By Chris Rising & Adam Lev
The real estate business lends itself to risk takers and dreamers because building something requires vision. Most developers relish in looking at a piece of raw dirt and imagining what could be built. Over the last decade, however, some developers have pivoted away from developing raw land and instead have found that redeveloping something with a history, with character and architectural relevance could offer a new canvas. Rising Realty Partners has a strong track record of restoring existing historic buildings, looking at old, empty buildings as the 21st century canvas for development. We also take pride in turning 100-year-old structures into buildings that compete for modern-day tenants.
Our latest project at 433 S. Spring, also known as The Trust Building, is one that I am extremely excited about. This is an approximately 300,000 sf building located in the Historic Core of Downtown Los Angeles. Built as the headquarters for The Title Insurance and Trust Company in 1928, this property is in the heart of Spring Street, which back then was known as the 'Wall Street of the West.' Spring Street was the place to be for business up until the '70s when businesses started moving to the suburbs and closer to the freeway systems.
After being vacant for roughly 15+ years, Rising acquired the building in June of 2016 and it is one of our biggest projects to date. Along with our partners, Lionstone Investments and Industry Partners, have made some great progress thus far that includes:
- Removing asbestos and lead paint
- Restoring historic murals
- Renovations to the historic terracotta façade
- Interior demolition
While there's still a lot of work to be done, we're very excited to open the doors to new tenants in June 2018.
Our acquisition team takes great care in underwriting risk, and when redeveloping a building that is almost 100 years old, you need to take a lot of precautions. As we anticipated, construction costs have been on the rise since our acquisition. This isn't a great surprise given all the cranes in Downtown LA. With 13,760 residential units under construction, The Intercontinental Hotel and a variety of Metro projects, clearly there were bound to be raw material and labor cost increases. In an effort to share with the real estate community, we thought we'd share some of our experience with costs.
Steel and drywall have been our biggest cost increases. We are doing a full seismic retrofit and when we are done, for insurance purposes, our SEL/SUL will be under 20. That will allow the building to be considered a Class A structure. However, to get there, the building, originally designed in the 1920's, will require a lot of steel. Morley Builders has done an excellent job of anticipating and working with our vendors but the reality is that the cost of steel has increased by a significant amount in the last year.
Our redevelopment is also highly reliant on drywall – more so than we anticipated because we are working with the City of LA historic permitting and are required to restore all ceilings in the buildings when viewed from the street. Since our original underwriting, we have seen drywall increase by a substantial amount as well. We have been privileged to work with Gensler on the redevelopment and their team has guided through the process.
We are working closely with Architectural Resources Group to not only voluntarily enter into a Mills Act Contract but to benefit and sustain the historic standard of the community. This has also provided our investment the benefit of reduced property taxes. We willingly gave up some control over the nature of the improvements but ultimately gained on the reduced property taxes.
While these costs increases are always difficult to deal with during a project, I am fortunate that our team provided a pro forma that expected cost increases and we have worked with partners to mitigate the costs and value engineer. However, the fact is that Los Angeles is a market that experiencing major increases in the cost of goods and labor. We believe that ultimately we have managed these issues, but they are a reality.
As stated earlier, we have been working closely with the LA Conservancy and Architectural Resources Group on this project. What originally started as a planning project, The Trust Building turned into a rehabilitation plan, which then became an architecture project.
Currently, we are cleaning and restoring all the existing terracotta and doing a paint analysis to bring it back to the original color of the metal. The lobby is going to be cleaned up and all of the bronze work will be brought back to its original shininess. We are also bringing in a lighting designer to install additional lights in the lobby.
As you can see in the rendering below , we will be adding additional lights to increase street visibility as well which we believe will be a game-changer for passerbys.
The Trust Building is a true testament to our team's deep passion for historic preservation. We are very excited about what the finished product will do for businesses and residences on Spring Street and for the impact it will have on the community that gets to live around it.
If you are interested in leasing space at The Trust Building, please visit thetrustbldg.com