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Slow Approvals, Labor Shortages, Low Foot Traffic Still Hurdles For LA CRE

Though Los Angeles is more than a year and a half out from that first month of the pandemic shutdown in 2020, the pandemic is still very much affecting the way construction, development and leasing happen in the city. 

Allen Matkins' Alain R'Bibo, Integrated Capital Management's Sean Cunningham, Karney Properties' Aliza Karney Guren and The Ratkovich Co.'s Brian Saenger

There is still a lot of uncertainty in the market for established and in-progress projects, whether from shortages of materials or workers, or the stretched timeline for needed approvals and permits due to city workers being remote, or the still unanswered question of whether workers will return to Downtown, executives speaking at Bisnow’s Los Angeles State of the Market event said Tuesday.

Karney Properties, once an industrial owner that has since moved into creative office as well, is rehabbing and converting a former industrial building in Culver City into creative office space, and the entitlement process took double or even triple the time it usually would have, Karney Properties CEO Aliza Karney Guren said.

With land and building costs very high and the time it takes to build slowing, that, in a way, changes the economics of the business, Karney Guren said. 

“We're very fortunate that we're a family business and we don't have a lot of outside money that wants quarterly returns,” Karney Guren said. “But if you do want quarterly returns, God help you.”

Sean Cunningham, the chief financial officer of private equity firm Integrated Capital Management, said that labor shortages, too, are complicating timelines and budgets for projects that his company is involved in. A shortage of nonunion subcontractors has forced the project sponsor to look for more workers and reach out to union laborers, which Cunningham noted are more expensive. 

“So now there’s a cost overrun that completely blindsided us and that we’re going to have to absorb,” Cunningham said. 

In Downtown Los Angeles, the coronavirus pandemic’s impact on the flow of office workers to the city’s core is being acutely felt by retailers, The Ratkovich Co. CEO Brian Saenger said. The latest numbers from keyless entry company Kastle Systems estimate office occupancy in the LA metro area was just over 31% in the week ending on Oct. 4.

In his role at the LA-based development and property management firm, Saenger oversees a number of retail hubs, including The Bloc in Downtown LA and the under-construction West Harbor project replacing the Ports O’ Call Village in San Pedro

In Downtown, Saenger saw the survival of businesses that pivoted and embraced the takeout concept, or that had a strong base of Downtown residents as customers. Those businesses have largely kept their doors open, he said, but many retailers have not. 

“In the CBD, if you’re really relying on 500,000 descending on Downtown for their commute during a pandemic, you’re not going to have much luck.”