pershing square building to become center for nightlife
Adding to the recent announcement of Hotel Clark’s planned comeback on the block of Hill Street north of 5th, owners of the historic Pershing Square Building are in the process of making major changes to the 13-story, Italianate landmark next door.
Facade improvements and interior demolition have been ongoing for a while, but JMF Development recently secured $21 million from Far East National Bank and Israel Discount Bank to finance construction of creative office spaces on floors 2-13 and three new entertainment venues on the property — a rooftop lounge, ground-level restaurant, and basement bar.
Possibly even more exciting is the news that work has already begun to make it all a reality.
A crane brought on site last week has been busy lifting steel beams to frame two new floors above the roof, creating 8,700 square feet of entertainment space and an observation deck over three separate levels.
Available renderings show an indoor/outdoor venue designed to match the building’s original architecture with dramatic archways, elaborate Italian detailing and glass balconies.
At street level an 8,500 square-foot upscale restaurant will replace current retail tenants which include Subway and Hill Street Pizza. Work to repurpose the space will create a mezzanine level, high ceilings for the dining room, and open-air seating areas on both 5th and Hill streets.
Beneath it all, accessible by a grand staircase, a speakeasy-style underground bar will fill the old basement once housing a coffee shop. Early descriptions for the space call for a dance floor, multiple bars and possible food preparation area. Together with a new mezzanine and subterranean nooks, the venue would span approximately 8,500 square feet over three levels.
Together, The Venues @ 448 South Hill as they’re being marketed, would bring over 25,500 square-feet of nightlife-oriented space to the Historic Core — rivaled only by the Versus LA club soon to open at the former Los Angeles Stock Exchange on Spring Street.
Though these three places could easily be a couple years in the making, efforts are already underway to lure nightclub operators and restaurateurs from around the world. With Vegas-caliber names sniffing around next door, Pershing Square may not need Park Fifth to give it new life after all.
Thanks to reader Dennis Smith for the construction photograph!
Rooftop lounge rendering
Rooftop lounge rendering
Rooftop construction progress as of September 16, 2008
22 comments
Location, location, location. For whatever – office, bar, restaurant – you can’t beat the location: Metro station, Pershing Square, B’way theaters, Financial District, and the Music Center up the hill. And about that hill…still wondering what’s up (or what’s not going anywhere) with Angels Flight.
So many buildings downtown claim that an upscale restaurant will rent their 6000+ ground floor. It’s a nice idea, and in 5-10 years may actually happen, but it’s hardly a magic bullet that these landlords can simply wish into existence.
I’d believe that claim with a signed lease. Even with that, many of these things fall through.
Despite this, however, I am glad they are doing this. The management of that building called me a few months ago asking me what I thought of their decision to go for creative office space and I told them I thought it was a great idea, as long as the prices were reasonable. I hope they heard me.
yummy. and i will always cherish the UE of that building i had with eecue a few months back.
the main reason some of these places cannot be leased out is the ridiculous sf asking prices for speculative lease space. The landlords like suggested previously in other threads should make the sf cheap for the initial term, have businesses come in and increase value to the residential, and then go to market rate.
I do not for the life of me understand why people would leave a space empty for that long and lose all that revenue.
^ They’re greedy and always think their property is somehow “better” or “worth more.”
#4 & #5 – Part of the reason why landlords leave spaces open is that a higher paying tenant is not just worth more from the higher lease payments but also because it increases the value of the building. For example, take a 6,000 SF space. If the landlord leases the space a $1.00 PSF per month, triple net, then the landlord stands to $72,000 per year from the lease. $72,000 at a 6.00% cap rate equals $1,200,000 in building value. Now say the landlord waits one year and finds someone willing to pay $2.00 PSF per month, he gets $144,000 per year (obviously) but more importantly this $144,00o per year in rent is worth $2,400,000 increase in value. So for his $72,000 in foregone rent, he increases the value of his building by $1,200,000 more than if he leased right at the beginning and I think we all can agree that spending $72,000 to make $1,200,000 is a good deal. Plus, the increase in rent will more than make up for the lost rent.
It usually isn’t greed that drives deals, it’s the economics. I totally understand why people think it’s stupid to not sign a lease as quickly as possible but a lot of times, it makes perfect financial sense for the landlord to wait.
Hopefully, Park Fifth will somehow boost it’s popularity.
David:
I have a couple responses to your comment:
1) Lease agreements can be made that step up the rent to fair market value after the initial year (or any point during the lease term). So even if a tenant comes in early and has an “introductory” rate to begin, that doesn’t exclude the possibility of having a deal in place that protects the landlord’s interest, but gives an opportunity and incentive to a new tenant moving in.
2) When you value a property in commercial real estate, looking solely at the income approach isn’t always a true a gauge. A savvy investor would not only consider the market approach (value per sf based on sale comps) or replacement construction cost approach, but would look at the upside potential to a property – basically a tenant locked into a cheap rent situation when market rents have escalated higher, which could be avoided altogether with smart negotiation. Also, it’s important to consider where the investment would be in 5 or even 10 years, not necessarily just year 1.
With that said, I have to side with the other commenters in asking why landlords wait to lease out spaces. Although I get what you’re saying, I’m not convinced that’s a good enough reason.
With all the attention on LA live for upscale restaurants and nightlife, its good to hear that there are still similar plans for the Historic Core.
It if takes as long as the Brockman did, we’ll be re-electing Barack Obama to his second term by the time it’s finished…
David: I understand your explanation and I think it is sound in most cases, but the Historic Core is not most cases. I have seen vacancies last for so many years that it really makes no sense.
My gallery, for example, will one day likely make a great restaurant or store, but in the meantime, the landlord is stuck with me for 8 years, and he gets the benefit of the gigantic increase in property value from the revitalization we have brought with the Art Walk and the local cleanup.
5th & Main went from one of the worst corners to one of the hubs. Look at the intersections with long term vacancies. They are dead zones and nobody wants to be there.
Would be nice if they finished soon
This building, along with Title Gaurantee, Park Fifth, and the Clark hotel would inject new nightlife into the otherwise dead Pershing sqaure area.
Funny how everyone complains about the flat rooftops of buildings in LA – due to the requirement of having helipads. Well – looks like we have finally found a good use for those flat roofs! You can’t create a gathering space like this on top of SF’s Transamaerica building or NY’s Chrysler building now can you?? =). Rooftop gardens and gathering places combined with LA weather = unbeatable environment!!
David, you state: ” It usually isn’t greed that drives deals, it’s the economics.”
I would argue that it is not an either/or choice; economics is not pure science devoid of emotion, fear, hope, and yes greed, as we can so readily see in the current economic crisis. Giving up 72K in rent for a chance to make potentially much more, 1.2M in your example, seems to me like greed, (or an “economic” decision based on too much greed). The profit motive is of course a fundamental driving factor of economics; when it becomes excessive it becomes greed. And greed is often rationalized when each landlord claims, as Brigham notes, “but my property is better than all of the others because of x,y&z.” Landlords, and developers for that matter, would be better off if they acknowledged the current realities and accepted moderate profit margins now.
Stephen & Bert – Thanks for the comments. I apologize in advance for my long-winded response.
My comment was meant to be a very simple example just to illustrate a point — namely that waiting for a better paying tenant can make financial sense (which you guys got). But it wasn’t meant to say that all landlords make good financial decisions and to fully explain the value added by a lease. There are plenty of crappy owners in real estate just like there are plenty of crappy artists, plenty of crappy planners, etc. So I am sure you are right that there are plenty of landlords in L.A. that wait too long and don’t think about the intangible benefits having their space leased now but I just wanted to point out that the arguement wasn’t one-sided.
Stephen — I know about the market and the replacement cost approachs — I buy and sell commercial real estate in Downtown L.A. for a living. But the income approach is the real driver for commercial real estate. For example, take all these old office buildings in the Historic Core before the Adaptive Re-Use Ordinance was passed. These buildings were selling at around $10 – $20 psf because they were empty. So even though these buildings were jewels and the replacement cost is very high, they were valued at close to nothing because no income could be made from them. But once the Adaptive Re-Use Ordinance was passed, you could convert them and start making money from them again, so they were significantly more valuable. And the market approach is really a check to make sure you a doing your math right for the income approach. If you are signficantly above or below the average sales prices, then you are probably doing something wrong on your calculations.
This isn’t meant to be a complete primer but I wanted to point out that the income approach really drives the values of these buildings and that’s why the lease rates matter so much.
Finally, you’re right that the lease can always increase the rent amount as the lease goes on (and a lot of them do). There are also leases with percentage rents that take a percentage of the gross revenues but my example was too simple to tackle these scenarios. The other point I was trying to make is that the risk vs. reward can be so widely different — $72,000 to make an extra $1,200,000 — that some landlords just don’t bother working out more flexible ways to structure the lease.
Anyway, thanks for your time.
Just to clear up any misconceptions about rooftop helipads: To my limited knowledge there is no ordinance (fire safety or otherwise) requiring rooftop helipads on downtown Los Angeles commercial buildings, though they no doubt appeal to wealthy business people looking for an easy ride in and out.
Relative to the Pershing Square building: The structure is a 1924 Beaux Arts structure – an architectural design that favored flat roofs – in contrast to the Art Deco style that followed which favored spires and towers. In any event, there were no helicopters in practical use until the 1940s and few in commercial operation until the 1950s.
Bruce – The City’s Building Code requires that any new building that has a floor for human occupancy about 75 feet is required to have a helicopter landing pad. This was adopted in 2002 in response to 9/11.
Previous buildings are not required to retrofit themselves unless they have a change of use and are not taking adavantage of the Adaptive Re-Use Ordinance. For example, all these old buildings are converting from commercial to live/work units. Why don’t you ever seem them convert to pure residential units? Because the Adaptive Re-Use Ordinance only allows for live/work units, which allows a developer to not retrofit the roof with a helipad (among the many other things the Adaptive Re-Use Ordinance allows). If they wanted to do pure residential units, they would have to put in a helipad.
David…Thanks for the heads-up on the helipad requirements. (I just thought there might be some out there thinking all those old, flat-roofed buildings were designed for helicopter pads. = O
Dennis,
I understand that there has been some question about how two levels of additions and a new two level basement nightclub could be approved for the Pershing Square Building. I was the Preservation consultant who obtained those entitlements for the building. I would be happy to respond to pointed questions, please feel free to forward my contact information for such queries.
Design Aid, Cultural Resource Management and Sustainable Design, Jeffrey B. Samudio, Principal
Jeff whats the timetable for the project in terms of the initial build out before a tenant takes over. In addition, have the tenants been found for these venues or is that an ongoing process?
You’d have to contact JMF Development for details of build out schedule and interested operators. As construction is full speed ahead, its likely to be ready by mid 2009.
Congrats on your creative and unique design addition to a storied LA Landmark. Jeffrey Samudio, you are the first Mexican American to add to the Downtown LA skyline since Pio Pico constructed the Pico House at the Plaza. The methods used to assert approval of such a cutting edge project reflect your varied disciplined approach to all of your endeavors. Success of the Pershing Square building rehabilitation and addition is testament to the fact that you are insanely focused on the sustainability of our historic resources.