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‘Looking Ahead, It’s Going To Be Just As Challenging.’ DTLA Developers Still Struggling With Supply Chain Woes

As downtown LA developers and builders attempt to overcome the supply chain nightmares of the first two years of the pandemic, uncertainty in the market remains. 

“We’ve definitely had some nail-biters over the past year,” Brookfield Properties Senior Vice President of Development Beatrice Hsu said. 

Allen Matkins' Michael Kostecka, Silverstein Properties’ Bill Dacunto, Related Cos.’ Rick Vogel, Brookfield Properties’ Beatrice Hsu, PNG Builders’ Picasso Bhowmik and Carpenters/ Contractors Cooperation Committee’s David Kersh

Brookfield is building a tower next to its 7th+Fig shopping center in Downtown that is expected to top out this year. 

Hsu told the audience at Bisnow's Downtown LA’s Comeback event that those challenges are largely behind the company. Now, she is most worried about material costs. 

The difference between cost estimates today and nine months ago, Hsu said, is “eye-opening and eye-popping.” 

Q4 2021 report from construction consultants Rider Levett Bucknall found that LA's construction costs had risen 6.9% from October 2020 to October 2021. That put LA's increase above the 5.6% increase seen in San Francisco, but well below the increases seen in Seattle and D.C. — 10% and 9.1%, respectively.  

“Certain materials have been extremely volatile, like the lumber and the steel,” Hsu said. “I think there's also a certain amount of pricing-in the uncertainty, and that's going to be sort of the risk factor here, is that people are not sure. They experienced a lot of confusion and brokenness in the logistics chain” over the last two years.

The lingering uncertainty is impacting cost estimates for new development projects, which will have an effect on the number of projects that take off over the next six months to a year, Hsu said. 

“I think looking ahead, it's going to be just as challenging,” PNG Builders Vice President Picasso Bhowmik said. “Looking back, if someone asked me, when you see the volatility calming down a bit, our answer was probably 2025. But today, the next few weeks, the next few months — we don't know for certain what that's going to do to our business.” 

Silverstein Properties Head of Operations Bill Dacunto expressed wariness about ordering things that need to be shipped from overseas. 

“You should probably try to order materials that come from the U.S. if you possibly can, because if it’s going on a ship, who knows when you're going to get it?” Dacunto said. Silverstein, which bought the U.S. Bank Tower in Downtown’s Financial District in 2020 has been at work on a $60M makeover of the 73-story tower since last year.

Related Cos. Senior Vice President Rick Vogel said his company happened to do just that for some of the curved glass needed on The Grand, the Frank Gehry-designed mixed-use project on Bunker Hill that the company is building now. 

Danielian Associates' Daniel Gehman, Kennedy Wilson Brokerage's Justin Weiss, Lincoln Property Co.’s Meredith Kovach, WeWork’s Matt Osborn and CIM Group’s Jonathan Tao

“People thought we were crazy, that they would be more expensive, that [the local fabricator] wouldn’t have the capacity,” Vogel said. 

The roughly 200 attendees at the Downtown LA’s Comeback event cheered as Vogel encouraged the audience to support area fabricators and workers by buying materials locally. 

Bhowmik, Hsu, Dacunto and Vogel were joined on the panel by Carpenters/ Contractors Cooperation Committee Executive Director David Kersh and moderator Michael Kostecka, a partner at Allen Matkins.