1_LBBJ_April 1_SectionB_LBBJ MASTER LAYOUT 4/13/14 5:22 PM Page 1
Real Estate Quarterly INSIDE • Quarterly Overiew Of The Office, Industrial, Retail And Residential Real Estate Markets • New Creative Office Space In Downtown San Pedro • Adaptive Reuse Projects Help Revitalize Downtown Long Beach • Explaining The Changes To The Homeowners Association Civil Code
The Psychic Temple’s new façade reveals how adaptive reuse projects are transforming aging and underutilized buildings in Downtown Long Beach. (Photograph by the Business Journal’s Thomas McConville)
1_LBBJ_April 1_SectionB_LBBJ MASTER LAYOUT 4/14/14 10:42 AM Page 2
REAL ESTATE QUARTERLY 2-B Long Beach Business Journal
April 15-28, 2014
Residential And Industrial Real Estate Markets Continue Going Strong, Other Commercial Markets Remain Stable ■ By SAMANTHA MEHLINGER Staff Writer
A
Urban Village, a mixed-use development at 1081 Long Beach Blvd. in Downtown Long Beach, is scheduled for an August completion, two months ahead of schedule, according to Vice President of Coldwell Banker Commercial BLAIR WESTMAC Brian Russell, who is leasing retail space at the property. The development by AMCAL Housing features 129 market-rate apartments and 5,000 square feet of ground-floor retail space. The project is across the street from St. Mary Medical Center and has direct access to the Blue Line, connecting Long Beach to Downtown Los Angeles. (Photograph by the Business Journal’s Thomas McConville)
cross all sectors of the Long Beach real estate market, there do not appear to be any storm clouds in sight as local real estate agents report high demand for residential and industrial properties and stable demand for office and retail space. Figures recently released by the California Association of Realtors show that the number of pending home sales statewide decreased by 12 percent from February of last year to the same month this year, but Robert Kleinhenz, chief economist for the Los Angeles Economic Development Corporation, said that this doesn’t mean the market is cooling off. “It’s not necessarily because demand has slacked off. I don’t think that’s the case,” he told the Business Journal. “It is because supply continues to be a binding constraint on home sales activity.” Currently about 4.6 months of inventory of single-family homes is available in Los Angeles County, meaning that the current number of homes on the market would all be sold in 4.6 months if no other listings came onto the market, given current demand. “The long run average is more like the 7 to 7.5 month range,” Kleinhenz said, although he did say that the supply has improved slightly since last February’s figure of 3.3 months of inventory. “Discretionary sellers are not coming out in the numbers that would otherwise happen at this point in the housing cycle,” Kleinhenz said, explaining that potential home sellers are still waiting to accrue back value in their homes lost when the housing bubble burst in the Great Recession. Sales prices in the single-family market continue to increase as supply cannot meet demand. Kleinhenz said that the average sales price of homes in Los Angeles County increased 15.2 percent from February of last year to this year. In Long Beach, the increase was even greater at 27.1 percent. The demand for single-family homes has been partially driven by low interest rates, according to Eric Sussman, professor of the University of California Los Angeles’ Ziman Center For Real Estate and managing partner in Sequoia Real Estate Partners. However, now that interest rates and home prices are starting to climb, fewer homebuyers are going to be able to afford the typical 20 percent down payment needed to purchase a home at the median price range. Sussman said that he is projecting demand to cool off this year as affordability decreases, and as other factors such as changes in household formation trends reduce demand. Demand in the multi-family market, however, should increase in the coming year, Sussman predicted. “For five years now we have been seeing a decline in vacancy rates here in the Southern California region, including in Long Beach, and as that has occurred we have seen a
1_LBBJ_April 1_SectionB_LBBJ MASTER LAYOUT 4/13/14 5:22 PM Page 3
REAL ESTATE QUARTERLY April 15-28, 2014 continuous increase in apartment rental rates,” Kleinhenz said of the regional multi-family market. “I would expect to see that the rental rates are going to continue to rise, that vacancy rates are going to continue to be quite low,” he added. Another strong market characterized by low vacancy, rising prices and high demand is the South Bay industrial real estate market. Kleinhenz estimated that the vacancy rate of industrial properties in the South Bay is currently about 2.3 percent, a singledigit vacancy rate that is “among the lowest [rates] in the country,” he said. He noted that there has been year over year job growth in industries supporting the industrial market, such as trade and transportation, a sector that according to the California Employment Development Department (EDD) gained 15,900 jobs in Greater Los Angeles from February of last year to the same month this year. He also noted that the San Pedro Bay Ports are anticipating about a three percent increase in cargo volumes this year, which could also play into demand. While Los Angeles County gained 27,000 jobs in the professional and business services sector last year, according to EDD statistics, office vacancy rates in L.A. County and Long Beach remain high, Kleinhenz said. The latest figures available indicate the South Bay has a 20.9 percent vacancy rate in the fourth quarter of 2013, he said, explaining that this figure was higher than L.A. County’s 16.9 percent vacancy rate. Long Beach also continues to have a higher unemployment rate than the county – the city’s unemployment rate is currently about 9.8 percent, while L.A. County’s is 8.9 percent, Kleinhenz said. However, this is an improvement over last year’s unemployment rate of about 12 percent. Despite improving employment figures, Kleinhenz said that because the average amount of space utilized per worker is decreasing and office users are becoming increasingly more reliant on telecommuting employees, “it will be awhile before the office market recovers.” While retail trade employment for the Los Angeles County area dipped by about 5,600 jobs from January to February, that job sector had growth of about 2.7 percent year-over-year. The South Bay retail real estate market has a fairly low vacancy rate of about 4.2 percent, which closely mirrors the rates of Long Beach’s downtown and suburban markets, according to a first quarter report from CoStar Group. Local retail real estate agents told the Business Journal that the highest demand continues in highly trafficked areas, such as those along business corridors or adjacent to the waterfront.
Long Beach Office Market Remains Steady
I
n an otherwise sleepy Long Beach office market, activity spiked in April with the sale of the 383,652-square-foot Shoreline Square building at 301 E. Ocean Blvd. for $101.7 million. San Diego-based Parallel Capital Partners, Inc. purchased the 20-story Shoreline Square office building from Guggenheim Real Estate due to its location, according to the company’s CEO,
Long Beach Business Journal 3-B Matt Root. “One of the most desirable coastal markets in the region, Downtown Long Beach is undergoing a significant renaissance and transforming from a maritime-centric economy into one of Southern California’s most diversified and dynamic waterfront destinations to live, work and play,” Root said in a statement. The building is 90 percent leased. Root’s comments reflect predictions made by local office and multi-family real estate agents in the Business Journal’s 1st quarter real estate report. The brokers had anticipated that several multi-family developments underway in the downtown area would attract more commercial investments. Apart from the sale of Shoreline Square, Long Beach office market activity has
remained relatively flat following some major leases to medical users in late 2013 and early this year, according to Robert Garey, senior director at the commercial real estate firm Cushman & Wakefield. “We had a nice little upsurge in the 4th quarter due to a couple of health care companies that expanded,” he said, referring to SCAN Health Plan leasing an additional 50,000 square feet at the Kilroy Airport Center/Long Beach and Molina Healthcare adding 42,000 square feet to its lease at 1500 Hughes Way. “Since then, there has been a little leasing here and there but nothing to really change or move the needle at all,” Garey said. The health care industry continues to be the main force in Long Beach’s office market, Jeff Coburn, principal at Lee &
Associates, observed. Coburn and his colleague, Lee & Associates’ Principal Shaun McCullough, helped secure the sale of two planned office buildings in Douglas Park last year, which just broke ground last month. Long Beach Gastroenterology, currently located near Long Beach Memorial Medical Center, purchased the smaller, 38,000-square-foot building, while Laser Skin Care, currently located in Bixby Knolls, purchased the 52,000square-foot building. Locating in Douglas Park allows the medical groups to create their own Class A (high-quality) office space with easily accessible parking, Richard Lewis, managing member of developer Urbana Development, LLC, told the Business (Please Continue To Page 4)
1_LBBJ_April 1_SectionB_LBBJ MASTER LAYOUT 4/13/14 5:22 PM Page 4
REAL ESTATE QUARTERLY 4-B Long Beach Business Journal
April 15-28, 2014 office market to remain steady and perhaps gradually improve this year and to mirror job growth. “The health of the commercial real estate market is tied to employment,” Garey said. “When unemployment is on the uptick, [there] goes the demand.”
Low Sales Inventory Causes Increased Leasing Activity For Industrial Properties
A
Former Charter Communications Building Sold The former Long Beach offices and studios of Charter Communications was sold earlier this month to TriGate Capital, LLC of Dallas, and Lotus Real Estate Partners, LLC of Irvine for $6.1 million. The 83,000-square-foot building is located at 4031 Via Oro Ave. in the Freeway Business Center at the junction of the 710 and 405 freeways. The building was sold by Long Beach, LLC. Clyde Stauff of Colliers International’s Irvine office represented Lotus/TriGate in the acquisition, with Scott Becket of DTZ’s Los Angeles office representing the seller. (Photograph by the Business Journal’s Thomas McConville)
Journal. “The location is just so central,” he said of Douglas Park’s appeal. The new medical buildings are already about 65 percent leased, Coburn said. While he predicted a slight downtick in occupancy in the coming quarter, Garey said the overall trend is that the office market is getting better. He noted that some companies are expanding their footprints while others are downsizing, so the market is remaining stable. One company soon on its way out of Long Beach is HCP, Inc., a health care properties investment firm that is relocating to Orange County in May and leaving behind 37,000 square feet of office space at Kilroy Airport Center/Long Beach.
Despite the upcoming vacancy, Coburn noted that the airport area submarket in suburban Long Beach is faring better than Downtown Long Beach, with an estimated 11 to 12 percent overall vacancy. He estimated that the downtown office market has a vacancy rate of about 15.5 to 16.5 percent. Coburn also pointed out that a comparison of the yearly and quarterly office markets shows demand for office space is gradually increasing. “We’re in a stronger and better position today than we were last year or the year before,” he said. “And because of that, we’re starting to see rental rates . . . strengthen. Landlords are slightly
raising asking rates or holding firmer to the rates that they have.” Due to low interest rates, the demand to buy office space has been somewhat stronger than the demand to lease, Coburn observed. However, there isn’t enough available office space for companies looking to purchase. “We have a number of clients right now . . . [who] are looking for building sizes between 5,000 to 20,000 square feet . . . and there is not a lot of product out there,” Coburn said. Garey said that while there is little inventory, anything in the office market “priced right will sell,” thanks to attractive interest rates. Both Coburn and Garey anticipate the
lthough demand to buy industrial property in Long Beach and the South Bay is strong, a lack of inventory is causing sales activity to slow as buyers struggle to find buildings, according to local industrial real estate professionals. “The challenge is that we have very little for sale,” John Schumacher, executive vice president at CBRE, Inc. told the Business Journal. Schumacher handled the sales of properties at Pacific Pointe at Douglas Park, and recently secured the 1.1 millionsquare-foot lease of a former Boeing property to Mercedes Benz with his CRBE colleague Brian DeRevere. “If you run a survey of available buildings [that measure] 50,000 square feet and up, 98 percent of those buildings are going to be for lease only,” he explained. Brandon Carrillo, a principal at Lee & Associates who specializes in the industrial market, stated that while there is high demand to buy industrial space in Long Beach, “There is no supply.” He added that the current lack of sales activity caused by low inventory is “night and day” to early on
1_LBBJ_April 1_SectionB_LBBJ MASTER LAYOUT 4/13/14 5:22 PM Page 5
REAL ESTATE QUARTERLY April 15-28, 2014
Long Beach Business Journal 5-B
Shoreline Square Office Tower Purchased By Parallel Capital Partners The 20-story Shoreline Square office tower, the city’s first LEED Silver certified structure, was sold earlier this month for $101.7 million to San Diego-based Parallel Capital Partners Inc. Shoreline Square is located at Ocean and Long Beach Boulevards in Downtown Long Beach, across the street from the Long Beach Convention & Entertainment Center. The 383,652-square-foot office building is 90 percent leased. The building was developed by Stanley Cohen and North American Taisei Corp., with groundbreaking in August 1986. A few months later, Marubeni Real Estate Development Inc. became a partner. Shoreline Square opened two years later. (Photograph by the Business Journal’s Thomas McConville)
in the first quarter, when he had observed strong sales activity as buyers took advantage of low interest rates. While his company is still calculating first quarter market statistics, Carrillo anticipated that Lee & Associates’ industrial report might show a $2 increase in the average sale price of industrial buildings in Long Beach to about $114 per square foot. While most of the South Bay is built out, Douglas Park offers companies the chance to purchase land and build their own properties. Recently, Schumacher closed
escrow on a 3.5-acre parcel of land at Douglas Park, where Shimadzu Precision Instruments, a company specializing in analytical, medical and aerospace instruments, plans to build a 55,000 square foot building and relocate from Torrance. The lack of sales product is causing some companies to lease space instead of buy, Carrillo noted. “That’s working out for landlords because we’re getting good activity on our lease product, whereas before there wasn’t much action on those,” he (Please Continue To Page 6)
1_LBBJ_April 1_SectionB_LBBJ MASTER LAYOUT 4/13/14 5:22 PM Page 6
REAL ESTATE QUARTERLY 6-B Long Beach Business Journal said. This activity marks a shift away from last year’s market dynamics, when most activity in the local industrial market occurred in sales rather than leasing. Carrillo said lease rates might increase as this trend continues. Lance Ryan, senior vice president of marketing and leasing for Watson Land Company, which has vast industrial holdings in the South Bay, made a similar prediction. “The market is very healthy and the vacancy is so low that it stands to reason that there will be further upward pressure on rents,” he said. Overall, the industrial market in the
April 15-28, 2014 South Bay is “very tight,” Ryan said, adding that Watson Land’s properties are “virtually fully occupied.” The entire South Bay, which includes Long Beach and other cities such as Carson and Torrance, has a current vacancy rate of about 2.3 percent, according to Schumacher. Compared to the whole South Bay, Long Beach has a lower vacancy rate of 1.8 percent. The availability rate, which accounts for space that is going to become available but is not currently vacant, is 5.5 percent in the South Bay and 3.8 percent in Long Beach, Schumacher said. Overall, Long Beach is “faring better than average,” he added. The
South Bay has a total of 217 million square feet of industrial product, of which Long Beach has 19 million square feet. Certain types of buildings are experiencing more demand than others, Schumacher said. He has observed more activity in sales and leasing for higher quality, newer construction buildings. Demand for buildings in the small- to mid-size range of 40,000 square feet to 100,000 square feet range is strong, he added. “Where we have been feeling a little angst is in the lack of velocity in the larger size range between 150,000 to 400,000 square feet in both newer buildings and
second generation product,” Schumacher said. Buildings with older construction are typically less desirable because they have “insufficient characteristics” such as low ceiling clearance, old sprinkler systems and tight yard areas, he explained. Watson Land Company has been gradually tearing down old buildings in its portfolio that have these less desirable qualities and has been replacing them with new buildings with high clearances. For example, Ryan said the company has two leases expiring on buildings larger than 200,000 square feet, and has plans to rebuild them in the next four months.
New Creative Office Space Topaz Shines Bright In San Pedro ■ By TIFFANY L. RIDER Editor In an office space market with limited supply, Topaz is a gem. The newly renovated 11-story building at 222 W. 6th St. in San Pedro is making waves in the bustling community. Formerly Pacific Place, the rebranded Topaz office building was built to suit in 1990 for a defense company called Logicon. Logicon was later purchased by Northrop Grumman, which occupied the building until a year and a half ago. After Northrop left, the building was sold to Newport Beach-based Jupiter Holdings, which subsequently invested in a multimillion-dollar improvement of the 292,540-square-foot office space. “Obviously, the defense industry – Northrop Grumman and others – had a major presence here in the South Bay for years,” Edmond St. Geme, managing member of Jupiter Holdings, told the Business Journal. “Over time, that has, for a variety of reasons, dwindled, at least in terms of its presence here in the South Bay. . . . The building itself is very high quality. It had gotten a little bit tired, which is what we’ve been working on over the last 15 months or so. But the bones and the basic building are very attractive with very attractive views.” The makeover of the lobby and interior hallways as well as the addition of an entire floor of creative office space was a collaborative effort of architects, Jupiter Holdings and commercial real estate firm CBRE, Inc.
A dozen or so creative suites that range in size from 1,000 square feet to 2,500 square feet make up the 3rd floor of Topaz. “If you tour the floor, you’ll see the buildout varies from suite to suite,” St. Geme explained. “There’s one suite in particular that is what some people view as classic creative space. It has polished, exposed concrete floors. It has exposed but somewhat refined ceilings, a lot of glass and open space. Part of the idea is that it is available for leasing immediately, but also for viewing so [prospective] tenants can get an idea of the kinds of things we can do for them on either that floor or other floors.” Wireless Internet is up and running on the creative suite floor, Smith said, and that service is being expanded to the entire building. The center of that floor also features a common conference room for all tenants. “Right now it’s a box, but we’re in the process of furnishing it and installing other furniture, fixtures and equipment,” Smith said. The average cost for a creative suite is $2 per square foot. “The early adopters who come in are going to get the benefit of deals because, at this point, we’re just starting to create all of this,” Smith said. In addition to multi-level subterranean parking and an adjacent parking structure, Smith said the company plans to provide bike racks and bikes for tenants. Electric vehicle charging stations are also being installed for ecominded drivers. “Between the designers, the architects and everybody, we came up with a plan for creating the type of space that
Space at Topaz, the rebranded, renovated office building at 222 W. 6th St. in San Pedro, is now available for lease, according to David Smith, left, senior vice president of CBRE, Inc., and Ed St. Geme, managing member of the property’s ownership, Jupiter Holdings. The property, which was once home to Northrop Grumman, has undergone renovations in the entryway and main lobby. The 3rd Floor includes brand new creative office space that serves as a showroom for prospective tenants, according to St. Geme. There are several legacy tenants in the building as well, including the Port of Los Angeles. (Photographs by the Business Journal’s Thomas McConville)
creative companies would like to be in,” David Smith, senior vice president of CBRE told the Business Journal. Smith represents Jupiter Holdings as part of the leasing team for Topaz. A few legacy tenants remain in the building, including Marymount College, the Law Offices of Mariam J. Lebental, Pacific Café and offices for the Port of Los Angeles. Rockefeller Philanthropy Advisors is moving in next month to oversee the development of urban marine research company and incubator facility AltaSea, according to Smith. Just last month, CBRE began inviting brokers and potential clients to preview the property. Part of showcasing the space, which offers tremendous views of the San Pedro Bay and the new Ports O’Call Waterfront project, includes highlighting the surrounding location and amenities. When tenants walk out onto the street from the building, they are just two blocks from the waterfront. Distinct local companies, restaurants and retailers are within walking distance, as well as attractions like the U.S.S. Iowa, the Los Angeles Maritime Museum and the Warner Grand Theatre – not to mention San Pedro’s First Thursdays Art Walk, farmers’ markets, music festivals and other activities. “The community around here is terrific,” Smith said. “There’s a lot of pride in San Pedro. Everybody here wants to see the area succeed. Everybody is excited about what’s happening in the area.” Both St. Geme and Smith agreed that the idea is to attract small and large companies that represent different industries and bring to the building various levels of energy. “We’re trying to create momentum,” Smith said. “Our challenge is less to sell the building and more to sell the area and to get people here to see what San Pedro is all about.” ■
1_LBBJ_April 1_SectionB_LBBJ MASTER LAYOUT 4/13/14 5:22 PM Page 7
REAL ESTATE QUARTERLY April 15-28, 2014
Long Beach Business Journal 7-B awaiting an environmental impact report before moving forward. Downtown Long Beach also seems to be experiencing more demand for retail space, according to Senior Associate Noel Aguirre and Associate Sean Lieppman of Lee & Associates, who both specialize in retail real estate. “I would say on our properties in downtown, our activity has definitely been increasing in the past quarter,” Lieppman said. Aguirre speculated that office and residential projects underway downtown are causing interest from potential retail tenants. Several multi-family developments in the area, such as the Shoreline Gateway
towers and Urban Village, have plans for ground floor retail. While Aguirre reported that these properties are capturing interest, Russell pointed out that many retail users often prefer to move to spaces that have a successful history, which poses a challenge for new Downtown Long Beach retail spaces created by mixed-use projects. “Very few tenants want to take a risk and be the first in a project,” Russell explained. At the Gov. George Deukmejian Courthouse, retailers Subway and the Coffee Bean & Tea Leaf opened last week, activity that has already generated interest (Please Continue To Page 8)
After Metropolitan Furniture moved out of this space at 237-255 Long Beach Blvd., Lee & Associate’s Long Beach retail real estate team partnered with developer JR Van Dijs, Inc. to reposition the property for multiple tenants. Sean Lieppman, associate at Lee & Associates, estimated that construction would be completed in August. Pictured at the property are, from left, Lee & Associates’ Lieppman, Senior Associate Noel Aguirre and Associate Graham Gill. (Photograph by the Business Journal’s Thomas McConville)
Retail Market Remains Steady, Most Demand In Downtown And Shore Areas
T
he healthiest segments of the Long Beach retail market in terms of demand and occupancy continue to be close to the waterfront as well as in high traffic areas such as the traffic circle, according to local retail real estate agents. “A space that is well located . . . with strong visibility, good corners and high traffic counts – those spaces are definitely seeing leasing activity,” Adam Friedlander, senior associate specializing in retail properties for
Marcus & Millichap’s Long Beach office told the Business Journal. Friedlander and Russell of Coldwell Banker Commercial BLAIR WESTMAC agreed that Belmont Shore and Belmont Heights, as well as areas along Pacific Coast Highway such as the traffic circle are desirable to potential tenants. The corner of 2nd Street and Pacific Coast Highway continues to experience development activity, with a City National Bank branch and CVS/Pharmacy recently completed and a Lucille’s Smokehouse Bar-B-Que underway adjacent to Marina Pacifica. A planned retail project across the street called Shoppes At 2nd + PCH is
A AVAILABLE AV VAILABLE A FOR LEASE
2745-2883 Spring St., Long Beach, CA 90806
A AV VAILABLE A AVAILABLE FOR SALE
A AVAILABLE AV VAILABLE AIL FOR LEASE
3280 Industry Dr., Signal Hill, CA Approx. 20,000 sq/ft Warehouse
Pending g 2 Restaurants 1 Industrial Bldg * Buyers/Sellers Bars/Taverns ers/Sellers of Bars/T Taver averns with Wanted! Entertainment License/Live Music W anted!
ADG A D G Comm Commercial mercia l 2721 E. Spring St., Long Beach, CA 10,164 sq/ft Hangar (new sales price)
For F or Infor Information: Jon SSweeney weeney
562.243.0882 jsweeney@adgcommercial.com js weeney@adgcommercial.com License #01064469
1_LBBJ_April 1_SectionB_LBBJ MASTER LAYOUT 4/13/14 5:22 PM Page 8
REAL ESTATE QUARTERLY 8-B Long Beach Business Journal
April 15-28, 2014
Cover Story
Adaptive Reuse Projects Help Revitalize Downtown Long Beach into a mixed-use residential and retail project called Edison Lofts. Construction manager Jan van Dijs, principal of JR Van Dijs, ong Beach’s history is Inc., said that the interior demoliperhaps most apparent tion is complete and construction in Downtown Long Beach, starts this week. where views of the port serve Also since the adaptive reuse as a reminder of the city’s oriordinance passed, two similar gins and historic buildings, projects have been submitted to aged 80 years and older, puncthe city for approval, both in histuate the streets. Now, thanks toric buildings. Owner Levy in part to the city’s efforts to Affiliated brought local designer encourage developers to invest Studio One Eleven on to create in Long Beach by passing an plans for converting the Ocean adaptive reuse ordinance in Center Building at 110 W. Ocean March, many of these buildBlvd. into 84 residential units ings are being revitalized. with ground-floor retail. An In an adaptive reuse project, a unnamed developer has plans to developer takes an existing convert the Security Pacific building and converts it from National Bank at 110 N. Pine Ave. into 123 multi-famone use to another. Over the past few years, these develily units. The ground floor and basement of that buildopments have been gaining traction in Downtown Long ing are home to The Federal Bar and its entertainment Beach, with projects such as Michelle and John Molina’s venue, the Underground. Millworks project, which converted the aging Press“Particularly in the downtown when you take an Telegram and Meeker-Baker buildings into creative and obsolete building and you convert it to residential, you medical office space. A recently completed adaptive are adding more discretionary dollars to the downtown, reuse project, The Loft On Pine, converted a former which in turn supports businesses,” Bodek said of how Masonic Temple into an event space while preserving the these projects benefit the area. “And so we do see that building’s historic elements. as being important to the economy and to the overall The adaptive reuse ordinance, passed in March, transformation of the downtown.” incentivizes developers by loosening restrictive develKraig Kojian, president and CEO of Downtown Long opment standards such as parking allotments and setBeach Associates, also said that adaptive reuse projects back distance from the street. “It’s another tool in our ultimately benefit the entire downtown area. “I think toolbox to help us reduce risks for developers,” Amy what adaptive reuse does, especially with the ordinance Bodek, director of Long Beach Development Services, that we just passed, [is] it allows the types of buildings told the Business Journal. “If we can reduce risk in the that may lay vacant for a long period of time to have areas that we control, which is the regulatory process, greater use and certainly build a stronger market, both that allows [developers] to focus their dollars and their residential as well as ground-floor [retail],” he said. investments in the risk of the unknowns,” she said, Adaptive reuse has helped to breathe new life into hisexplaining unidentified obstacles could arise during toric buildings in the downtown area, including one of construction simply due to the age of the buildings with the oldest buildings in Long Beach, the Psychic Temple, which these developers work. named for the cult-like group it housed early in the 20th “The adaptive reuse ordinance is going to add value to century. The Psychic Temple, located at 244 E. a number of areas of the city, but it is going to be most Broadway, is currently under construction as it is conevident in the downtown because we have got such a verted into creative office space. Its tenant and investor, large inventory of potential buildings that could qualify,” advertising firm interTrend, is scheduled to move in durBodek said. Second District Councilmember Suja Top: Richard Lewis, controller and project manager with locally-based ing the third quarter of this year, according to Richard construction and real estate development company JR Van Dijs, checks Lowenthal, whose district encompasses much of downout the progress his company’s team is making on the Psychic Temple Lewis, project manager with developer JR Van Dijs. town, put forth the request for the city to create the ordiat 244 E. Broadway in Downtown Long Beach. Above: Interior con“The Psychic Temple [is] a great example of adaptive nance for this very reason, she told the Business Journal. struction reveals the layers and levels of the 109-year-old building, reuse,” Lowenthal said. “You have a building that was “With the adaptive reuse effort, the buildings being which is being converted into creative office space. (Photographs by the left for dead five years ago. It was really contributing to brought back to life through reuse and repurposing are Business Journal’s Thomas McConville) blight on that street,” she recalled. The building’s revitalizing and stabilizing neighborhoods and new façade was unveiled a few weeks ago, revealblocks by preserving the historic context of ing an updated frontage that pays homage to the our community and its architecture,” building’s original design. “The façade is gorLowenthal, who is an urban planner, reflected. geous,” Lewis said about the improvement. “One of my favorites is the Millworks Lewis also pointed out that adaptive reuse projproject with the Molinas as the owners. It is ects are environmentally friendly because, as he already activating the area and bringing explained, “You’re not sending the whole buildinterest in co-locating around the building,” ing into the landfill.” she continued. “You see a lot of those Bodek said that preserving downtown’s historic employees walking around on Pine buildings is also important for preserving peo[Avenue], so it has really activated Pine ple’s memories of Long Beach as well as their Avenue,” she said, adding that this is a prime own personal histories. “Long Beach has a hisexample of how adaptive reuse “brings life tory and its history is reflected in the grid of the to areas that have taken a pause.” downtown, the evolution of the buildings. You One type of conversion gaining popularity can see the era of a building just by looking at its in Downtown Long Beach is transforming architecture,” she reflected. Both she and vacant or underutilized office buildings into Lowenthal hope the Edison Theatre, just across mixed-use developments consisting of multithe street from the Psychic Temple on Broadway, family units and ground-floor retail. A project currently underway is the transformation Plans are being prepared to convert the historic 110 W. Ocean Boulevard building at Pine may be the next adaptive reuse project in Avenue and Ocean Boulevard into 84 residential units and ground floor retail. (Photograph Downtown Long Beach. ■ of City Hall East, a vacant office building, ■ By SAMANTHA MEHLINGER Staff Writer
L
by the Business Journal’s Thomas McConville)
1_LBBJ_April 1_SectionB_LBBJ MASTER LAYOUT 4/13/14 5:22 PM Page 9
REAL ESTATE QUARTERLY April 15-28, 2014 from other retail companies that could take up the remaining space, according to Russell, who manages the property’s leasing. While Russell had some difficulty garnering interest in remaining retail space at the courthouse in previous months, the day after the stores opened a national yogurt chain and a “very well regarded local restaurant owner� both expressed interest in touring the property, he said. Aguirre, Lieppman and Russell all pointed out that Bixby Knolls is also becoming a more popular retail corridor in Long Beach, with Metropolitan Furniture having moved in at 4310 Atlantic Ave. in early April. Although the company’s relocation created a vacancy in Downtown Long Beach at the corner of 3rd Street and Long Beach Boulevard, Lee & Associates is positioning the unoccupied property for multiple tenants with the help of Jan Van Dijs, a real estate developer who specializes in adaptive reuse projects. Two tenants are already lined up for the property – a local juice company and another retailer yet to be announced – demonstrating that demand in the downtown area is picking up. Although increased demand for retail exists in some areas, Russell speculated that vacancy rates remained relatively unchanged from the start of the year, when CoStar Group reported that the overall vacancy rate of the South Bay was about 4.3 percent. A recently released first quarter report from CoStar cited the vacancy rate of Downtown Long Beach retail properties at 4.2 percent, while the
VIEWS VIEWS VIEWS FROM THE 21st FLOOR
Long Beach Business Journal 9-B vacancy rate of the suburban Long Beach market was 4.6 percent. Areas of the city where retail continues to have higher vacancy rates are typically those with lower socioeconomic demographics, such as Cambodia Town and North Long Beach, Lieppman said. Rental rates, however, appear to be holding steady, Russell said, noting that even in Belmont Shore, where demand for retail is high, lease rates do not seem to be dramatically increasing. To illustrate his point, Russell noted that BJ’s Restaurant and Brewhouse on 2nd Street was recently listed for lease with rates advertised as “negotiable.â€? Sales prices, on the other hand, appear to be increasing, Russell and Friedlander both agreed. Demand to buy is strong due to low interest rates, Friedlander said. “What is helping the market is the low cost of capital. Interest rates are historically low,â€? he said. The average interest rate on a loan for a multi-tenant shopping center is about 4.5 percent, he explained. â–
Competition Drives The Local Single-Family Market Despite Inventory Gains
A
lthough the supply of single-family homes for sale in Long Beach increased from about 1.7 months of inventory at the end of last year to about three months of inventory in February, the supply is still not large enough to meet
BEAUTIFUL HARBOR PLACE TOWER ONE OF A KIND Magnificent Showplace. Over 1900 Sq Ft with Views from Every Room; Views of the Ocean, Catalina, Marina, City and the Hollywood Sign. Two Balconies and 4 Parking Spaces plus Pool, Spa, Gym, Dry Saunas and Two Lobbies. This Beautiful Building is at the Beach and in the Heart of Downtown Long Beach. Call Barbara for Private Showing. Call Barbara Irvine-Parker for showing appointment.
(562) 208-9726 barbarairvineparker4@msn.com Â’ www.barbara4realestate.com
11 Unit Apartment Building All 1BR & 2BR Units in Long Beach Below Market Rents with Great Upside Potential
18 Unit Apartment Building Los Angeles - No Rent Control 3 Floors - 1984 Construction
Steve Warshauer (562) 397-9520 George Bustamante (714) 856-7017
(Please Continue To Page 10)
“YOUR FLOOR IS OUR BABY�
Carpet Hardwood Area Rugs Tile and Stone Laminate Vinyl Shutters Blinds
562-506-0505 5865 E. Spring St., Long Beach (Located in, “The Dome�, Spring and Los Coyotes) Mon.-Fri. 9am-6pm. Sat. 9-5. Sun. 10-3
www www.FamilyFloorsLB.com .FamilyFloorsLB.com
0% financing available for all products
1_LBBJ_April 1_SectionB_LBBJ MASTER LAYOUT 4/13/14 5:22 PM Page 10
REAL ESTATE QUARTERLY 10-B Long Beach Business Journal demand. That’s leading to multiple offers and is causing homes in the desirable lowto mid-price range to sell at or above asking price, according to local real estate agents. “The single-family market in Long Beach has been extremely strong; however, we have an extreme lack of inventory,” Tammy Newland, owner of Keller Williams Realty Los Alamitos, told the Business Journal. An average inventory is enough available homes to last for six months given current demand, according to Jerry LeGris, co-manager of Berkshire Hathaway HomeServices California Properties. Although inventory has increased since last year, most of the homes that make up that additional inventory are not in the most desired price range, Geoff McIntosh, owner of Main Street Realtors in Long Beach, pointed out. “It is easing up, but the part of the inventory that really seems to be easing is the high end. In the low-end and middle market, there is still very little available,” he observed. “The median price is up 38 percent from last year and 10 percent since January,” Newland said of homes in Long Beach. The current median price of homes on the
April 15-28, 2014 market in Long Beach is $395,000, according to her estimates. Zillow.com, a real estate website, cites the current median price of homes in Long Beach as $397,500, while the median selling price is $415,000. The most desirable price range is between $300,000 and $550,000, McIntosh said. “At my office meeting yesterday we had a pretty lengthy discussion on the number of multiple offers that people are seeing on things in the $400,000, $500,000 or even low $600,000s.” Newland said that the competition driven by low inventory is causing demand to increase for higher priced homes as people struggle to find homes in the mid-range price point. LeGris has observed a similarly competitive atmosphere among Long Beach buyers. “There are a lot of buyers out there – and a lot of qualified buyers – but they can’t get a property because they are competing,” he said. As a result, homes priced below $700,000 “are selling for 100 percent of value or possibly even more,” Newland said. Even areas with higher-priced homes, which have more inventory and are less in
This three bedroom home at 2288 Stearnlee Ave., listed at $549,900, represents the price point of Long Beach homes that is most in demand and shortest in supply, according to Tammy Newland, owner of Keller Williams Realty Los Alamitos, pictured. Keller Williams’ Joe Sopo is the property’s listing agent. (Photograph by the Business Journal’s Thomas McConville)
demand, are seeing price increases. In the Belmont Shore and Belmont Heights areas, for instance, home prices have appreciated 15 percent since January, Newland said.
Pabst, Kinney & Associates Explains Changes To HOA Civil Code ■ By SAMANTHA MEHLINGER Staff Writer
L
engthy changes to the Davis-Stirling Common Interest Development Act, a portion of the California Civil Code related to homeowners associations (HOA), took effect in January of this year. Rachel Lucas, managing director of HOA services for locally-based Pabst, Kinney & Associates, Inc., explained that overall, these changes simply provide more detail upon existing laws to help reduce confusion among HOAs. “Everyone kind of panicked because it went from being about 1,300 laws to 6,000 laws, but really all that happened was that they took each one of those laws and they elaborated on them,” Lucas said of California Assembly Bill 805, which was passed in 2012 and just took effect. “I do think as a whole that the new laws actually helped a lot, because what they did is provide further clarification of items that were a gray area and were causing a lot of problems within HOAs because . . . the civil code was kind of vague,” she explained. Conflict of interest, a key area of the civil code, was clarified by stating that a member of an HOA who is involved in a votable item should not vote on that matter. Another key change is that
HOAs are now required to include an open forum period on every HOA agenda, Lucas noted. HOA agendas may also be more accessible now that the civil code clearly delineates where they must be posted, Lucas said. “[The bill] laid it out and said you have to post it in a common area, or if you have TV broadcasting you can do it that way now. That did help,” she explained. Another important revision to the civil code is an overview of everything HOAs must include in annual disclosures, which are HOA budget and policy documents. The disclosures must also be annually mailed to residents to ensure HOA members are aware of the policies. While mailing the disclosures may result in increased HOA fees due to postage and printing costs, doing so helps to ensure that residents cannot claim ignorance if they violate HOA policy, Lucas explained. The mailers also must state where agendas are posted and how to contact the HOA. Ultimately, Lucas believed that the changes to the civil code benefit HOAs. She said, “I think it improved overall the communication between the board, the homeowners and the management companies. It provided clarification rather than creating more confusion.” ■ George Pabst, president of Pabst-Kinney & Associates, Inc., a local real estate brokerage and property management firm, and Pabst Kinney’s Managing Director of Homeowners Association (HOA) Services Rachel Lucas pay a visit to one of the Long Beach HOA communities their company works with, Bixby Riviera, located at 6380 Riviera Cir. (Photograph by the Business Journal’s Thomas McConville)
The average number of days homes sit on the market varies by price range. On average, homes in Long Beach are lasting about 43 days on the market, McIntosh said. “But that’s dramatically impacted by price range,” he noted. “Things in the lower to median price ranges are [lasting] much less than 40 days on market, and things in the higher price ranges are over 40 days on market.” With competition driving up home prices, investors and flippers are backing off from the local market, Newland, LeGris and McIntosh all observed. “With so much pressure on the inventory in that sweet spot below median market, people are frequently willing to pay so much for the property as-is that there is no margin of profit for a flipper to buy it, redo it and then try and resell it,” McIntosh said.
Multi-Family Developments Flourish Downtown, Investors Still Hot To Buy
F
ollowing the passage of a city ordinance that encourages adaptive reuse development through project guidelines and loosened restrictions, plans have been submitted to the city to transform historic office buildings in Downtown Long Beach into multi-family units. Plans to convert office space at the Ocean Center building at 110 W. Ocean Blvd. and the Security Pacific National Bank Building at Pine Avenue and 1st Street into about 84 and 124 multi-family units, respectively, have been submitted to the city, according to Amy Bodek, director of Long Beach Development Services. “Those [projects] have been talked about for years but I think we are actually on the cusp of seeing them come to fruition,” Bodek said of adapting the buildings for multi-family residential use. The adaptive reuse plans for the properties are currently undergoing conceptual site plan reviews, Bodek said. The Ocean Center building, owned by Levy Affiliated, was originally proposed as an adaptive reuse project about six years ago. Studio One Eleven is on board for the building’s redesign. The developer for
1_LBBJ_April 1_SectionB_LBBJ MASTER LAYOUT 4/13/14 5:23 PM Page 11
REAL ESTATE QUARTERLY April 15-28, 2014 the Security Pacific National Bank Building property has yet to be named. Other multi-family developments continue to drive construction and planning activity in Downtown Long Beach. The Current, the first of two planned towers of the Shoreline Gateway complex at 707 E. Ocean Blvd., broke ground last month. The 17-story, 223-unit rental tower’s completion is slated for 2016, after which a second 35-story tower is to be built. Other multi-family projects underway in downtown include the adaptive reuse of City Hall East into 156 units called Edison Lofts, a 222-unit complex at 245 W. Broadway and the 129-unit Urban Village development at 1085 Long Beach Blvd. Urban Village is progressing quickly and should be completed by August rather than October, as originally planned, according to Coldwell Banker Commercial BLAIR WESTMAC Vice President Brian Russell, who is looking for retail tenants to occupy the ground floor. Investor activity continues to be strong among the existing supply of multi-family housing in Long Beach, local real estate agents observed. “I would say the Belmont Shore and Belmont Heights submarket is extremely hot right now,” Robert Stepp, owner of multi-family real estate firm Stepp Commercial, told the Business Journal. The East Village Arts District is also “really hot,” Stepp said. “East Arts has got a lot of momentum right now, and it’s an area we’re recommending a lot of investors take a look at,” he added. In terms of buildings that are appealing to buyers,
Long Beach Business Journal 11-B 1980s-built structures continue to be the most popular, Stepp said. Steve Bogoyevac, vice president of multi-family investments for Marcus & Millichap, said that buyer demand is driven by “incredibly attractive interest rates for financing multi-family properties.” He added, “It’s crazy. You can’t keep up with the number of buyers out there.” Stepp estimated that inventory of multifamily properties for sale is currently lower than at the start of the year, when an average of 45 to 60 properties were on the market. Now, he calculated that about 10 percent fewer listings are available. While Bogoyevac also observed “a lack of supply of properties to purchase,” he said inventory of multi-family properties has increased somewhat in the past 30 days. He speculated that because sale prices of multi-family properties have risen by about five percent since the start of the year, owners of those properties are more encouraged to sell. “It’s a pretty upwardly moving market still,” Bogoyevac said. The demand to buy is so high that Bogoyevac is starting to see “off-market transactions,” meaning that investors are approaching owners of unlisted buildings with offers. The vacancy rate of multi-family units in the Long Beach area remains low at about three percent, Stepp estimated. “Rents are robust,” he added, explaining that many owners are renovating their properties and “testing out the market” with increased rental rates. Bogoyevac has observed the same trend. ■
INTERNATIONAL CITY ESCROW, INC.
PATREECE COBURN Commercial Escrow Officer
Specializing In s #OMMERCIAL 4RANSACTIONS s "ULK 3ALES s !"# ,ICENSE 4RANSFER s %XCHANGES s ,EASE /PTIONS s !ND !LL 9OUR %SCROW .EEDS
INTERNATIONAL CITY ESCROW, INC.
www.icescrow.com
An Independent Escrow Corporation. Licensed by the Dept. of Business oversight
562-497-9777
5000 E. Spring St. · Suite 120 · Long Beach, Ca 90815
1_LBBJ_April 1_SectionB_LBBJ MASTER LAYOUT 4/13/14 5:23 PM Page 12