” said Christopher Rising.
In the case of the Pacific Center, the answer lies in an emerging demand in the Downtown market for what is known as creative office space. More and more, real estate experts say, tenants are seeking offices where communal territory is plentiful, where long, shared desks replace cubicle grids and where carpet and drywall are ripped out to reveal raw finishes.
It’s an aesthetic that historically appealed to start-ups, technology companies and entertainment firms — in other words, the kinds of tenants that have generally eschewed Downtown and flocked to Westside markets like Santa Monica and Culver City.
The problem is, Westside space is dwindling.
“The Westside has dominated, but it’s basically a 5% vacancy in this creative office niche,” said Jim Jacobsen, the founder of Industry Partners, which has specialized in creative office space on the Westside since the mid-1990s and is now handling leasing at the Pacific Center. The firm is also opening up an office in the building.
“When you get to 5%, there’s just dregs of space that’s available,” Jacobsen said. “You’re a little bit like the shop that has the perfect thing to sell but you don’t have any inventory.”
If You Build It
The creative office space aesthetic is not unlike that of residential lofts. Interior brick walls, concrete floors and open, undivided spaces are prized. Carpet is anathema. Dropped ceilings are a potential deal breaker.
The Pacific Center would have passed all the creative office space tests in its heyday, though in recent decades previous owners have seemed intent on masking the building’s historic fabric in a veneer of sterile office habitat. Layers of drywall hid an abundance of original brick. Above countless sheets of Styrofoam ceiling panels are a few more feet of air space.
“They’ve driven out a lot of the spirit in here,” Christopher Rising said. “One of the things I hate is how when you’re in this building now, you feel like you have to whisper.”
To revive the spirit, the Risings have launched a $34 million renovation that will demolish drywall, rip up carpet and raise the ceilings. They need to fill more than 100,000 square feet of available space in the 395,000-square-foot complex. They hope to attract more creative tenants like Nasty Gal, an online women’s fashion retailer now in the building, and architecture firm NBBJ, which occupies a 9,000-square-foot space.
The plans also call for outdoor seating for restaurants, including the recently renovated Water Grill, and future tenants they hope will take space along Olive Street.
Corporate to Creative
Rising Realty Partners is not the only entity diving into the creative office waters. L&R Group, which is primarily an owner of parking lots, is converting its five-story commercial building at 845 S. Figueroa St. into creative space.
Evoq Properties, the reincarnated Meruelo Maddux firm, recently announced plans to position the long vacant Desmond Building in South Park as a creative office complex. Maguire, Rising’s former partner, is in the early stage of planning a creative office complex on Olympic Boulevard on a site owned by Anschutz Entertainment Group.
“That’s the future of Downtown,” said Steve Marcussen, executive director of Cushman & Wakefield.
With the opening in 2010 of the J.W. Marriott/Ritz-Carlton convention center hotel and the wave of hotel investment that followed, the area is evolving into an economy tied more strongly to tourism and hospitality. That trend could get a major boost if AEG’s proposed NFL stadium and expanded convention center happens, as it would attract more creative office users, Marcussen said. More events mean more event planners and more advertising agencies. More travel means more travel consultants. All will need office space.
“If we’re going to evolve from being a corporate center to a hospitality and tourism and entertainment center, all those kinds of office spaces are coming,” Marcussen said. “Nelson’s just smart and he sees it coming.”
Rising Realty Partners, however, appears poised to grow into something larger than a creative office specialist. While the Risings would not discuss specific acquisition targets, or whether they’re negotiating for other Downtown assets, they said they are looking into properties in Orange County and the Bay Area. Nelson Rising said the company is also eyeing some of MPG Property Trust’s distressed holdings. MPG has defaulted on loans for several office buildings in Orange County and Downtown.
Asked to project how big the new company — currently run by an eight-person team — will grow, Rising hesitated to make any big promises.
“We’re going to take it one deal at a time,” he said. “But remember, it’s going to be keen in 2013.”
Contact Ryan Vaillancourt at firstname.lastname@example.org.
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