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Less Traffic On The 10?

Los Angeles

Could it be? At Bisnow's Construction & Development Summit last week, some bold predictions were made about a traffic-free 10. Read on (and stick around for the also exciting topics of land prices and permitting).

The event drew nearly 200 people to the JW Marriott at LA Live.

Sonnenblick Development chairman Bob Sonnenblick says the day the Expo Line extension opens, the eastbound 10 Freeway, which becomes bumper-to-bumper at 2pm, will be a totally different place. He also says the dissolution of California's redevelopment agencies probably cost the industry $4B; all the cities had major projects lined up with RDAs, he says.

Panattoni Development partner Mark Payne is a beneficiary of the RDA situation—he's buying a number of sites from former redevelopment agencies. That said, he notes people just don’t go in and take big risks. You need a public-private partnership to go in and clean up some of these areas. What keeps him up at night is land prices; land has doubled, and the increase has not been commensurate with rents.

SVP Brian Winley says Century West Partners is focused on Downtown LA, Koreatown, and Santa Monica for the best rents. The company has 250 units coming on line downtown, and 130 in Koreatown plus an additional 355 under construction there. The Expo Line extension to Santa Monica, where the company owns the former NORMS site, will make a big difference, he says. "Part of the problem is getting people to understand that these projects we develop actually cut down on traffic." (It's hard for people to get the message, cause they're busy sitting in traffic.)

According to Related California EVP Gino Canori, the cost of offloading all of the risk to the contractor is substantial. It goes into a guaranteed maximum price contract, where the guarantee was a fallacy. "You were always negotiating at the very end and never had anything that was guaranteed." You need to have a good contractor and good owner's rep sitting at the table, going through specifications, and interviewing subs. With the Millennials entering the multifamily market, Gino says the sector will be on a good trajectile for at least three years. (It's hard to predict after that, since Millennials have never been interested in anything for more than three years.)

President Zach Streit says Streit Lending historically focused on spec luxury residential projects in high-end markets. Two years ago, the company financed land at $150/SF to $170/SF; today, those deals are in the low- to mid-$200s. As a result, the company has gravitated toward small-lot deals in places like Panorama City. It's also started to get significant construction loan applications for one-off detached homes or subdivisions in urban, blue collar areas. (So there's hope that someone will finance the tree house we're working on?)

Executive development manager Andy Millar says Hensel Phelps is seeing a lot of CM-at-risk projects and signing pre-construction deals. The best contracting methods call for early involvement by the contractor and subcontractors, such as design-build, because "you've got your owners' ideas and you're working side-by-side with them." It also helps developers with financing when they have a solid budget number, he says.

Contrasting construction employees today with ones of the past, our moderator, Smith Currie & Hancock construction lawyer Ernie Brown, notes project managers now are tech savvy, and "she probably has her own iPad that she brings to the job site." Suspicion in the construction industry between developers and clients goes way back. Ernie recalls that when he was in-house counsel at Fluor, people from some of the Seven Sister oil companies asked: "How much much profit are you hiding in the photocopy machine?"

Bob's a big proponent of design-build because, if well documented, it takes all the construction risk off of the developer's shoulders. He says development is already hard enough: "If you can take that risk and lay it off on your contractor, it’s got to be the right way to do this thing." Andy notes Hensel Phelps is budgeting projects it first saw seven to nine years ago, though "they’ve traded who’s actually going to do ‘em a couple times."