with ‘downtown downturn’, could maguire still fly?
We’ve all seen the discouraging headlines in recent months regarding Downtown’s teetering construction front, responding to the larger trend (with a degree of resilience) of the country’s economic backslide and mortgage lending crunch.
Most of those tower ‘delay’ reports have been first covered here on angelenic.
As the residential market levels off and more condo developers default to the “wait and see” approach, our opportunity for a newly reshaped skyline is waning.
However, the residential frenzy of the last eight years has actually created an environment that is conducive to mega-tower development of a different sort - Class A office space.
The widespread renewed interest in our city center continues to lure office tenants from the Westside and other areas of Los Angeles, and beyond. Rail transit availability and the prestige of a “high corporate identity” coupled with the dwindling office product (resulting from general adaptive reuse and organic business expansion), have made the Downtown office market its strongest since the early ’90s.
Frequent new lease (and renewal) announcements match the huge blocks of office space visibly undergoing tenant improvements from the streets of the Financial District.
According to CoStar, the industry leader in real estate market data, the current direct vacancy rates in the greater Downtown class A office market for 4Q 2007 (buildings 10,000 square-feet and larger) hover a hair above the 10.0% mark, which most developers view as ripe for new construction. Looking at office properties of all classes, the direct vacancy is only 9.0%.
Last year, Maguire Properties had the foresight to recognize where the office market was headed, and proposed their 50-story Class A office tower for a vacant lot on 8th Street near Francisco, known as the “hole,” to meet shrinking supply. If built, it would be the first 100% commercial tower to rise in Downtown in fifteen years.
The one million square-foot structure, designed by Keating/Khang Architecture, would take three years to complete.
Maguire has stated that groundbreaking will not occur until the tower is 50% pre-leased. The recent Downtown News development update reports that “discussions with potential tenants continue, but no deals have been inked.”
That bit of news is discouraging, but not surprising considering the high rental rates Maguire would require to make the project pencil out with construction costs remaining high. Another factor is the internal financial struggles faced by the public REIT, evident by the news of a possible privatization buyout circulating late last year.
Even though the local office market remains strong, will Maguire be able to fill the hole?
And with the weak US dollar, will more foreign oil money come into play to save some of these higher-profile projects?
If that’s what it takes, I hope so.
The “hole” on 8th Street, proposed location for Maguire’s Office Tower
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