City taps the commercial real estate industry to create a comprehensive redevelopment plan and policies to encourage economic growth. By Michael Gottlieb With no raw land left for development, the city of Los Angeles is trying to figure out the best use for all of the outdated, underused industrial space scattered throughout the city. Under the direction of Mayor Jim Hahn, the city recently gathered seven commercial real estate experts to help create a comprehensive industrial redevelopment plan, called the Industrial Development Policy Initiative, to promote the most effective use of its industrially zoned land. When the process is complete in early 2004, city officials hope to have enacted a set of policies that will make it more feasible for private industry to redevelop industrial property in Los Angeles, the nation's largest manufacturing market. Policies could include development and redevelopment assistance, financial incentives, streamlining entitlement processes and infrastructure improvements. "The end goal is to pass and adopt polices that will incentivize industrial development within the city of Los Angeles," said Adriana Martinez, economic development representative and manager of the industrial development policy initiative for the city of Los Angeles. Vital Statistics Before it could try to establish new policies, the city needed to get a handle on the status of its industrial zones, which represent 11 percent of the city's total land, or 43 square miles. "We make lots of decisions in the mayor's office," Jonathan Kevles, deputy mayor for economic development for Los Angeles, said. "We felt as though when it came to industrial land, we did not have the information at our fingertips to make the best decisions possible." That's where the committee comes in. It comprises: " Roberto Barragan, president of the Valley Economic Development Center " Raphael Bostic, director of the Casden Real Estate Forecast at the University of Southern California's Lusk Center for Real Estate: " Steve Cauley, associate director of the Ziman Center for Real Estate at the University of California, Los Angeles,' Anderson School " Timi Hallem, a partner in the real estate and land-use practice group of Manatt Phelps & Phillips and secretary of the Southern California chapter of the National Association of Industrial and Office Properties " Jack Kyser, chief economist at the Los Angeles Economic Development Corp. " Mitchell Menzer, a partner at O'Melveny & Myers and president of the Los Angeles Planning Commission " Stephanie Shakofsky, executive director of the California Center for Land Recycling On May 29, at an all-day, closed-door meeting, the committee members were presented with data from city departments including planning, building and safety, finance, environmental affairs, public works, water and power, sanitation, street services and transportation, according to Martinez. "It was the first time that city departments really came together and were exchanging a lot of information on something as comprehensive as this," Martinez said. The preliminary data showed considerable discrepancies between the actual use of the city's zoned industrial land and the generally accepted vacancy rates for industrial property in Los Angeles, which was at 3.91 percent as of first quarter 2003, according to CoStar Group Inc. For example, industrial employment represents one of the city's largest single sectors at 17 percent, and yet just 6.2 percent of the city's total property tax comes from industrial activity. Los Angeles Department of Water and Power reports that industrial users comprise 25 percent of its water billing and 26 percent of its power billing. But the department reports a significant number of inactive industrial accounts. Most striking is that the preliminary data, which may not include logistics space, indicates that only 20 percent to 30 percent of the city's industrial land is being used for industrial purposes. Some high-profile industrial conversions include architect Frank Gehry's move from his longtime offices in Santa Monica to a former BMW industrial plant just north of Los Angeles International Airport, and the Southern California Institute of Architecture's move to a one-quarter-mile-long former railroad freight building in downtown Los Angeles. Bostic said that the loss of industrial space in Los Angeles is proportionate to the losses seen throughout the country. The types of new uses for redeveloped industrial property are not necessarily proportionate to demand, however. "One of the things that came out of the day is [that] actually very little industrial property is being converted to housing," Bostic said. "Most of the industrial conversion is for retail uses." Keeping Your Balance Balancing the reuse of industrial land with market demand is vital as Los Angeles formulates its policies to promote the most effective use of land. Finding that balance requires an understanding of the role of manufacturing in the regional economy, according to Bostic. Then, the city must prioritize the use of its land assets accordingly. "That's what I am hoping for, clear criteria for determining what is OK to let go and what are truly assets that the city needs to protect," he said. Misperceptions over industrial space can cloud the issue. Kyser said that many people think of manufacturing as nondescript buildings with black plumes billowing out of smokestacks. He was concerned when some members of the advisory panel said that old industrial land should just be let go and redeveloped for other purposes because manufacturing is a declining sector. Kyser said that 991,000 jobs in the Southern California six-county region are manufacturing jobs. "People fret in California about poverty and the loss of the middle class," he said. "If you want to create an economic ladder, in many cases you need manufacturing, and many people don't quite understand the manufacturing that goes on here and that these are good jobs with good pay and good benefits." Balancing the demand for different types of industrial space is also a concern because of the need for logistics space due to Los Angeles' proximity to international ports. "Trade is an incredible economic engine for us but a warehouse has much less employment per acre than a manufacturing concern," Kyser said. "We need to make smart decisions in terms of job creation." Another challenge for developing a comprehensive plan for Los Angeles is the diverse regions the city encompasses. "In downtown and the south Los Angeles area, you have a situation of poor quality buildings with poor access," Barragan said. "In the [San Fernando] Valley, in most cases the buildings are newer than 20 to 30 years old. In those cases the issues become more issues of infrastructure." The Valley has seen more conversion of industrial space to other commercial uses, he added, which creates its own problems. "We came to the understanding that there are less concerns by neighborhoods about industrial-type redevelopment than the conversion of industrial space to commercial," Barragan said. "[The city] gets more complaints about high-density residential or big-box retail, which can have a greater impact on traffic." Bostic said the city is in a transitional period where some industrial space needs to be preserved and some can be converted to meet growing housing demands and related service needs of Los Angeles. "The question is to figure out which of it [should be converted] and what kind of configuration. The biggest concern is [that] the resource that is industrial land gets kind of lost to us on a basis without an overarching vision of how things are supposed to work," Bostic said. And that's where the city and the private development community can work together to come up with a feasible solution. "I think one of the most important things is for the stakeholders to understand that the mayor is making a concerted effort to address the challenge of industrial development," Martinez said. "He is taking a very realistic and practical approach to this. The developers need to be involved and he wants them to be engaged because we need to know what the market demand is instead of the city making policy without knowing what the market demand is, Martinez added.
July 2, 2003