The building with Cross Campus founder Ronen Olshansky and Suge Knight

For Cross Campus’ latest location in Los Angeles, the co-working firm had to do some unusual remodeling. How unusual?

It had to remove the hot tub that belonged to Death Row Records founder Suge Knight from the roof of a Beverly Hills office building. Cross Campus replaced it with landscaping, shaded seating areas and Wi-Fi connectivity.

The co-working company will open its fifth L.A. location at the former Death Row Records headquarters next month, the latest example of the co-working boom that’s now pushing into the prime 90210 ZIP code.

A rendering of the rooftop lounge

The firm is occupying the entire 30,000-square-foot building at 8200 Wilshire Boulevard, which is owned by Freemont Capital Group. While the main co-working space and offices are ready for move-in, the roof deck renovations are still ongoing. Ronen Olshansky, founder of Cross Campus, said he expects it will be completed by next summer.

Rates at the Beverly Hills location will start at $350 a month for a “hot desk” in a shared common area and range up to $4,300 for a seven-person private office, according to its website. That’s a bit more expensive than its other locations, which typically start at $300 per desk.

Cross Campus is also gearing up to open another location in the Arts District, where WeWork recently inked a deal for roughly 90,000 square feet. Though details on that location are scant, Olshansky said its size will be comparable to the Beverly Hills spot.

A rendering of the penthouse bar

It also has locations in Downtown L.A., Pasadena, Santa Monica, South Bay, as well as in San Diego and Scottsdale, Arizona.

In recent months, several niche co-working firms have been expanding in the city as they seek to differentiate themselves from the growing number of companies that offer flexible office space. Culver City’s Blackbird, which is geared to women of color, will be opening a location in the fall; while Paragon in Hollywood caters to the cannabis industry.”

Olshansky said the “large-footprint locations can support entrepreneurs and companies as they grow in scale, but also host daily social hours and events.”

Cross Campus now has 3,000 members throughout the “Western Region,” Olshansky said. By comparison, WeWork — which on Wednesday filed paperwork for its initial public offering — has 527,000 members across 528 locations in 111 cities worldwide.

WeWork CEO Adam Neumann (Credit: iStock)

The We Company, whose imminent IPO stands to be one of the most hyped of the year, has laid bare its innerworkings.

The WeWork parent company’s S-1 filing — filed Wednesday with the U.S. Securities and Exchange Commission — tells the story of a company experiencing massive growth while also sustaining massive losses. It’s also lent millions to members of its executive team at remarkably low interest rates.

From the prospectus, The Real Deal compiled 11 takeaways that paint a clear image of the company’s financial position and corporate practices as it heads toward an IPO.

Adam Neumann has taken almost $1 billion in personal loans and credit from WeWork and its lenders. In April 2019, the company issued a $362.1 million loan to its co-founder and CEO at an interest rate of 2.89 percent. The loan was listed as an “early exercise of a stock option” and will mature 2029. In addition, Neumann was also granted a $500 million credit line from WeWork’s major lenders — including JPMorgan, UBS and Credit Suisse — of which $389 million remains outstanding. JPMorgan has also doled out $97 million in loans backed by Neumann’s real estate holdings.

WeWork granted Neumann another loan with almost no interest. In June 2016, the startup extended a $7 million loan its chief executive at 0.64 percent interest. It was repaid in cash in November 2017, with just $100,000 interest.

Other executives and board members have taken loans from the company, too. Board member Lew Frankfort, COO Jen Berrent and CFO Artie Minson received $6.3 million, $5.2 million, $4.6 million and $3.0 million, respectively, in loans. Minson ultimately repaid his debts — $600,000 of which was written off — as did Berrent.

Neumann still owns four properties that are leased to WeWork. This is in contrast to comments made by Neumann to Bloomberg in May that he would sell the properties “at cost” to ARK Capital Advisors. Instead ARK, WeWork’s real estate investment vehicle, has entered a “management agreement” with Neumann. In New York, a partnership between Neumann and designer Elie Tahari is marketing a WeWork building for sale.

WeWork may not comply with corporate governance guidelines. Because Neumann controls the We Company’s majority vote and it is considered a “controlled company,” the firm said it will take advantage of an exemption that would drop the requirement for independent compensation and corporate governance committees.

Neumann and Minson potentially violated SEC rules. After WeWork announced in April it had privately filed for an IPO, the company’s CEO and CFO gave interviews to Axios and Business Insider, in potential violation of the SEC’s “quiet period” rules. The company acknowledges that if it was found in violation by a court, it would have to repurchase stock from investors. But it claims it is not in violation and will defend itself “vigorously” against allegations that it did.

The startup is still unprofitable and hemorrhaging money. For the first half of 2019, it generated $1.5 billion in revenue, but posted net losses of $689 million. In its risk factors, it acknowledged “We have a history of losses and, especially if we continue to grow at an accelerated rate, we may be unable to achieve profitability at a company level… for the foreseeable future.”

The company is still creating its own metrics to measure profits. Following WeWork’s introduction of “community-adjusted EBITDA,” the startup now employs a new phrase: “contribution margin excluding non-cash GAAP straight-line lease cost.” In other words, the We Company says, the metric allows it to circumvent accounting rules that require companies to report lease costs across an extended period of time, and instead can defer future costs by booking short-term agreements like free rent periods.

WeWork has surpassed IWG as the largest provider of workstations. The company now has 604,000 individual workstations as of June 30, 2019 — double that of the same time last year. IWG, which launched a franchise model in 2016 to scale desks, has a total 602,535 workstations, according to company filings.

Neumann has no employment agreement with WeWork. Despite stating that WeWork’s “future success depends in large part on the continued service of Adam Neumann,” the company does not have an employment agreement in place with him. While he hasn’t taken a salary in recent years, he is the chairman of the board and the majority shareholder. Other startups, including Slack and Salesforce, had employment agreements with their CEOs months ahead of their IPOs.

Rebekah Neumann holds the reins of the company’s succession plan. If Adam Neumann dies or becomes permanently disabled within the next decade, his wife and chief brand and impact officer — alongwith current committee members Bruce Dunlevie and Steven Langman — will be responsible for appointing his successor. If Dunlevie and Langman no longer occupy their current positions, Rebekah will choose one or two additional board members to serve on the selection committee.

Open Space CEO Jeevan Kalanithi (Credit: LinkedIn and iStock)

A startup that maps construction sites raised $14 million on Tuesday, marking the latest infusion of capital into construction-technology companies by major players in the industry.

OpenSpace, which creates 360-degree photo representations of job sites using artificial intelligence, raised $14 million in Series A funding, the company announced on Tuesday. Lux Capital led the round, joined by Goldcrest Capital, as well as new investors JLL Spark, Navitas Capital, Suffolk Construction, Tishman Speyer, WeWork and Zigg Capital.

The company, which launched in 2017, has an algorithm that combines images of a construction site, which are taken by cameras affixed to workers’ hardhats. Developers can then navigate through 360-degree recreations of their construction sites. Similar construction site monitoring companies, like OnsiteIQ and AirWorks, have sprung up over the past few years as interest in construction technology has ballooned.

According to the Wall Street Journal, roughly $6.1 billion was invested in the construction-tech sector last year, nearly double that of 2017. Also on Tuesday, San Francisco-based Brick & Mortar Ventures announced that it has launched a $100 million fund to invest in construction tech. The fund will focus on Series A financing.

Tishman Speyer piloted OpenSpace at its 392-unit condo tower, MIRA, in San Francisco. The developer has since enlisted the company to document progress at the Spiral, a 1,005-foot-tall office tower near Hudson Yards. Last year, JLL launched a $100 million fund dedicated to real estate technology, dubbed JLL Spark. OpenSpace marks JLL Spark’s 13th proptech investment since launch.

CEO of Public Storage Ronald L. Havner Jr. and the site in North Hollywood (Credit: Google Maps)

Public Storage is hoping to redevelop its facility in North Hollywood to nearly quadruple the overall size.

The Los Angeles City Planning Commission next week will consider the plan for a three-story warehouse facility for self-storage. It would include 160,277 square feet of space at 10810 W. Vanowen Street in the San Fernando Valley near Bob Hope Airport.

The project would require the demolition of the existing single-story storage facility that spans 42,380 square feet. The staff report for the planning commission review recommends approving a zone change, a height increase and expanded floor area for the project site.

The Glendale-based company was co-founded by B. Wayne Hughes Sr. in 1972, and the firm now has hundreds of facilities in Los Angeles.

Self-storage has seen increasing interest throughout the country lately, with a tight supply in Los Angeles. In June, Barker Pacific Group acquired a 334,96-square-foot self-storage portfolio in the Inland Empire. And early this year, World Class Capital Group secured a $29.6-million loan to build a 188,600-square-foot self-storage facility in Downtown Los Angeles.

The drop triggered a 37 percent increase from the week before on home refinancings (Credit: Getty Images)

Mortgage rates have fallen again, and homeowners are jumping aboard the refinancing train.

For home loans of $484,000 or less, the 30-year fixed-rate average dropped to 3.93 percent, according to CNN, citing the Mortgage Bankers Association. On bigger mortgages and on 15-year loans, rates were even lower.

The drop triggered a 37 percent increase from the week before on home refinancings; it was almost triple the amount compared to one year ago.

But the shift didn’t cause much of a jump in home purchases, with home-buying loans only slightly up in June from the previous month. The number of existing-home sales in June was down compared to May and year over year, according to CNN, citing the National Association of Realtors.

Mortgage rates have steadily fallen throughout the year. In early June, after falling for six consecutive weeks, mortgage rates hit their lowest point since September 2017.

Meanwhile, home mortgage debt climbed to a new high in the second quarter, the Federal Reserve Bank reported Tuesday, surpassing the pre-recession 2008 peak. Last month’s Federal Reserve rate cut — its first since 2008 — could spur an increase in the overall supply of single-family homes nationwide, according to some real estate developers and experts. [CNN] — Sylvia Varnham O’Regan

A map of the affected areas (Credit: Google Maps and iStock)

In the months since California voters soundly rejected a ballot measure to dramatically loosen the state’s rent control restrictions, municipalities in Los Angeles County have acted to strengthen their rules in order to protect tenants.

More than half a dozen jurisdictions countywide have enacted new measures since that referendum — known as Proposition 10 — failed in November.

Most recently, Culver City joined the growing club. Early Tuesday morning, the City Council adopted a temporary rent cap and just-cause eviction protections until it could pass a permanent law.

The same action has been repeated in other municipalities statewide, and Califorina legislators are also mulling new rent control measures with the backing of Gov. Gavin Newsom.

Real estate developers and investors spent more than $100 million to fight Proposition 10 — which would have opened the door to rent control statewide — and are lining up to gattle any new state measures now.

L.A.-area landlords, developers and investors say new rent regulations have already driven them out of some cities, but the rent control movement doesn’t appear to be dying down amid a city and state that have been struggling with an affordable housing crisis.

Because of California’s Costa-Hawkins Rental Housing Act of 1995, no building constructed after that year can be placed under rent regulations.
Here are the L.A. municipalities and jurisdictions that have adopted new rent regulations and tenant protections since Proposition 10. The city of L.A. — which has seen a spike in its homeless population — has not updated or expanded its rent control measure.

L.A. County
A few weeks after Prop 10 was defeated, the L.A. County Board of Supervisors temporarily capped annual rent hikes at 3 percent on properties in unincorporated L.A. County. The measure applied to about 50,000 units. The board also instituted just-cause eviction protections, meaning landlords must prove a tenant violated certain terms in order to lawfully evict that tenant.

A few months later in April, the five-person board extended the cap through the end of the year. It also expanded just-cause eviction regulations from only multifamily properties to single-family rentals.

Glendale
The city adopted a two-month, 5 percent cap on rent hikes shortly after the L.A. County board adopted its temporary measure. Shortly after Glendale’s measure expired, the city adopted a slew of tenant protections.

Landlords must pay tenants relocation fees if they plan to hike rents by any more than 7 percent. The fees are determined by the size of the building. Landlords also have to offer year-long leases to all tenants, including on buildings built after 1995.

Pasadena
The City Council updated its tenant protection ordinance in March after some outcry over the eviction of longtime renters of a building in the city who were not covered under the ordinance. Pasadena’s new regulations are more complex than many other cities.
Renters are only eligible for protections under the ordinance if they earn 140 percent or less than area-median income, or under $68,000 for a one-person household. Landlords have to pay relocation fees if they increase the rent by more than the consumer price index increase plus 5 percent in the first 18 months of owning a property, according to the Pasadena-Star News.

The Council included relocation fees, which go on top of a moving-cost allowance that was already in place, ranging from around $1,300 to $4,000. Tenants who have lived in an apartment for more than 10 years can get even higher payments.

Long Beach
The South Bay city approved a tenant relocation ordinance in May. Landlords must pay relocation fees to any tenant who decides to move out of a building when the rent is hiked by any more than 10 percent. The fees range between around $2,700 and $4,500, depending on the size of the unit, according to Curbed.

Beverly Hills
Home to one of the country’s richest ZIP codes, it already had some of the strongest rent regulations of any L.A.-area city by the time Prop 10 rolled around. Shortly after, however, Beverly Hills strengthened its ordinance by requiring landlords pay relocation fees even for just-cause evictions. The city established a rent stabilization commission specifically tasked with handling rent regulation issues. Because the measures apply to all rental housing, including luxury units, they have also gotten some pushback.

Inglewood
Around two-thirds of Inglewood residents rent their homes. The city passed a 5 percent permanent rent cap in June amid strong calls from constituents concerned about rapid gentrification. Investors have been scooping up multifamily properties ahead of the opening of the $2.6 billion Los Angeles Stadium and Entertainment District project. Landlords in some cases will now have to pay relocation fees to tenants who have lived in a property for more than two years and were evicted with just cause.

ASB CEO Robert Bellinger and Columbia Business Park

Add another to the growing list of big industrial deals in the Inland Empire.

ASB Real Estate Investments paid $124 million for the 1 million-square-foot Columbia Business Park distribution facility in Riverside.

The seller of the recently-built property was a joint venture of Washington Capital Management and Trammell Crow. The two firms owned the property on behalf of a pension fund client, according to a release about the sale.

The deal, at $124 per square foot, marks one of the largest single-building transactions ever completed in the Inland Empire.

At the end of last year, tenants in the Inland Empire signed 20 of the top 100 industrial leases in the country, totaling 18.98 million square feet. That number was almost double the second busiest market, the I-78/I-81 corridor in Pennsylvania.

The pace of activity and investment there has continued in 2019. Earlier this month, Dedeaux Properties recently added 1 million square feet to its industrial footprint with the purchase of 52 acres in Riverside.

In the ASB purchase, it acquired the “Phase 1” portion of the Columbia Business Park at 490 Columiba Avenue, which includes a fully-leased facility on 46 acres. The building is part of a larger, 72-acre master planned park, which will include a 371,000-square-foot distribution center.

CBRE and Colliers represented Washington Capital.

Among its industrial, office, retail and multifamily properties, Washington, D.C.-based ASB Real Estate owns the 35-story luxury Watermarke Tower apartments in Downtown Los Angeles and a 106-unit apartment building in Santa Monica.

Every day, The Real Deal rounds up Los Angeles’ biggest real estate news. We update this page at 9 a.m. and 4 p.m. PT. Please send any tips or deals to tips@therealdeal.com

This page was last updated at 9 a.m. PT

Angels star Mike Trout and the Long Beach shorefront (Credit: Getty Images)

A new stadium for the Angels can wait. At least that’s what Anaheim City Council members found out this week, learning the home team can play out its current Angel Stadium lease — which extends through 2029 — if it forgoes plans for a new $1 billion stadium in Long Beach. In January, elected officials had approved a one-year lease for the team to remain in Anaheim. [LAT]

Bond financing is on tap for a South L.A. residential complex. The Coalition for Responsible Community Develpment’s planned 60-unit affordable housing building in Florence is set to receive $20 million in bond financing. Called Marcella Gardens, the four-story construction would replace a commercial property on 68th and Main streets and comes amid the continued rise in L.A.’s housing prices. [Urbanize]

Sweet relief for orange grove? The last remaining commercial orange grove in Los Angeles, which hit the market last month for $14 million, is now formally under consideration as a Historic-Cultural Monument. Last month, City Councilman Bob Blumenfield proposed the idea of landmarking the site, to save the 14-acre Bothwell Ranch in Tarzana. Marketing materials say it is zoned for 26 half-acre single-family home lots. [Curbed]

A sale for a singer. Brian McKnight, the R&B crooner, unloaded his 7,200-square-foot Chatsworth home for $1.7 million. The five-bedroom, six-bathroom pad was on the market for a little less than two months, bucking a recent trend in L.A. — perhaps because of its modest price-point — that has seen high-end homes take months to sell. McKnight, who was a contestant on Season 2 of “Celebrity Apprentice,” bought the home in 1999 for $1.27 million. [LAT]

WeWork CEO Adam Neumann (Credit: iStock)

WeWork’s IPO filing laid the company bare. CEO Adam Neumann has borrowed almost $1 billion from WeWork and its lenders. This was one of many disclosures in WeWork’s IPO filing Wednesday. We broke down the rest. [TRD]

Morgan Stanley lost the lead in WeWork’s IPO financing. The co-working giant rejected has Morgan Stanley’s pitch to be the top underwriter on its impending IPO, so the financial giant pulled back from the deal entirely. [Bloomberg]

An accuser of Jeffrey Epstein has sued his estate. A woman who claims Epstein sexually abused her when she was a teenager filed a civil lawsuit against his estate Wednesday — the first of many anticipated lawsuits in the wake of the financier’s death. [NYT]

Clockwise from left to right: 50 Hudson Yards, Farley Post Office redevelopment, 1 Madison Avenue, and Apple CEO Tim Cook (Credit: Hudson Yards, Skanska, Google Maps, and Getty Images)

Apple is on the hunt for massive office space in Manhattan. The company has reportedly looked at 50 Hudson Yards, the Farley Post Office redevelopment and One Madison Avenue. It’s joining tech giants Facebook and Amazon in the race to find prime office space in the city. [TRD]

FROM THE CITY’S RECORDS:

A developer submitted plans to demolish a 6,000-square-foot commercial structure and build a new 38-unit mixed-use development at 412 & 418 South Robertson Boulevard in Beverly Grove. The development would reserve four units for extremely low-income residents, and is eligible for Tier 2 Transit Oriented Communities Incentives. [LADCP]

Clockwise from left to right: 50 Hudson Yards, Farley Post Office redevelopment, 1 Madison Avenue, and Apple CEO Tim Cook (Credit: Hudson Yards, Skanska, Google Maps, and Getty Images)

Apple has joined tech giants like Facebook and Amazon in the competition to lock up prime blocks of large Manhattan office space.

The Cupertino, California-based tech company is looking around Manhattan for somewhere between 200,000 and 500,000 square feet for a new office, sources told The Real Deal. One source said the tech firm could take as much as 750,000 square feet.

Apple’s checked out the usual suspects of properties on the short list for most companies with assignments of that size, including the Related Companies and Oxford Properties Group’s 50 Hudson Yards, Related and Vornado Realty Trust’s Farley Post Office redevelopment and SL Green Realty’s One Madison Avenue, sources said.

Representatives for Apple did not respond to requests for comment.

A JLL team led by Martin “Mack” Horner and Peter Riguardi has the assignment to lead the search, according to a source. The brokers did not respond to requests for comment.

Apple is the last of the big FAANG tech companies (Facebook, Amazon, Apple, Netflix, Google) to scale up to a significant size in New York City. But to the city’s office landlords and leasing brokers, the move seemed inevitable: As the availability of office space and workforce talent in grows ever-tighter in Silicon Valley, these companies would naturally look to expand to tech hubs like New York.

Facebook, Google and Amazon each already have a significant presence in the city with offices that take up several hundred thousand square feet each. And they’re all competing with one another for the choicest properties – sometimes bumping their rivals.

Facebook is reportedly in talks to lease as much as 1.5 million square feet at 50 Hudson Yards, and Google last month finalized a 1.8 million square foot lease with Oxford Properties at its redevelopment of the St. John’s Terminal in Hudson Square.

Amazon is reportedly in discussions to lease 400,000 square feet in the Hudson Yards neighborhood at SL Green’s 460 West 34th Street.

Netflix, meanwhile, recently leased 100,000 square feet in the Flatiron District for offices at Normandy Real Estate Partners’ 888 Broadway and 161,000 square feet at 333 Johnson Avenue in Bushwick for sound stages.

Apple currently leases about 45,000 square feet in the Flatiron District at Clarion Partners’ 100-104 Fifth Avenue – where it opened its office in 2011.

Sources said Apple’s current search is to accommodate new hires the company plans to make.

The Federal Housing Administration loosening rules around its condo loans

Amid a cooling housing market and growing concerns about a recession, the Trump administration is making it easier for first-time condo buyers to get a government-backed mortgage.

The Federal Housing Administration is backing more loans for those first-time buyers, according to the Wall Street Journal. FHA loans require significantly lower credit standards than conventional loans and only require a 3.5 percent down payment.

The FHA predicts it could insure as many as 60,000 additional condo loans annually. In 2018, the agency backed 16,000 condo loans, according to the Journal. The new rules only apply to moderate income borrowers.

Existing homeowners nationwide have been taking advantage of falling rates, with $565 billion worth of mortgage loans reported in the second quarter. The increased appetite has meant large banks like JPMorgan, Wells Fargo and Citigroup — and smaller lenders — reported an increase in mortgage originations.

Meanwhile, the FHA’s move comes at a time when single-family homes in markets like Seattle and Austin have become unaffordable to many new buyers. Condos are seen as a cheaper alternative, but getting financing can be more difficult. The median price of an existing condo or co-op unit was just over $260,000 in June, compared with nearly $290,000 for the median existing single-family home, according to the National Association of Realtors. [WSJ] — Keith Larsen

9402 South Broadway (Credit: Google Maps)

Development and architecture firm Archeon Group is adding a multifamily project to its pipeline in South Los Angeles, a neighborhood that has seen a rise in interest from developers.

Koreatown-based Archeon submitted plans this week for a 180-unit apartment complex on a 2.8-acre property at 9402 South Broadway, property records show. The firm is requesting a density bonus for the project, and about 20 units would be designated for low-income households. The rest would be market-rate.

The site — which has been vacant for nearly 25 years — was originally part of a larger lot, but two of those acres have been developed into affordable housing over the years.

The new development will be adjacent to the 49-unit Broadway Villas, an affordable housing complex developed by AMCAL.

Archeon, which is run by Christopher Pak, has designed other major projects, such as the Lake on Wilshire, set to include a 41-story apartment tower and 220-room hotel near Westlake.

Amid the city’s affordability crisis, multifamily developers and investors have increasingly been looking to South L.A. Most recently, plans were filed with the city to redevelop an 88-unit building on Western Avenue. And last year, the Michaels Organization and BRIDGE Housing started work on the second phase of a $1-billion project that would include 1,400 residential units in Watts.

With growing fears of a recession, real estate stocks continue to hold their own. (Credit: iStock)

While the U.S. markets are in fear of a recession, investors seem to know one place they want to park their money: real estate stocks.

Of the 28 real estate stocks tracked by The Real Deal — a sample of real estate investment trusts, mortgage companies, brokerages and other real estate services firms — 15 saw an uptick. That’s despite the S&P 500, Dow 30 and Nasdaq showing slight losses as of 1:45 p.m. Thursday.

The Dow plunged 800 points yesterday after the yield on the two-year Treasury note pushed higher than the yield on 10-year Treasuries on early Wednesday — a sign investors think it’s riskier to make shorter-term investments than longer-term ones. Markets have been on edge since last week, after President Donald Trump escalated the trade war.

Of the 15 real estate stocks that were up, Realogy saw the biggest gains. The brokerage conglomerate’s stocks were trading at $6.03, up 2.29 percent.

But not all stocks were up. Mortgage loan company Ocwen Financial Corporation recording the largest drop of 4.5 percent, trading at $1.40 per share. Meanwhile,

The Real Estate Select Sector SPDR Fund, an index that follows real estate investment trusts and real estate management and development companies, was trading at $38.19, up less than 1 percent from the market’s close Wednesday.

As for only REIT stocks, their returns were up 0.91 percent as of 1:25 p.m. Thursday, according to the FTSE Nareit All REITs Index. But compared to last week, REITs overall may be losing: Last week the index’s domestic returns were up 1.67 percent, but so far this week they’re down 1.72 percent.

While a yield curve inversion may not always signal a recession, investors will be watching what the Federal Reserve does. Real estate stocks ticked up earlier this month when Fed chief Jerome Powell said there may be a possible cut in interest rates.

Last week, signs of an escalating trade war between the U.S. and China caused real estate stocks to dip but then largely performed well compared to the overall market.

Donald Trump and a Greenland landscape (Credit: Getty Images and iStock)

It’s not Manhattan real estate, but President Trump sees the upside in Greenland, an autonomous Danish territory surrounded by the Atlantic and Arctic oceans.

Trump has brought up the idea of buying Greenland with his advisors on multiple occasions and directed his White House counsel to look into the matter, according to the Wall Street Journal.

Buying the entire 836,000-square-mile island of Greenland from Denmark has been considered before, albeit quite a long time ago. The last offer on record was made by President Harry Truman in 1946 for $100 million, but the Danes refused. Prior to that, the history books show that the State Department initiated an inquiry into buying Greenland and Iceland in 1867.

Government officials — now and historically — view Greenland as significant to national security and last year intervened to block China from financing three airports in the territory, but it is unclear whether security concerns are driving Trump’s idea to potentially purchase the northern island.

Sources told the Journal that the idea occurred to Trump after someone mentioned Denmark’s financial difficulties paying its annual $591 million subsidies to Greenland last spring at a roundtable dinner. Since then, the topic has come up multiple times, though it is unclear how serious Trump is about it.

Kenneth Mortensen, a real estate agent based in Greenland’s capital, says Trump’s interest in buying the island has become a running joke. He also noted that the 56,000 citizens — roughly the population of White Plains, New York — can’t own land on the island.

The Journal’s report comes as Trump prepares to travel to Denmark in early September for the first time. [WSJ] — Erin Hudson

Ron Galperin and an overview of LA (Credit: iStock)

The City of Los Angeles owns more than 7,500 properties in the county, making it one of the largest real estate managers countywide.

But many of those properties are vacant or underutilized, suggesting a missed opportunity in a region that is in the grips of an affordable housing crisis.

That has prompted L.A. Controller Ron Galperin — the city’s chief accounting officer — to propose a solution that does not involve the city. Galperin wants to create the Los Angeles Municipal Development Corporation, a nonprofit entity that would help develop and operate the city’s real estate holdings.

“The City of Los Angeles does many things well, but we do not have a central agency with the industry expertise to get the most out of the thousands of properties we own,” Galperin wrote in a report that announced the proposal.

LAMDC, as it has been named, would help bridge the gap between experienced real estate professionals in the private sector and city officials. The nonprofit could identify key properties suitable for development, as well as buy and sell city land.

Emergency homeless shelters have been popping up on city-owned property. They are part of Mayor Eric Garcetti’s “A Bridge Home” program, which has sought to address the growing homeless problem in the city, but has also received pushback from business leaders and residents in those communities.
Despite the opposition, city officials have been able to fast-track such developments thanks to a new state law that streamlines the process for building on city land.

Galperin’s proposal comes on the heels of an online interactive map he launched that details the city’s real estate portfolio. The map, released in June, was intended to help spur development.

Benedict Canyon Equities co-founding principal Jim Rosten and CEO Ryan Somers with Sagewood Gardens

Benedict Canyon Equities has sold a 162-unit multifamily complex in the San Gabriel Valley, turning a substantial profit on a property it acquired seven years ago

Investment firm Positive Investments was the buyer. It expands its footprint in Southern California with the $34.4 million purchase.

The senior housing facility, named Sagewood Gardens, is located on a 5-acre site at 14814 Gale Avenue in Hacienda Heights. It was built in 1988 and includes 21 residential buildings with 93,930 square feet of rentable space, as well as a fitness facility, media room and activity center.

West Los Angeles-based Benedict Canyon Equities — through Royal Park Apartments Partners, had purchased Sagewood Gardens for $20.6 million in December 2012, records show. — Benedict Canyon has been one of the more active multifamily investors in recent years.

Arcadia-based Positive Investments confirmed the sale. Benedict Canyon could not be reached for comment.

Earlier this year, Positive Investments sold a 57,000-square-foot office building in Whittier for $19.5 million after paying $16.5 million just six months prior. In 2018, it bought Towne Center office building in Arcadia in for $26 million.

Meanwhile, Benedict Canyon sold a 177-unit property in El Monte for $40.5 million in January. And last year, the firm purchased a residential complex in West Covina for $74 million.

Alex Mogharebi and Otto Ozen of the Mogharebi Group represented both sides in the transaction.

Every day, The Real Deal rounds up Los Angeles’ biggest real estate news. We update this page at 9 a.m. and 4 p.m. PT. Please send any tips or deals to tips@therealdeal.com

This page was last updated at 9 a.m. PT

Ex-Planning Department head slapped with big fine. Michael LoGrande has been hit with a $281,250 fine for lobbying the L.A. agency he used to lead on behalf of his land-use consulting business, just months after leaving his post. The city Department of Planning reviews real estate development projects, and this is the biggest fine levied against a former city employee. [LAT]

GPI Companies founders Cliff Goldstein and Drew Planting

Opponents want to stop the demolition of a Hollywood music store, but the owner does not. Amid a lawsuit over GPI Companies’ planned demolition of Amoeba Records and construction of a 200-unit tower, the store owner says he wants the project’s opponents to cease and desist. Jim Henderson said the attempt to landmark Amoeba would thwart his ability to relocate. [Curbed]

Ron Galperin and an overview of LA (Credit: iStock)

Los Angeles’ thousands of properties need a better manager. That was the word from city Controller Ron Galperin, who wants a nonprofit entity to develop and operate L.A.’s 7,500 properties scattered throughout the county. Many of them are vacant or underused at a time when the city is facing a housing affordability crisis and rising homelessness. [TRD]

Universal Music Group is expanding in Santa Monica. The music giant is close to leasing another building at the Colorado Campus office complex in Santa Monica. The lease for the 33,140-square-foot “Building B” at the campus is valued at $2.3 million per year, sources said. Lincoln Property Company and Northwood Investors own the recently-renovated, 2-acre office development. [TRD]

There isn’t an industry-wide standard to prevent wire fraud, but these startups are trying. Wire fraud schemes cost the real estate industry $150 million last year, according to an FBI report. Companies like CertifID use various forms of encryption, identity verification and portals to avoid methods of communication that are vulnerable to fraud. [WSJ]

Keller Williams is being accused of stealing tech. TPI Cloud Hosting alleged in a lawsuit that the brokerage skipped paying the bill for their services, and made off with their company prototype. In addition to $1.8 million in payment, the lawsuit seeks damages and describes Keller Williams’ strategy as “steal or copy what you have.” [Inman]

Donald Trump and a Greenland landscape (Credit: Getty Images and iStock)

President Trump is interested in buying Greenland. The permafrost-covered 836,000-square-mile autonomous Danish island is not currently listed. He’s not the first president to try to buy Greenland: Harry Truman tried to buy the territory for $100 million in 1946, but the Danes said no. [TRD]

FROM THE CITY’S RECORDS:

A developer has proposed the demolition of a two-story office building and construction of a 130,000 square foot home goods storage facility at 2215 North Gaffey Street in San Pedro. The applicant is LG Acquisitions.

WeWork CEO Adam Neumann (Credit: iStock and Getty Images)

WeWork’s future as a public company collided headlong this week with investors’ biggest concern: What happens in a downturn?

Nine hours after the co-working company filed its IPO prospectus, the Dow plunged 800 points on Wednesday. With a possible recession looming, WeWork’s parent, the We Company, disclosed that over the next 15 years, it has $47 billion in lease commitments. That’s the same amount as its latest valuation, and that figure is in addition to $6 billion debt.

Currently, the company says it has $4 billion in committed revenue from its customers and $2.5 billion in cash, half of which is unrestricted, according to its S-1 filing.

“The stakes are very high,” said John Arenas, CEO of Serendipity Labs, a co-working company with a franchise model. He said that WeWork would need to rake in $94 billion in revenue to get a 30 percent profit.

“They’re showing they have $4 billion,” he said. “We all know a recession is going to happen, it’s just a matter of, will they be prepared for that?”

Though WeWork isn’t the first flexible-office-space provider, it has disrupted the office leasing market since its launch nine years ago. In 2018, it became the largest tenant in its homebase of New York. Globally, it has has 527,000 members across 528 locations in 111 cities. With its rise, it has repeatedly defended itself against the question of whether its business model can weather a recession, when tenants retract their office sizes.

Landlords were generally tight-lipped about any concern over WeWork’s ability to fulfill its lease obligations. But one landlord said, “When you dissect $40 billion over 15 years, into millions of square feet spread over several hundred locations, it’s not as alarming as it may seem.”

More concerning, according to the source, is WeWork’s lease structure, in which most locations are signed by a single purpose entity and only a minimal percentage of the rent is fully guaranteed. “That aspect of it is bad for landlords,” the landlord said on the condition of anonymity.

This week’s IPO filing offered a stark look at the We Company’s finances, including revenue and losses that have grown hand over fist. During the first six months of this year, the company generated $1.5 billion in revenue — but lost $905 million. (Between 2016 and 2018, WeWork’s revenue quadrupled to $1.82 billion while losses reached $1.61 billion.) The filing also raised questions about the company’s corporate governance, which include massive loans to its CEO Adam Neumann and other executives, and its creation of new metrics to measure profits.

Citing the company’s uncertain path toward profitability, Fitch Ratings downgraded WeWork’s bonds three levels to a B- on Wednesday.

“At the time of our rating back in April 2018, we thought that the company would be able to attain normalized profitability within a couple-of-year horizon,” analyst Kevin McNeil said. “Subsequent to the bond offering and the capital raises that were done privately, and ultimately leading to this public capital raise, the company shifted its strategy.”

While McNeil said Fitch’s belief in the viability of the business was unchanged, he acknowledged that its model was “untested through a major downturn.”

WeWork declined to comment.

On its path to an IPO, the company has received a vote of confidence from half a dozen of the world’s largest banks, who committed to a $6 billion debt deal to the startup.

S&P Global kept WeWork at a B rating with a stable outlook, based on the company’s ability to maintain cash as it grows.

“Obviously there is uncertainty about their performance in the downturn but one of the cushions to that is their occupancy levels, which provide at least a 20 percent headroom,” said Tatiana Kleiman, a ratings analyst at S&P.

Some of New York City’s largest landlords, like Columbia Property Trust and SL Green Realty, have started to require stronger guarantees from the co-working company, the Wall Street Journal reported in June.

Other landlords are more comfortable with the risk of a WeWork tenancy. In New York, WeWork occupies the entire rentable space in five office buildings, and it occupies more than 50 percent of at least a dozen more, according to a recent analysis by The Real Deal. Still, impact on the value of a building remains untested. This spring, Rudin Management listed 110 Wall Street — where the company also operates WeLive — but ultimately decided not to sell.

WeWork is not the first space-as-a-service company to face an uphill battle heading into a recession. Regus, the U.K.-based office space company that WeWork surpassed last month in workstations, filed for bankruptcy in 2003 after the dot-com bubble popped, leaving the company with empty offices. The company renegotiated leases with landlords and minimized expenses, which allowed it to emerge from the 2008 financial crisis profitable, said Arenas, who was Regus’ president of Americas franchising at the time.

By comparison, only 30 percent of WeWork’s locations are mature (have been occupied for more than 24 months) and have been signed during the height of the market cycle.

“If you’re out over your skis when [a recession] hits, you got a lot of work to do to get small, and get profitable,” said Arenas.

But that’s not what WeWork is selling in this IPO, he said. “They are selling: ‘We are going to get big and raise your consciousness.’”

Michael LoGrande with Los Angeles City Hall (Credit: Urban Land Institute and iStock)

The man who had been in charge of reviewing proposed real estate developments in Los Angeles didn’t wait long before lobbying the same agency he left.

That violated law, according to the Ethics Commission, which hit Michael LoGrande with the biggest fine against a current or former city employee, according to the Los Angeles Times.

Lobbying is common practice at City Hall, but not for staff who recently left. LoGrande, who led the Department of City Planning for five years, admitted to violating ethics laws and agreed to pay the $281,250 fine, according to the report.

He acknowledged he repeatedly broke the “revolving door” law, which prohibits officials from lobbying elected leaders or decision-makers during the first 12 months following their departure.

LoGrande left his job in January 2016, and within a few months, was lobbying planning department officials on behalf of clients from his new land-use consulting firm, LoGrande and Co.

One of his clients was SoHo House, which is transforming an Arts District warehouse into a private club. LoGrande received $70,000 to influence city officials, and he contacted staff to eliminate a required zone change.

He also contacted department managers about three other developments during the period, and in one case attempted to reduce transportation fees, and in another, tried to eliminate a zone change requirement for a hotel. In February, the Ethics Commission voted in favor of a proposal to bar lobbyists or prospective city contractors who have lobbied a city official in the last year from donating to “pet charities” at the request of a city official. That is a common practice at City Hall and is central to an FBI investigation of alleged misconduct by Councilman Jose Huizar and others. Jose Huizar and others. [LAT] — Gregory Cornfield

Base Capital Group and Hartshorne Plunkard Architecture’s plans for a 12-story hotel at 1043 West Fulton Market

Fulton Market in recent years has been the epicenter of office development in Chicago, helping the city attract new corporate tenants, retailers and workers.

Now, the Near West Side neighborhood is ground zero for another kind of development boom: hospitality. Four hotels with a total of 581 keys have come to the Fulton Market neighborhood since 2014, with another seven hotels in various stages of development and planning.

In all, Fulton Market is projected to be home to about 1,500 hotel rooms in the next few years, raising questions about how much supply the market can absorb, and which projects might struggle, if they get off the ground at all.

“[Fulton Market] is a big draw now,” said Nate Sahn, senior vice president at CBRE Hotels. “It’s also an area that historically didn’t have a lot of hospitality there. Builders will gravitate there because of that.”

Brokers and analysts said the flurry of hotel development is needed to support the new corporate offices and retail that have popped up in Fulton Market in recent years. But the new hotels will inhabit an ulta-competitive and saturated landscape, which is experiencing something of a downturn this year.

“The Downtown market has been a bit dismal got the last six months, and some of that is because last year was so strong,” said Ted Mandigo, a hotel consultant with TR Mandigo & Company. “2018 was a very, very good year.”

The average daily rate for a hotel room in the central business district fell to $259 in June, down from $278 in June 2018, according to hotel data and analytics firm STR. Revenue per available room — a key industry metric — came in at $228 in June, down from $251 in June of last year. Occupancy in June was at 88 percent, down from 90 percent at the same time last year.

Of the four hotels already in Fulton Market, two opened this year: the 200-key Hyatt House at 105 North May Street, and the 182-key Hoxton Hotel at 200 North Green Street. Another hotel is also nearing completion, the Robert De Niro-backed 119-key Nobu Hotel that’s now slated for an early 2020 opening. Related Midwest’s plans for a 165-key Equinox Hotel has been approved by the city, but it has not yet broken ground.

Then, there’s over 630 rooms proposed between three different projects, plus two others — Base Capital Group’s proposal for the 1000 block of West Fulton, and North Park’s plan for the 800 block West Lake Street — that have not publicly announced the number of rooms they plan to develop.

Mandigo said occupancy rates for the existing Fulton Market hotels hovers in the mid-to-high 60’s, but he expects that number to climb. That’s because hotels take about 18 months to get absorbed into a new market, the industry veterans said. Fulton Market’s hotels could take on the longer end of that timeline, because most of its properties are boutique and include brands that are not household names.

“First I have to figure out what a ‘Hoxton’ is, and if I like it,” Mandigo said. “It takes as long as three years for a luxury property to grow their product.”

Some will make it, others may not

The existing hotels — and the soon-to-open Nobu — will likely find success in a rapidly changing Fulton Market, both Sahn and Mandigo said. But the likelihood of success for the four recently proposed hotels is a little trickier to determine, they said.

That’s because there’s so much office, multifamily and retail development underway in the Near West Side neighborhood that it is too early to see if those projects will be successful, let alone the newer hotel proposals. Leasing activity in Fulton Market has been strong, but it’s still too early to tell how the market will look in a few years, when even more hotels are slated to come online, Mandigo said.

“The level of activity is so substantial that it’s a little hard to get a handle on what the demand will actually be,” he said.

The good news for the hotel developers is, there is still time to change their plans if it gets too crowded, too quickly. Of the five hotels proposed for Fulton Market, all of them have been announced this year. Only one — Base Capital Group and Hartshorne Plunkard Architecture’s plans for a 12-story hotel at 1043 West Fulton Market — has been approved by the city’s Department of Planning and Development. None have received building permits.

“Chicago historically has generated a lot of demand for hotels,” Sahn said. “That part of town is just coming into its own.”

Here are a few real estate events worth checking out next week!

Host: Bisnow
Date: August 20th
Time: 8 a.m. to 11 a.m.

Bisnow is hosting its Southern California Industrial & Logistics Summit at the LA Grand Hotel Downtown, 333 South Figueroa Street from 8 a.m. to 11 a.m. Attend to network and discuss how developers are responding to high demands in the Los Angeles industrial space. Speakers include Joe Vargas of Wonderful Real Estate Development and Kurt Strasmann of CBRE.

Host: CREW LA
Date: August 21st
Time: noon to 1 p.m.

CREW Los Angeles is holding its Brown Bag Lunch and Learn event at Project Management Advisors, 444 South Flower Street from noon to 1 p.m. Enjoy lunch as you listen to Vicki Nakamura and Marina Christodoulides of PMA speak on the interplay of different services in the real estate industry.

To search for future industry events or browse past ones, click here. And to submit more industry events, please reach out to events@therealdeal.com.