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The Manhattanization of L.A.

As residents move into former office-only areas, retail is sure to follow

By Dakota Smith

With 1.5 million square feet of retail planned for downtown Los Angeles, there are signs that the dam in the city’s retail-starved downtown is cracking. Never known as a shopping destination — let alone a livable area — downtown Los Angeles is experiencing a residential boom expected to bring retailers to the area.

“The demand in housing is driving the demand for stuff downtown,” says Robert Pressmen, executive vice president of the national retail division of Studley, a New York City-based commercial real estate firm with an office in Los Angeles. A total of 1.5 million square feet of retail is in the planning for the area.

Not that defining the downtown is easy. The 10-square-mile stretch of city blocks, lacking a real center, is a patchwork of districts all lumped together under the “downtown” label. Among these are the financial district; the fashion district (largely wholesalers); Bunker Hill, home to the Walt Disney Concert Hall; South Park, site of the Staples Center and the coming L.A. Live, a $2.5 billion entertainment center; and the so-called Historic Core, an area teeming with discount stores. National retail in downtown is sparse, to say the least. Drugstores are hard to spot, and not a single major grocery store exists — though one is coming — to serve the area’s 30,000 residents.

“There’s a lack of shopping excitement in downtown,” said Greg Vilkin, president of Forest City Residential West, in something of an understatement. Residential West is a division of Cleveland-based Forest City Enterprises, which owns and develops both commercial and residential properties. In any case, Residential West, which has opened 750 residential units in the past 12 months in downtown Los Angeles, is one of several developers bringing retail to downtown through the ground floors of residential projects.

Some 7,000 residential units have gone up since 1999, and 7,200 units are currently under construction, with an additional 8,300 having received permits or at the planning stage, according to the Los Angeles Downtown Center Business Improvement District, a coalition of 480 property owners. All of this is expected to bring the downtown’s population up to 60,000 by 2015. In the late 1990s developers started building downtown rental units; people were drawn to the loft spaces, urban environment and easy access to the Harbor, Hollywood and Santa Monica freeways.

Moderate-to-upper-income housing has replaced those early rentals, but sources say more residents will mean more retail. “The only way for retail to come is to have a critical mass of people,” said Carol E. Schatz, president and CEO of the business improvement district.

Currently, major retail is confined largely to the area around the financial district. One of two mall-like structures there, Macy’s Plaza at Seventh and Flower streets, houses the likes of Casual Corner, Lady Foot Locker, Victoria’s Secret and Waldenbooks, as well as China Best Express, Robeks Juice and other food establishments. An outdoor mall at Seventh and Figueroa streets, called 7 + Fig, contains an Ann Taylor and a Robinsons-May along with a handful of local tenants. Foot Locker, Rite Aid, Payless ShoeSource and similar discount stores run along Broadway in the Historic Core, a walkable shopping area.

To provide residents with retail and entertainment, Residential West will bring a Latin-style restaurant featuring a wine bar, and a coffee and juice bar to Met Lofts, a 264-unit building in South Park. Additionally, 25,000 square feet of retail space (the retailers have yet to be determined) is planned for Forest City Enterprise’s Metro 417, a 277-unit refurbishment of a historical office building near the financial district. Commercial space in the two buildings goes for about $30 a square foot, standard for the area, says Vilkin. Rents in the Historic Core are lower, he says, about $20 a square foot.

For now, national retailers such as Gap or Banana Republic may not be a fit for the downtown, Vilkin says, because residents can easily drive to the popular Grove or Beverly Center retail spots. But small grocery stores, dry cleaners, shoe-repair establishments and the like are certainly needed. “In other cities, you can stop for 15 minutes on your way home, pick up cat food and milk, and you don’t have to walk for more than your block,” Vilkin said. “It doesn’t exist [here]. California is the land of the supermarket.”

Speaking of supermarkets, the first major grocery store to enter downtown Los Angeles in over 50 years is on the way. A 50,000-square-foot Ralphs is slated to open next year in Market Lofts, a 267-loft building on Ninth Street being co-developed by Lee Homes, a Marina del Ray, Calif.-based home builder; and CIM Group, a Los Angeles-based, private real estate investment firm.

In addition to the Ralphs (the last grocery store in the downtown was, ironically, a Ralphs, which left in the 1950s), the ground-floor retail space will include a Cold Stone Creamery, a Quiznos and a Coffee Bean & Tea Leaf.

As for major retailers, it will be about a decade before there is enough in place in the downtown to attract them, says Bijan Yaghoobia, a senior adviser at Sperry Van Ness, a Woodland Hills, Calif., commercial real estate advisement firm. “Everyone says, ‘We don’t want to be the first one to go in,’ ” said Yaghoobia. “That is typical of retailers. That is their name brand, and they don’t want to go in and fail.”

Growth in the downtown also hinges on public perceptions of the area’s safety. Besides the fact that much of downtown Los Angeles becomes a ghost town at night, the skid row around Third Street contains what is believed to the country’s largest concentration of homeless people, with estimates as high as 10,000, according to the Los Angeles Times.

“It’s a big issue,” said Josh Williams, a local urban planner and the editor of LACurbed.com, a real estate blog. “People don’t want to go downtown if they think they are going to be harassed. There’s a perception about downtown, and it’s not just local, it’s international.” There are no fast, easy ways to remedy the homeless situation, of course, but other negative perceptions about the downtown are changing. The city’s dismal reputation as a convention center meeting place will probably fade with the construction of a convention center hotel, a Marriott, which is part of the L.A. Live entertainment project.

The builders broke ground last fall on L.A. Live (nicknamed Times Square West). Developed by Anschutz Entertainment Group, the Los Angeles-based sports and entertainment company that owns Staples Center, the project will contain a Ritz-Carlton, some restaurants, a nightclub, a 7,100-seat Nokia Theatre and ESPN’s regional headquarters.

Though retail is unlikely to be a strong component at L.A. Live (earlier this year Tim Leiweke, AEG’s CEO and president, told the press that the project will be entertainment- rather than retail-oriented), pedestrian traffic around the Staples Center and convention areas will get a boost.

Additionally, the Grand Avenue project, a $1.8 billion project developed by The Related Cos., the real estate development, management and finance firm that built New York City’s Time Warner Center, will span three city blocks near the Walt Disney Hall on the downtown’s north side. Breaking ground later this year, the first phase (which like the Walt Disney Hall is designed by architect Frank Gehry) will contain 500 residential units, a 275-room luxury hotel, 250,000 square feet of retail, including a 45,000-square-foot specialty grocery store, a health club, a bookstore, seven restaurants and a 16-acre park.

By 2009 construction will be under way on 700,000-900,000 square feet of retail space. Given its proximity to Walt Disney Hall and the Museum of Contemporary Art, the project will help transform the area into a cultural center, says R. Webber Hudson, executive vice president of Related Urban Development. Hudson credits Gehry’s projects with helping transform downtown Los Angeles. “It’s really put L.A. on the center of the cultural map,” Hudson said.

Yaghoobia says more retail should follow the construction of these two projects, and that he has heard that area commercial rents are already rising in those locations. Still, he says, it will take more time for national retailers to come downtown.

“They have to provide the groundwork for retailers to eventually get there,” Yaghoobia said. “I think it’s eventually going to happen — the freeways are there and the income is there, so if you have the demographic, it will happen.”