If Adaptive Reuse In LA Follows NYC's Pattern, These Projects Will Be Very Popular In A Couple Years

With a pending expansion of the city’s adaptive reuse ordinance and a high office vacancy rate, Los Angeles looks like a good candidate for an adaptive reuse bump — something well underway in other major metros.

There are obstacles to the development type taking off but speakers at Bisnow’s Southern California Repositioning, Adaptive Reuse and Conversions Summit are optimistic that the stars will align for Los Angeles in this respect. 

Cost basis is one of the most important factors for adaptive reuse success and viability, STO Building Group Senior Vice President of Building Repositioning Brooks McDaniel told the audience at the California Market Center in Downtown LA. 

In New York, there are plenty of office properties that have reached the threshold at which they can start to make financial sense as conversion candidates. 

“I think New York City is probably a year and a half or two years ahead of LA [on adaptive reuse],” McDaniel said. 

The going rate for office building values prepandemic was $600 per SF, McDaniel said, but now there are a fair amount that are valued at $200 per SF.

“What we’ve seen is that in New York, the magic number for conversions to pencil out is a cost basis of $200 per SF or less,” he said. While that “magic number” might be different in LA, when the values hit that benchmark, the city will likely take off like New York has in the volume of these projects. 

With dramatically lowered values being almost a must-have for these projects, McDaniel said a lot of distressed assets that are changing hands are prime candidates. 

McDaniel said that most buildings can be converted and features that once intimidated developers have been proved to be surmountable. He pointed again to New York.

“What we saw two years ago is going to be where you’re at in LA right now. People are saying, ‘Oh, you can’t convert these deep floor plate office buildings, it doesn’t work, it won’t pencil, only some small portion of office buildings are convertible,’ and what we learned two years ago in New York is you can convert almost any building.”

ZGF Architects partner James Woolum echoed the sentiment.

“The reality is, I think that you can convert almost anything to almost anything, it’s just going to be a function of time … [and] money.” 

He acknowledges that money is a critical factor, especially for investors. But he pointed to a local ZGF project — the conversion of the hangar in Playa Vista made to house Howard Hughes’ Spruce Goose aircraft as it was being manufactured. The massive structure was converted into offices for Google, which the company moved into in 2018. 

“At some point, the pro forma has to work out, but I think after that, it’s just ingenuity and working with what you’ve got,” he said. 

Though it might be technically possible, developers are still on the hunt for the real gems, and for some, that means buildings that are newer and have had recent upgrades to their systems and where upgrades such as seismic are minimal. Seismic upgrades came up a number of times in both panels as a large and costly variable in the conversion process. 

In New York, he said, plenty of buildings that people had said weren’t convertible have traded hands and are being converted.  

Speaking of the venue, the California Market Center, a property built for and renovated to accommodate fashion tenants, he said, “This building doesn’t scare me a bit.” 

“If this was in New York, we would be lined up to buy this building,” he said.