By Lauren Herstik | New York Times
February 23, 2016
LOS ANGELES — The former prop house at 720 North Cahuenga Boulevard was once old Hollywood. Into the 1990s, it housed props from police shows like “Hill Street Blues.”
The building’s newly installed glass doors were recently opened to prospective tenants. Docler Media, based in Luxembourg, installed its technology and film production division in the 33,173-square-foot building, which has concrete floors and 30-foot bow-truss ceilings, subway tile showers, a kitchen that seems out of a Nancy Meyers movie, yoga studio and full bar.
The property is the 12th in a portfolio of so-called creative office spaces inLos Angeles from the developer Robert Herscu. They have attracted tenants like Mashable, the apparel company Outerknown and the animation studio Animal Logic. Mr. Herscu, who is chief executive of HQ Creative Office, said he expected that 720 North Cahuenga would lease quickly.
“That’s still all very important,” he said. “But if you can say there’s on-site laundry, a cool kitchen area, there’s a little dog park — that helps landlords land and attract more tenants, especially in the tech sector.”
In Los Angeles, that kind of space has been specifically positioned for more creative firms, rather than those in fields like insurance, law and finance, according to John D. Zanetos, senior vice president for brokerage services at the commercial real estate services firm CBRE in Los Angeles. But that is changing.
“Whether you’re an entertainment firm or a law firm, what we hear consistently is that companies are trying to enhance collaboration and deliver a workplace that will enhance that,” Mr. Zanetos said.
“The audience for this type of space isn’t the normal cast of characters,” he said. “It’s growing.”
Petra Durnin, CBRE’s director of research and analysis for Southern California, estimated the Los Angeles County office space market at 200 million square feet. Technology and creative tenants lease 38 percent, roughly 76 million square feet, she said.
“Going forward, another 30 million square feet of tenants will be expiring and then renewing,” Ms. Durnin said, speaking of the next five years. “From that pool we’re looking at everybody turning to some kind of creative space. Eventually all office-using tenants will be in some sort of creative.”
The city has a number of office buildings dating back to the early 1900s with the requisite exposed brick and wood-beamed ceilings. There is also a vast amount of industrial space built from the early 1900s to the 1980s, a vestige of a once-robust manufacturing economy.
“L.A. has this unique combination of historic office buildings and industrial product that’s no longer useful in the way it was originally intended,” Mr. Zanetos said.
Cory Bird, a co-producer on the television shows “Bates Motel,” “The Strain” and “Colony” at Carlton Cuse Productions, often searches for spaces like these. The company produces television shows with sometimes unpredictable schedules and changing needs. This means maintaining multiple offices.
“In our ‘Bates Motel’ building, everyone’s under one roof and there’s a real community environment,” Mr. Bird said.
That building in Sherman Oaks comes closest to fulfilling the needs of a production: a suitable writers’ room, space for casting and the capacity to handle the terabytes of digital information used in postproduction. Yet Mr. Bird still faces challenges.
“If we come in with postproduction, a lot of times we’ll have to overhaul the entire Internet setup,” he said, speaking of not-quite-enough web power. He looks forward to an influx of available space tailored to what he will need.
Ronen Olshansky is chief executive and co-founder of Cross Campus, a working-space company with two locations in Los Angeles and a third on the way. The company provides fully managed office space with amenities on a membership basis. It’s an alternative to signing a longer-term lease on an office space, something attractive to start-ups and small companies.
“If you asked us a year ago when we started Cross Campus, we would have said that’s going to work for offices of up to about 10 people,” Mr. Olshansky said. “What we’re starting to see is most of the demand coming from 20-, 40-person offices. That same value proposition still exists.”
He added, “Tenants aren’t just limited to creative companies. We’ve got financial companies, law firms, branding, design, advertising. It’s a really wide cross section.”
According to CBRE, the law firm Hueston Hennigan leased space in the PacMutual complex in downtown Los Angeles in 2015. Avery Dennison, the global packaging corporation, leased in the trendy Arts District, joining the venture capital firm Greycroft Partners after its move there from Santa Monica in 2014. CBRE itself expanded into a rehabilitated 1928 Masonic Temple in Glendale this year.
The Masonic Temple’s 37-foot ceilings, stadium staircase seating and 24-hour concierge illustrate the kind of adaptive reuse these spaces employ.
CBRE’s workplace division was a consultant on CBRE’s downtown and Masonic Temple offices.
“That group started off as 12 people; now there are over 50,” said Lewis C. Horne, who heads the firm’s Los Angeles/Orange County region. “We would not go to meet with a tenant without bringing our workplace strategy professionals.”
“It used to be a broker would go out and find space because it was in the right location,” Mr. Horne said.
“People would move in, put perimeter offices around the edge of the space,” he added. “The core would be support, and away you’d go. That’s just not what we’re doing anymore. Now there’s wellness components, this concierge idea, natural light. The line between your home and your office really blurs.”
Los Angeles comprises many smaller regions that Mr. Zanetos says have reached a “critical mass.” On the west side, Playa Vista has attracted tech, entertainment and design companies. Burbank, to the north, is home to two major studios — Warner Bros. and Disney — and the companies that do business with them. Both areas have a high concentration of tenants desiring different spaces.
“There’s an effort to bring down real estate costs,” said Eric Sussman, senior lecturer of accounting at the University of California, Los Angeles, Anderson School of Management.
“Costs of doing business here are quite high. This can reduce the amount of square footage per employee,” he said.
According to the CoreNet Global Corporate Real Estate 2020 survey of 500 corporate real estate executives, the average square footage per employee dropped to 176 square feet in 2012, from 225 square feet in 2010. It is projected to hit 151 square feet per employee in 2017 nationwide.
“You had this move to very traditional space in the ’80s, ’90s, 2000s,” Mr. Sussman said. “And now you’re getting this other stream where everything’s open and you’re sitting in people’s laps. The dogs are roaming the concrete floors.”
And tenants are willing to pay.
When the developer Rising Realty acquired the PacMutual complex in 2012 for $60 million, rent went for $2 a square foot, according to CBRE. Rising transformed the traditional office space and then sold it to Callahan Capital Properties and Ivanhoe Cambridge.
“When a developer goes in and buys a historic office building, those buildings need love. They need money,” said Mr. Zanetos of CBRE. “Elevators need to be modernized; HVAC and electrical need updates. Data is critical. Nobody can function without high-speed Internet.”
PacMutual just achieved rent of $4 a square foot.
Similarly, in the Arts District, industrial rents go for 65 cents a square foot per month triple net, meaning the tenant is responsible for taxes, insurance and maintenance. A lease was just recorded in a converted 1920s industrial building at $3 a square foot triple net.
“In L.A., these buildings that were once looked at as obsolete are now being rediscovered,” Mr. Zanetos said.
Mr. Kim of Miren observed, “It’s like ‘Field of Dreams’ — if you build it they will come.”