By Chris Coates
In recent years much attention has been focused on Downtown districts such as the Historic Core and South Park, where forward-looking developers are spending millions, or even billions, on residential, retail and entertainment projects. Now, one area that has largely been overlooked may get the designation of next hot neighborhood.
Downtown real estate observers say the Industrial District, long home to manufacturing and other businesses that keep a low profile, is being eyed for new attention-grabbing adaptive reuse projects, including housing. The result, say those involved, is that some businesses that traditionally operated in the area are looking elsewhere.
"The space for Class A [buildings] for shipping and distribution centers is really moving to the Inland Empire," said Delores Conway, director of the Casden Real Estate Economics Forecast, a study released recently by the USC Lusk Center for Real Estate. "There's too much congestion on streets Downtown and there isn't enough space."
The study called Downtown's industrial market a "hotbed of activity," with commercial and residential developers competing for land. The area currently has just a 3% vacancy rate, the study found.
The space is tight partially because developers eager to create residential projects are snapping up some of the area's 547 industrial buildings. Currently, there are seven adaptive reuse projects (the term refers to turning old commercial or office buildings into modern lofts, condos or apartments) of industrial buildings Downtown, according to Mayor James Hahn's office of economic development.
Those turning include developer Linear City's $25 million Toy Factory Lofts. The 119-unit condominium complex on Industrial Street opened last year in a renovated, 1924 building. The firm is also preparing a second development across the street, the Nabisco building, that will add 229 units when it opens in 2006. Additionally the Kor Group, based in West Los Angeles, is turning an eight-story railroad warehouse at 121 E. Sixth St. into the 103-unit Santa Fe Lofts.
As other developers look to the area, experts say existing businesses could feel a squeeze.
"It's an ongoing tension," said Jack Kyser, senior vice president and chief economist for the Los Angeles Economic Development Corporation. "There is this huge demand for industrial space and we're running out of land. In many cases, it's hard to do new development because there's this competition, because retail and residential can spend more money."
Matter of Appeal
The industrial climate is particularly affected by a shortage of Class A industrial space in the city, according to a study released last year by Hahn's Industrial Development Policy Initiative (IDPI). While the group, which Kyser served on, pointed to outdated infrastructure and the availability of land in other areas of Los Angeles County, it also detailed the flood of residential, retail and institutional adaptive reuse of old factories. The trend can take large swaths of industrial-zone properties off an already tight market.
The largest concentration of industrial buildings Downtown is east of Alameda Street, an area that Tara Devine, Hahn's economic representative for Downtown, said is not part of the area's adaptive reuse zone. It was purposely left out in an effort to discourage residential encroachment in industrial areas, said Devine.
"It was excluded for specific reasons: to not threaten our industrial zone," Devine said. The citywide adaptive reuse ordinance precludes adaptive reuse of manufacturing zones for the same reason, she said.
The IDPI did, however, identify one area in which industrial and residential are allowed to meet under the adaptive reuse ordinance: Central City East, a three-square mile, heavily industrialized district roughly bounded by Los Angeles, Third, San Pedro and Eighth streets.
With high ceilings and exposed architecture, many of the structures there are conducive to the loft-style conversions popular Downtown. The spacious warehouses and proximity to freeways and business centers make the area attractive for the next wave of residential development.
Such advantages also continue to make the area appealing for its longtime industrial users.
"Even though you have older buildings and narrow streets, it's at the center of the freeway ring. You have good distribution and you also draw from a large labor pool Downtown offers," said Kyser.
Trend or No Trend?
While some are predicting rapid change in the area, others say it's hardly a trend. Bart Pucci, senior vice president at real estate services firm CB Richard Ellis, said Downtown has long been losing industrial companies to the Inland Empire and other areas where land is cheap.
"They've been doing that forever," said Pucci, who added that many industrial companies are constantly searching for larger buildings so they can expand. "It has very little to do with residential."
In fact, Pucci said retail and other uses have made a bigger dent on industrial properties than residential conversions. For example, the 560,000-square-foot Los Angeles Fashion Center, a mall that will offer 258 for-purchase spaces for garment showrooms when complete in 2006, is replacing a 120,000-square-foot factory at 14th and San Pedro streets.
The plot became available when Keystone Engineering's lease ran out in March 2003. The company left Downtown for Riverside.
While Pucci questions the effect of residential development on the industrial sector, he did point to a far simpler and perhaps beneficial outcome. "It helps boost pricing for land value just because you have demand for residential," he said.
In fact, Conway predicts that a decrease in industrial outfits will boost the area's allure to investors.
"If the warehouses aren't going to be down there diverting all those huge tractor trailers, then that actually is removing some of the congestion."
But it won't happen overnight, Conway said.
"It's a gradual change," she said. "I think it's a tribute to Downtown that people want to live Downtown."