After the devastation of the Sept. 11 attacks, it was years before the city and developers could break ground on the 16-acre site.

In the ensuing 18 years, the complex has come to include a memorial, museum, park, transportation hub, retail hub and office towers, most prominently 1 World Trade Center.

The development process continues today, helped in part by the continued success of the Downtown office market.

The skyscraper at 5 WTC has been on hold due to disputes between state agencies. Recent reports say that developers including Durst Organization, Tishman Speyer and a partnership between Silverstein Properties and Brookfield Properties are among those submitting bids for the project. Meanwhile, 2 WTC, in progress since 2008, has long been in limbo and may rise without an anchor tenant.
At the same time, the submarket that includes the WTC complex and Brookfield Place — the area south of City Hall and west of Broadway — has become a commercial leasing boomtown.

At the end of the second quarter of 2019, the WTC submarket had a 13.2 percent availability rate, the lowest since the recession, according to Franklin Wallach, a senior managing director in Colliers International’s New York research group. A year ago, that figure was 15.7 percent; five years ago, it was at more than 20 percent. Comparatively, availability within post-2000 inventory the wider Downtown market — which also includes the Financial District, the Seaport District, Battery Park and Tribeca — fell to 18.8 percent this year, down from 25 percent in 2018.

Since 2011, when Conde Nast made the decision to relocate to 1 WTC, Downtown Manhattan has leased more than 10 million square feet to large tenants moving from Midtown and Midtown South taking on spaces 50,000 square feet and up. The office tower at 1 WTC, which is co-owned by the Durst Organization and the Port Authority of New York and New Jersey, and Silverstein Properties’ 3 WTC, 4 WTC and 7 WTC, make up the bulk of Downtown’s post-2000 office inventory. And so far in 2019, Colliers has tracked more than 1 million square feet in the WTC complex alone.

Diageo, the British beverage company, leased an estimated 87,000 square feet at 3 WTC earlier this year, joining Hudson River Trading, which announced its plan to swap two floors at 4 WTC for four at its new HQ in January; law firm Kelley, Drye & Warren is moving into that same building, taking on 103,000 square feet, in fall 2020.

Recent deals fill nearly 10 million square feet of office space in Lower Manhattan, according to Wallach. So while the submarket has lost a little more than 3 million square feet of leases to other parts of the city, “net, Downtown is up by 6.3 million square feet.”

“Space is being leased in those buildings,” Wallach said. “Seven WTC is virtually 100 percent leased. 4 WTC: same thing. 1 World Trade Center: out of a more than 3 million-square-foot building, about four-fifths is leased.”

The industries located Downtown have seen a sea change, too. In the 1980s and 1990s, Downtown was dominated by financial services, government, and legal. Today, the TAMI sector — tech, advertising, media, and information services — represented more than 50 percent of the 9.5 million square feet large tenant relocations to Downtown since 2011. The second highest industry shift, constituting 15 percent, has been in consumer goods and retail offices, including Gucci, Hugo Boss, Revlon, and the New Avon.

“The industry mix in Lower Manhattan has really become night and day,” says Wallach. “Anecdotally, from our view of the market: Each year, Downtown — not just the World Trade Center — is in a stronger and stronger position.”

Transportation has played a key role in the transformation: More than a dozen subway lines converge at Fulton Street terminal, which also connects to the Path station. The underground walkway connecting Oculus and Brookfield Place stretches from Williams Street to Winter Garden.

The Santiago Calatrava-designed Oculus, though, has endured criticism for its overwrought design and its nearly $4 billion price tag. It’s also seen its share of infrastructure issues, namely the rubber seal running along the center of the structure’s skylight is believed to have torn last year. The Port Authority used Flex Tape to seal the leak. Despite assurances that the retractable skylight would open in tribute to 9/11 victims Wednesday morning, that did not happen.

Wallach observes that housing development on the Eastside has supported the employee base for businesses that have set up shop Downtown, while at the same time Pier 11 is the “ultimate express stop” for waterway transportation, enabling New Jersey and Brooklyn residents to easily reach Downtown by ferry — a shift that has only taken root in the last two years.

Recent condo projects in the area include Magnum Real Estate Group’s 100 Barclay, Sharif El Gamal’s 45 Park Place, Silverstein Properties’ 30 Park Place and Alchemy Properties’ Woolworth Tower Residences.

“These are all things that have fed very well into supporting continued leasing at the WTC and Downtown in general,” he said.

Most everything Shonda Rhimes has touched has turned to gold, but the mega-producer and writer’s substantial creative cache wasn’t enough to net the asking price on her Hancock Park home. Still, she managed to make a tidy profit on the deal.

Rhimes, the driving force behind “Grey’s Anatomy” and “Scandal,” sold her 8,300-square-foot house for $7.1 million, according to the Los Angeles Times.

On the market for nearly a year, the closing price was nearly 30 percent below its $9.9 million asking. The 1920s property had already been reduced to $8.8 million in May.

But the sale price was also about 25 percent over the amount she paid nearly a decade ago.

The traditional-style home includes six bedrooms, nine bathrooms with perks including a swimming pool and cabana.

Rhimes, who recently agreed to a multi-year development deal with Netflix reportedly worth $150 million, purchased the mansion in 2010 for $5.6 million from indie rocker Beck.

Homes on the market, and which are or have been owned by celebs have had mixed success in celebrity-filled Los Angeles. Couple that with a slowing L.A. luxury market, and it becomes even tougher to market a home on the basis of its star power.

Rhimes, on the other hand, appears to have a particular affinity for where she lives. She has purchased four homes in Hancock Park, including an Elmer-Grey designed Italianate villa she bought from TV actress Patricia Heaton in 2014 for $8.8 million and a traditional English Country home she shelled out for $4.6 million in 2017.
Ed Solorzano of Berkshire Hathaway HomeServices California was the listing agent. Joshua and Matthew Altman of Douglas Elliman represented the unnamed buyer. [LAT] — Alison Stateman 

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

This page was last updated at 3:50 p.m. PT

California’s illegal cannabis dispensaries far outnumber the legal ones. A state audit found there are 2,835 unlicensed dispensaries and delivery services operating in the state. That’s at least three times as big as the legal dispensary market. The report comes as state officials struggle with how to regulate the blooming industry. [LAT] 

A plan to redevelop a Chase bank building in Toluca Lake pushes ahead. A city committee signed off on a 234-unit project that would repurpose the Chase bank building on Lankershim Boulevard. Frederick Delijani of Sterling Real Estate Group is behind the project, which still requires City Council approval. [Curbed] 

Adam Neumann (technically) lost $10 billion. The WeWork founder’s 22 percent stake was reportedly pegged as high as $14 billion earlier this year. But after a rocky path to the company’s IPO, its valuation has plummeted, and Neumann’s stake is now worth closer to $3 billion. [Bloomberg]

Forever 21 is planning to file for bankruptcy as soon as Sunday. The retail chain could close as many as 700 stores in such an event, bringing an end to months of hemorrhaging money while it struggled to secure a loan. [WSJ]

Holland Partners faces appeal over 185-unit Hollywood complex. The Laborers’ Union International of North America claims that the project’s environmental impact report does not comply with the California Environmental Quality Act. The group filed its appeal to the Central Area Planning Commission. Earlier this year, developer Icon Company accused the union and the Southwest Regional Council of Carpenters of using CEQA appeals to force Icon and other developers into using union labor on their projects. [Urbanize]

Rexford picks up pair of Downey industrial assets for $26.8 million. Rexford Industrial picked up a 5.9-acre property on Bellflower Boulevard and a 3.7-acre property on Imperial Highway. The latter was a leaseback deal. Last week, Rexford acquired five properties around the L.A. area for a total of $110.3 million. [PR Newswire]

A 30-bed women’s shelter in Hollywood opened as part of L.A.’s “A Bridge Home” program. The shelter opened at a restored Mid-century Modern library on Gardner Street and is the seventh shelter for Mayor Eric Garcetti’s “A Bridge Home” program to open. That brings the total number of beds through the program to 377. The mayor wants at least 15 shelters through the city, totaling 1,500 beds. [LAT]

Thousand Oaks R&D Campus sells. L.A.-based HATCHspaces and Chicago-based Singerman Real Estate LLC bought the 161,000-square-foot Think Here campus from Harbor Associates. The campus will be rebranded as HATCHcampus @ Conejo Spectrum as a life sciences complex. [BusinessWire]

SoftBank has some leverage over WeWork’s IPO. While the Japanese conglomerate doesn’t have control of WeWork’s board to override an IPO, it does have significant levers to pressure WeWork. In addition to the billions of dollars it has invested, it also has control over WeWork’s Asia business and is yet to release a $1.5 billion commitment. [TRD]

Low rates are increasing loan enthusiasm. Mortgage applications jumped 2 percent last week, compared with the previous week, and remained 69 percent higher than the same week last year. Interest rates are also down slightly; the average contract interest rate for a 30-year fixed rate mortgage with conforming loan balances dropped to 3.82 percent from 3.87 percent over the week. [CNBC]

FROM THE CITY’S RECORDS:

Alexandria Enterprises, LLC wants to build a 19-unit Transit Oriented Communities project at 556 N. Alexandria Avenue near Metro’s Vermont/Beverly Red Line station north of Koreatown. Three units would be set aside for “very low-income” renters. [LADCP]

An applicant named Fred Yaghoubtil filed plans for a five-story, 12-unit TOC project at 950 S. Wilton Place on the southern edge of Koreatown. Two units would be set aside for “low income” renters. [LADCP]

A Bel Air home that sat on the market for four years has finally been sold, with a former Olympic curling couple from Hungary scoring the purchase.

Gyorgy Nagy and Ildiko Szekeres spent $6.1 million to buy the 8,360-square-foot estate at Stratford Circle in Bel Air Crest, a gated neighborhood complex with more than 200 homes.

The sale was billed as the most expensive trade in the complex this year, but it wasn’t all glory for the sellers, who records show as Djahangir (John) and Victoria Charchian.

The home sat on the market for four years, ran through four different listing agents and had two price cuts. It originally hit the market for $7.5 million in May 2015, dropped to $6.5 million in February before landing on its $6.1 million mark.

Recently remodeled, the Mediterranean-style estate has six bedrooms and eight bathrooms. There’s also a gym, tennis courts, swimming pool, putting green and playground on the 24,000-square-foot lot.

Jonathan London of Compass and Aram Afshar of Coldwell Banker shared the listing. Christophe Choo of Coldwell Banker represented the buyer.

Bel Air Crest, located off Sepulveda Boulevard, has been known to attract a number of well-heeled buyers. In late 2017, Kim Kardashian and Kanye West sold their 9,000-square-foot mansion in the area to Ukrainian billionaire Marina Acton for $17.8 million. She then sold it 10 months later for nearly $4 million less than what she paid.

A person standing on the 76th-floor terrace of 3 World Trade Center can see four states, at least three bridges and Larry Silverstein’s new apartment at 30 Park Place (sort of).

The 5,300-square-foot terrace is 934 feet above ground and is up for grabs to whoever takes the attached 31,000-square-foot office space. One World Trade Center looks almost close enough to touch from the tower’s tallest terrace, which also provides a panoramic view of Downtown and well beyond. Another terrace on the 60th floor spans 5,300 square feet and will be used by the tenant who takes that space. On the 17th floor, an expansive 11,000-square-foot outdoor space is divvied up evenly between GroupM, the building’s anchor tenant, and the rest of the tenants in the tower.

For now, the most impressive aspects of the new office tower — developed by Silverstein Properties and slated to open June 6 — are arguably its views. Inside, the floors are mostly spacious, column-free concrete boxes. It’ll be up to the tenants to build out the floors, a common practice for new commercial development. But even the bare bones aren’t bad: Each floor features ceiling heights of 13.6 feet and floor-to-ceiling windows. GroupM has opted to maintain the industrial vibe with exposed concrete in parts of its 700,000-square-foot digs. The windows have waist-high ledges — called furniture rails — that serve as a kind of comfort blanket for the acrophobic. (Silverstein’s Dara McQuillan assured TRD staffers on a tour of the building that there’s no risk of falling without the bars).

The tower will be the third of the newly constructed WTC buildings to open, following One WTC, 4 WTC and 7 WTC. Silverstein is still trying to find an anchor tenant for 2 WTC, which lost News Corp. and 21st Century Fox back in 2016. Until then, the site will remain just a foundation created with Norman Foster’s vision in mind.

The building’s lobby sports a 60-foot-high cable-net glass wall, which enables natural light to pour into the space. At that height, use of the steel cables comes as close to an uninterrupted glass curtain wall as you can get, Silverstein’s leasing head Jeremy Moss said during a tour of the building last month. At first blush, the lobby’s walls are reminiscent of the almost reflective stainless steel used for elevator doors. A closer look reveals woven strands of steel that is sandwiched between two pieces of glass, woven in Switzerland by Sefar.

Part of the lobby’s far wall is bright red to show depth, a device the architect Richard Rogers has employed in several of his projects. The facade features another common motif for Rogers: using structural elements of a building as a design feature. The otherwise ordinary glassy facade of the tower is accented by K-shaped bracing on its eastern and western sides.

The 80-story building is 40 percent leased and asking prices range from the $70s to $90 per square foot, Moss said.

“I’m actually hoping that Larry will let us move our offices out of 7 WTC across the street, and over here to 3 World Trade Center,” Moss joked. “I’m going to keep lobbying for it.”

Video produced by Jhila Farzaneh.

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

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

California’s sweeping rent control bill heads to Gov. Newsom’s desk for signing. Assembly Bill 1482 passed the Senate on Wednesday, not without fierce debate, and Newsom is expected to sign it into law. The measure will cap annual rent hikes in any unit older than 15 years across the state to 5 percent and institute a slew of tenant protection measures. The new measures do not apply to existing rent controlled units in cities including Los Angeles. [LAT]

City Council moves controversial plan for supportive housing at youth rec center. L.A. lawmakers forged ahead on a plan, still at its early stages, to replace a basketball court and other recreation space run by the nonprofit El Centro del Pueblo, which runs services for communities affected by gang violence. Opponents say they don’t want to lose a valuable community resource. [Curbed]

Realtors exempt from state’s “gig economy” legislation. Agents will not be subject to new rules that will reclassify independent contractors across the state as employees with rights to benefits. The legislation was mainly conceived to address labor issues for “gig economy” companies like Uber and Doordash, who classify many workers as contractors. Securities brokers, insurance agents, and commercial fishermen are among other workers exempt. [Inman]

Kevin Hart’s former Tarzana home hits market for $3.4 million. The actor and comedian sold the 6,550-square-foot home just four months ago for $2.8 million, but the new owners appear to think they can turn it around in a quick flip. The home was built in 2000 and has seven bedrooms and bathrooms. [LAT]

Real estate investor Josh Bendheim among buyers of Beverly Hills Courier. An investment group led by Bendheim, president of Bendheim Enterprises Inc., bought the weekly newspaper for an undisclosed price. The Courier has a distribution of around 40,000 and focuses on hyperlocal news in the Beverly Hills area. Another one of the buyers, writer Lisa Bloch, said she wants to expand distribution to West Hollywood and expand staff. [LABJ]

President Trump wants to the Fed slash interest rates below zero. He tweeted Wednesday that the Fed should slash interest rates to zero or below, raising questions about how negative rates would work, and what they would do for the economy. [NYT]

Guardant Health is vulnerable to WeWork’s valuation woes. While headlines about WeWork’s faltering IPO path have focused on SoftBank, another SoftBank-backed company, Guardant Health, may also be vulnerable. The company’s stock price dropped 7.8 percent on Wednesday following reports that SoftBank is urging WeWork to shelve its IPO. [Bloomberg]

FROM THE CITY’S RECORDS:

A 60-unit Transit Oriented Communities project is in the works at 3702 W. Jefferson Street in West Adams. An applicant with the company Branmark Group filed plans for the project on Wednesday. [LADCP]

Developer Daniel Pourbaba is planning a five-story, 21-unit project at 5817 W. Lexington Avenue. Pourbaba runs Proper Development and is the son of David Pourbaba, CEO of 4D Developments and Investments. [LADCP]

Real estate agents have always had an unusual relationship with their employer, connected to the company but classified as independent contractors. In California at least, that’s how they’ll remain.

The state’s sweeping new legislation to reclassify independent contractors of the gig economy as employees with all the requisite benefits would exempt brokers.

Under the provisions of the state bill — which Gov. Gavin Newsom is expected to sign — agents would not be included in the so-called “ABC” test that California will require to determine whether a worker should be classified as an independent contractor or an employee, according to Inman.

As an employee, the worker would be entitled to minimum wage, health benefits and workplace rights.

AB 5 was mostly meant to address labor issues of app-based companies. Drivers for ride-hailing services including Uber and Lyft, for example, are among those expected to be reclassified under the bill. Uber has already said it will not abide by the new legislation.

Some in the real estate industry feared that Assembly Bill 5, as it’s called, would force brokerages to reclassify their agents as employees, driving up costs and threatening their bottom line. As the bill is currently written, agents are not included, neither are securities brokers, commercial fishermen, and cosmetology workers, among other workers.

Real estate brokers will instead be subject to an “economic realities test” to determine worker status, which will likely mean they remain as contractors.

The California Department of Industrial Relations’ guidance on that test says that “the most significant factor to be considered is whether the person to whom service is rendered — the employer or principal — has control or the right to control the worker both as to the work done and the manner and means in which it is performed.” [Inman] — Dennis Lynch

Nearly a year after voters rejected a statewide referendum that would have opened the door to expanded rent control, California lawmakers have kicked down that door.

The Assembly approved a landmark bill on Wednesday that will cap yearly rent increases and expand protections for millions of tenants, a major step aimed at addressing the state’s deepening affordable housing crisis. Gov. Gavin Newsom is expected to sign the legislation, known as Assembly Bill 1482.

Under the bill, landlords will be limited to annual rent increases of up to 5 percent plus inflation, an amount that some property owners say will make it difficult to turn a profit and discourage future investment. Owners will also be barred from evicting tenants unless they can prove “just cause,” such as failing to pay rent, according to the Los Angeles Times.

More than 2 million more apartments in the state would be subject to rent control as a result of AB 1482, although it exempts buildings constructed within the last 15 years, along with single-family homes.

The measure passed 46-22 in the Assembly, after already having passed in the Senate. Newsom called AB 1482 “the strongest package in America” aimed at protecting tenants. California is now the third state to pass statewide rent control laws, following Oregon and New York, which passed its own historic rent law in June.

The California bill comes less than a year after voters soundly defeated Proposition 10, which would have allowed cities and counties to expand rent control laws as they wanted. They are now bound by a legislation that limits rent control to buildings built in 1995 or before.

Critics of AB 1482 — and Prop 10 — have argued that expanding rent control and tenant protection measures will thwart development, which California desperately needs. Proponents say it is a necessary step at curbing the region’s rising homeless population, especially in cities like San Francisco and Los Angeles County, which now a reported 59,000 people living on the streets. [LAT] — Natalie Hoberman

Some of the country’s biggest landlords and developers have thrust themselves into perhaps the most contentious national debate: gun control.

Brookfield Property Group’s Ric Clark is among 145 CEOs urging Senate leaders to expand background checks on all guns sales and pass stronger “red flag” laws, which would limit sales to potentially dangerous people.

“Doing nothing about America’s gun violence crisis is simply unacceptable,” the CEOs wrote in the letter, which was shared with the New York Times.

Other prominent real estate figures to sign the letter include RXR Realty’s Scott Rechler and Thrive Capital’s Joshua Kushner, brother of White House advisor and President Trump’s son-in-law Jared Kushner. Brian Chesky of Airbnb, Sarah Friar of Nextdoor, Gary Beasley of Roofstock, Dan Doctoroff of Sidewalk Labs, Yashar Nejati of thisopenspace and Aaron Block of MetaProp also signed.

With $8 billion in annual revenue, Brookfield is one of New York’s biggest property owners with 17.5 million square feet, according to an analysis by The Real Deal. The company did not immediately return a call for comment.

Rechler has spoken out on gun laws before. In February, he joined the CEOs of TOMS shoes, Levi Strauss and Dick’s Sporting Goods in sending a letter calling on the U.S. House of Representatives to pass stricter background checks for gun buyers. “I find it important for CEOs to take a greater level of social responsibility,” Rechler was quoted as saying at the time.

The letter comes a week after Walmart — whose El Paso location was the site of a deadly shooting last month — said it would stop selling certain guns and ammunition, and urged lawmakers to reauthorize a ban on assault weapons. Kroger, CVS, Walgreens and Wegmans have changed their open-carry policies.

Other prominent signatories of Thursday’s letter were the leaders of Twitter, Uber and Levi Strauss. Apple, Facebook, Google, JPMorgan Chase and Wells Fargo were all absent from the list.

The last time big business weighed in on politics was over President Trump’s immigration policy and his response to protests by white supremacists in Charlottesville, Va. At the time, real estate players largely remained silent.

Compass, whose Southern California presence quickly expanded to nearly three dozen offices, has closed its Hancock Park location just a year after opening it, The Real Deal has learned.

The Softbank-backed brokerage shuttered the office at 156 North Larchmont Boulevard, and will consolidate the handful of agents there into the firm’s flagship Los Angeles space in Beverly Hills.

In Southern California alone, the firm has expanded to 33 offices — not including the Hancock Park space — since it opened in Beverly Hills four years ago. Pacific Union intended to open the Hancock Park office in the Keystone Building last summer, to accommodate 20 agents.

But Compass acquired Pacific Union in August 2018 in a blockbuster deal, and coupled with ongoing renovations of the historic building, the opening was delayed until December.

Bret Parsons, former assistant manager at the Hancock Park office who still works at Compass, confirmed the office closure. A spokesperson for the company declined to comment.

The New York-based Compass has been on a nationwide expansion tear, which has seen it grow into one of the largest brokerages nationwide. The venture capital-backed firm, now valued at $6.4 billion, is preparing for an initial public offering.

Compass isn’t the only brokerage in L.A. shedding some office space. In July, sources said Coldwell Banker, one of the most entrenched agencies in the city, is also consolidating its two offices in Beverly Hills into its larger “North Office” on Canon Drive, a move that would relocate about 150 brokers.

The consolidation comes as home sales in L.A. have been slowing, and high-end listings have been lingering on the market. Despite that slowdown, Compass has been actively recruiting and expanding its roster of agents in Los Angeles.

Recently, the firm has poached at least 22 agents and staff from Coldwell Banker alone. Among those 22 were top-producers Chris Cortazzo, who brought 16 agents with him; and Ginger Glass.

A former Facebook executive has listed his 13,000-square-foot mansion, which happens to be in the priciest ZIP code in the nation.

Of course it’s in Silicon Valley, in the small town of Atheron, which last year recorded the highest median home sales price, at $6.7 million.

Mike Murphy’s massive Mediterranean-style manse, meanwhile, is being listed for $35 million, according to Variety.

Murphy and his wife, Elaine, have The seven-bedroom, 11-bath mansion is a short drive to Facebook HQ in Menlow Park.

It is being sold as two separate properties. The larger two-acre parcel, which includes the main house, guest house and pool, is being offered for $27 million, with the smaller one-acre plot with a tennis court listed for $8 million. Steve Niethammer of Zane MacGregor brokerage, is the listing agent.

The estate spans three fully landscaped acres, which Murphy acquired in two separate transactions, the first in 2011 and second in 2012 for a total of around $19.5 million, according to the report.

Murphy, who was a vice president at Facebook and also worked for Yahoo, enlisted Menlow Park-based developer Pacific Penisula Group to complete the property’s multimillion-dollar expansion and renovation. Neighbors include other tech titans, including most notably Google co-founder Sergey Brin. [Variety] — Alison Stateman

When New York passed its historic rent reform law in June, Los Angeles-based landlords shuddered at the thought that California could be next. Some claimed they would shift their investments into projects in other states, while others began raising rents as a precaution.

Three months later, their fear became reality.

On Wednesday, California lawmakers voted to expand rent control in the state for the first time in 25 years. The landmark bill — which has a 10-year lifespan — will cap yearly rent increases at 5 percent plus inflation and provide tenants with expanded protections against evictions. Gov. Gavin Newsom is expected to sign the bill into law.

But local real estate pros were split on whether California’s rent reform measure will have as big an impact as New York’s legislation has had on the industry.

Andrew Starrels, a Holland & Knight partner who specializes in land use, said investors are now “balancing against the general feelings that recessionary times are coming. This is another drag in an investor’s model so I’m sure there will be some deals that won’t get made.”

But he doesn’t expect the bill will “be fatal to either side,” referring to tenant advocates and landlords. “We got tremendous demand for investment, very high values and I don’t know that this is going to send everybody elsewhere.”

Doug Bigby, president of the National Multifamily Housing Council took a stronger position, arguing the measure will “discourage investment, shrink the availability of affordable housing that already exists and squeeze even more people struggling in the housing market. This makes the problem worse,” he said in a statement.

Assembly Bill 1482, as it is now called, represents one of the biggest steps in addressing the affordable housing crisis. For affordable housing advocates, the law will be a victory.

“Tenant protections like these are an important measure to address the upstream causes of people losing their homes,” said Leonora Camner, managing director of Abundant Housing L.A. “I think we’ll continue to see more protections for renters.”

Value to investors
But some developers and property owners interviewed for this story said all was not lost, and that the 5 percent rent cap will still provide value to investors.

The bill still allows for vacancy decontrol, which New York’s rent regulation eliminated, meaning California apartment owners can still raise the rent to market rate when a tenant vacates a unit.

Henry Manoucheri, founder of Century City-based multifamily builder Universe Holdings Development, said he’s “disappointed” the bill was approved, but not the least bit “shocked.” His firm had been preparing for the past two years. He raised rents on properties that weren’t under rent control and bought more buildings that were, for their predictability. Roughly half of the firm’s 3,000 units across Southern California are rent-controlled.

Manoucheri expects the bill will cause landlords to spike rents on their vacant units, something he’s already seen in neighborhoods like Inglewood, which has a significant number of rent controlled buildings. He said landlords may also choose to cut back on renovations or value-add investments that require pouring money into repairs and rehab.

Eric Sussman, a real estate investor and professor at the University of California Los Angeles, said AB 1482 “is not going to work.” While it could lead to fewer evictions in the short term, Sussman said it will also reduce the number of real estate transactions and investment in the state.

Through his firm Clear Capital, Sussman has also been preparing. Clear Capital owns around 3,500 units, though most are outside California. The firm sold many of its assets in the past year.

Another component of the bill is that landlords will be barred from evicting tenants unless they can prove “just cause.” It will apply in cities that don’t have rent control laws, and will likely expand protections in the ones that do, like Los Angeles, West Hollywood and Inglewood.

The new measure comes less than a year after voters statewide rejected Proposition 10. That would have repealed the Costa-Hawkins Rental Housing Act of 1995, opening the door to expanded rent control laws.

AB 1482 covers buildings that are 15 years old or older, but does not include single-family homes. It will also exempt buildings already subject to rent control, which in L.A. is around 624,000 units and 118,000 properties, according to the city Housing & Community Investment Department.

Once the bill becomes law, California will become the third state in the nation to have statewide rent control. Oregon is the other, besides New York.

California Apartment Association, the largest landlord association in the state, had led the battle against the measure. But CAA ultimately withdrew its opposition during final negotiations.

“We now, of course, need to address the largest issue facing the state, which is the production of affordable housing,” spokeswoman Debra Carlton wrote in an e-mailed statement. “While this legislation is a temporary solution, we must get serious about moving forward on production, which is the only way we address our housing crisis.”

Alison Stateman contributed reporting.

The We Company will push ahead with its initial public offering and list its shares on Nasdaq later this month, despite a push from its lead investor to withdraw such plans.

The office-space company said in a U.S. Securities and Exchange Commission filing Friday that it would be making changes to its corporate governance structure, which includes putting restrictions on CEO Adam Neumann’s power, “in response to market feedback.”

Among the changes, the company will no longer use a succession committee led by Rebekah Neumann to select a new CEO, and the board will be empowered to elect a new head, according to the amended S-1 filing.

It will go public on the Nasdaq exchange the week of Sept. 23, the Wall Street Journal first reported.

In addition to the appointment of the board’s first woman, Frances Frei, the company said it would also add another board member within a year, “with a commitment to increasing the board’s gender and ethnic diversity.”

Neumann also will not be allowed to make future real estate transactions, and as previously disclosed, he will repay $5.9 million made to him for the trademarked use of the word “we.”

The reports cap a tumultuous week for the company. Earlier this week, the company’s largest investor, SoftBank, was reported to have pushed for a delay in the IPO, as it was revealed the company’s valuation was expected to dip below $20 billion — more than half its previous $47 billion valuation.

But the following day, the We Company expressed that it would push ahead with plans for an imminent IPO, seen as a necessary step to securing up to $10 billion in debt and equity to fund its ambitious growth plans.

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

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JMF’s Jenga-like DTLA tower project gets green light. The City Planning Commission unanimously approved JMF Enterprises’ 54-story tower that would rise across the street from Pershing Square. Its most distinctive features are cantilevered swimming pools jutting out from the top floors. JMF wants to include 31 condominiums and a 190-key hotel. It’s now headed to the City Council. [Curbed]

LA’s food hall scene might be overcooked. Los Angeles and cities nationwide have seen an explosion in food halls over the last several years. A new study by Cushman & Wakefield found that the number of food halls across the U.S. will quadruple from 120 in 2016 to 450 next year. There have been 10 “notable failures” of food halls and Cushman expects more. [LAT]

The latest propetch for the neighborhood watch. Some neighborhoods in L.A. are renting out sophisticated motion-activated security camera systems from a startup called Flock, which can read license plates and identify cars by make, model and color. The pitch is that in the event of a crime like a burglary, residents can use the footage to identify suspects. Flock has $20 million in funding, including money from Peter Thiel’s Founders Fund. [LAT]

West Adams sees a sign of gentrification. A real estate agent-run bicycle tour of coffee shops, art galleries and homes for sale is the latest development to have some residents concerned. That coupled with large real estate projects from developers like CIM Group and more home-flipping are telltale signs of gentrification in the historically black neighborhood outside red-hot Culver City. [Curbed]

Fairfield Residential gets initial approval for 370-unit complex in Glassell Park. The developer wants to replace a warehouse near the L.A. River with the complex, which would have studio, one-, and two-bedroom units. About 10 percent will be set aside for “very low-income” renters. [Urbanize]

WeWork forges ahead with its IPO after making significant governance changes. In a revised S-1 filing, CEO Adam Neumann reduced his high-stock vote from 20 to 10 votes and agreed to relinquish his profit on any real estate deals he enters into with the company. The updated prospectus also assures investors that any subsequent CEO will be chosen by the board; previously, Adam Neumann’s wife Rebekah Neumann played a key role in the decision. The We Company plans to go public the week of Sept. 23. [WSJ, Bloomberg]

Natixis’ head of real estate finance Greg Murphy is leaving the bank. Murphy oversaw an increase in originations from $3.5 billion in 2016 to about $7.5 billion in 2017 and 2018, but will return to his native Texas to retire. As to who will replace him: Murphy said the “deep bench” of senior people includes Jerry Tang, Michael Magner, Andy Taylor and Arvind Pai. [CO]

FROM THE CITY’S RECORDS:

A 40-unit building is being planned at 408 S. Oxford Avenue in Koreatown. The developer, 408 Oxford LLC, said in a city filing that the units are planned as condominiums, but has requested a density bonus through the city’s Transit Oriented Communities program, which is only applicable for rental projects. [LADCP]

A 16-unit TOC project is in the works at 1301 N. Alexandria Avenue. The developer wants a reduction in side yards and a height increase from 45 feet to 52 feet. [LADCP]

The feeding frenzy for the food hall model in Los Angeles, New York and beyond is growing, but recent indicators show the real estate play may be overcooked.

The number of food halls on both coasts, along with Chicago, Miami and others is set to quadruple, from 160 in 2016 to 450 by the end of 2020, according to a recent Cushman & Wakefield study, cited by the Los Angeles Times. Nearly a dozen notable food halls have failed in the last four years, and Cushman expects more of that as they proliferate.

L.A. is seeing its fair share of new food halls, many inspired by the success of DTLA’s Grand Central Market, which sees 2 million visitors a year, many ready to wait an hour for one of Eggslut’s famous breakfast sandwiches.

Some are being built from the ground up, but developers are also using them to fill hard-to-rent retail space. Essex Property Trust is adding a 21-vendor hall at the Santee Court apartment complex in Downtown L.A. Developer Urban Offerings wants to build a rooftop food hall at the Norton Building in the Fashion District.

In New York, the creator behind a Downtown Brooklyn food hall signed a lease with Boston Properties to open a 10,000-square-foot version, called The Hugh, in a Midtown Manhattan tower. And a 30,000-square-foot food hall in a Blackstone-owned shopping center in Queens, is also scheduled to open soon.

Consultant Rick Moses, who oversaw the recent renovation of LA’s Grand Central Market and is working on another location in Culver City, said developers should think twice before digging in.

“There is very little room for more,” he told the Times. “They have to be very special places to be successful.” But, he added, “we are past the peak.” [LAT] — Dennis Lynch

Carl Icahn is taking his talents to South Beach, and the SALT tax may be the reason for his fastbreak.

The billionaire investor and noted corporate raider is planning to move his investment firm from New York City to Miami, according to the New York Post.

The Trump administration’s 2017 tax overhaul capped the amount of state and local taxes that could be deducted at $10,000. Brokers and real estate professionals in Florida projected a large scale migration of hedge fund managers and investment professionals from high-tax states to South Florida. Icahn could be one of the first well-known investment managers to actually make the move.

Icahn told his staff if they won’t move to Miami he’ll let them lay them off without severance, according to a letter obtained by the Post. It said Icahn Enterprises will close offices in New York City and White Plains on March 31, and move to Miami the next day.

Icahn assured his staff that they will get paid at least their salary and bonus earned in 2019, according to the report. He also offered an additional $50,000 relocation payment if they establish residency in Florida. It is unclear how many employees would be eligible for that, and where the new offices are located.

The investment maven also has a home on Miami Beach’s ritzy Indian Creek Island. [NYP] — Keith Larsen

In January, Google won a bidding war with WeWork and leased a 150,000-square-foot office building near the tech giant’s Mountain View headquarters.

Now, Preylock Real Estate Holdings acquired the office building at 620 National Avenue for $190 million, according to the Mercury News. The deal works out to $1,260 per square foot.
Google’s lease runs through 2029, and the property is a few miles from its Googleplex. It also has offices a short walk from Century City-based Preylock’s new building.

Properties leased by top tech firms — especially long-term deals — command high prices, and are a top target for institutional investors. In Miami, a logistics firm this week sold an Amazon-leased, 117,000-square-foot warehouse to JPMorgan Asset Management.

For the Preylock deal, the seller is Delaware-based National Avenue Partners LLC, led by developer Victor R. Fracaro, records show. The firm began assembling parcels for the office building in 2012 and in 2015. It secured $71.8 million in construction financing from Regency Capital Partners and TDA investment Group for the spec office development.

Preylock owns four other properties in the Silicon Valley region and two office buildings in Southern California, including a 158,000-square-foot office in Torrance it bought from Sares-Regis last July for $26.2 million. [The Mercury News] — Dennis Lynch 

The Real Deal is thrilled to announce that Grant Cardone, founder & CEO of Cardone Enterprises, will be speaking at The Real Deal’s 6th annual Real Estate Showcase and Forum on Oct. 17, at Mana Wynwood. Cardone, who operates $1.2 billion property portfolio, has spoken throughout the world on real estate, entrepreneurship, marketing, finance and sales. He is a New York Times bestselling author of seven books.

This year’s powerhouse lineup of speakers will discuss residential and hotel development, diversity in real estate, and so much more! Confirmed panelist include Michael Shvo, Chairman & CEO of SHVO; Melissa Rose, Managing Director of Ackman-Ziff; Don Peebles, Founder, Chairman & CEO Peebles Corporation; Peggy Olin, CEO of OneWorld Properties; Laurent Morali, President of Kushner Companies; Lissette Calderon, CEO & President of Neology Life Development Group; Ron Shuffield, President & CEO of Berkshire Hathaway HomeServices EWM Realty, Jerome Hollow, Executive Vice President of Florida East Coast Realty; Phil Gutman, President of Brown Harris Stevens; John Gomes, Co-Founder of The Eklund|Gomes Team at Douglas Elliman and Oren Alexander, Co-Founder of The Alexander Team at Douglas Elliman. Check our event site daily for the latest updates on our agenda and speakers.

Sponsorship opportunities are going fast and already include Douglas Elliman, Kay Properties & Investments, Citi Bank, REGUS, Banesco, Trump Group, Samsung Builder Home Appliances, Tera Group, Klaus Multiparking, Get GlobalPro, Grove Resort & Spa, Earthcam, Green Lush Artificial Walls, Elite Home Stages and many more. Get your spot while they last! Sponsorship opportunities and tickets are booking here.

When a loan to the We Company’s newly-formed $2.9 billion property investment fund, ARK, was taken to the commercial mortgage-backed securities market in August, analysts had some concerns.

Beyond conflict-of-interest issues stemming from the fact that ARK was using the loan to finance its purchase of 600 California Street, where WeWork would be the largest tenant, credit analysts from Morningstar and S&P Global also questioned the very viability of the company and its business model.

“Our primary concern with WeWork is that while it has been successful pioneering the shared office concept, the company has yet to post a profit or experience a downturn,” Morningstar’s report noted in mid-August, soon after the co-working firm released its IPO prospectus, which has polarized investors.

S&P echoed the sentiment, pointing out that, “There is inherent risk to the sustainability of the co-working business model in an economic downturn, during which tenants may rapidly cancel their memberships as employment dynamics shift.”

This was far from the first time that credit analysts have shown skepticism in WeWork. In an analysis of two dozen CMBS ratings reports for properties across the country — representing about 10 percent of all active or announced U.S. WeWork locations — The Real Deal found that credit rating agencies have increasingly viewed WeWork, and co-working tenants in general, as a negative in their risk assessments.

Map by Yoryi De La Rosa

These concerns have become more pointed in recent years, as the prospect of a recession and the firm’s planned public offering later this month have resulted in greater scrutiny of its business model. This week, the company announced sweeping changes to its corporate governance. (Fitch Ratings on Friday said this amounted to a “credit positive” after its downgrade of the company last month.)

“WeWork has yet to prove itself in an economic downturn,” said Michael Brown, the managing director of CMBS ratings at Kroll Bond Rating Agency. “That’s the risk that we see and frankly is very difficult to quantify at this point.”

WeWork declined to comment, citing its pre-IPO quiet period.

In mid 2017 — well before concerns about WeWork’s viability in a recession became widespread — Kroll began including a warning about WeWork and co-working in pre-sale reports for CMBS loans on properties where the company is a major tenant, TRD’s analysis found.

“Although the company has grown each year since it was established in 2010, short term space users may be more vulnerable in an economic downturn compared to traditional long term office leases, which has the potential to impact WeWork’s operating profitability and, in turn, its ability to maintain its lease payments,” a Kroll report noted in August 2017, in reference to the six-story mixed-use property at 8 West 126th Street in Manhattan, where WeWork is the sole office tenant.

Six more Kroll reports published since then have contained similar wording, with WeWork’s presence at a property always listed as a negative among “Key Credit Considerations.”

Kroll’s view of WeWork appears to have been less negative before 2017. Though some of the agency’s ratings reports from 2014 to 2016 mention “tenant concentration” as a negative for properties where WeWork was a large tenant, no concerns were raised in regard to WeWork or its business model in particular.

WeWork competitor Knotel received similar treatment from Kroll in a March 2018 report for 22 West 38th Street, where Knotel is the largest tenant with more than half of the 12-story building’s total space. Kroll’s report made the same observation, noting its potential vulnerability during a downturn, which could “impact Knotel’s operating profitability and, in turn, its ability to maintain its lease payments.”

Meanwhile, fellow flexible workspace provider Regus has not drawn much attention from credit analysts. At most Regus properties examined by TRD, the firm was not a large enough tenant to pose significant risks for the building’s overall financing.

But as rating agencies have highlighted the downsides of WeWork as a tenant, landlords continue to focus on the positives in their public statements.

“WeWork is well prepared for the future,” Marc Horowitz, the head of leasing at Cohen Brothers Realty Corp., said after WeWork expanded its lease in October 2018 at the Red Building in Los Angeles. Months earlier, a Kroll report had highlighted WeWork’s presence at the property as a negative credit consideration.

At the same time, details included in ratings reports show that landlords have been attuned to risks associated with WeWork. At Ivanhoe Cambridge’s 85 Broad Street, up to $10.8 million of the lease’s value is guaranteed by the We Company. And at Winter Properties’ 57 East 11th Street, WeWork is providing a $7 million security deposit on top of a $8.2 million parent company guarantee.

Ivanhoe Cambridge has gone on to be a major partner of WeWork’s, contributing $1 billion in equity to the ARK investment fund. A spokesperson for Ivanhoe Cambridge declined to comment, while other landlords identified in ratings reports, including Cohen Brothers Realty, Winter Properties and A&H Acquisitions, did not respond to requests for comment.

To further mitigate risk, lenders have required landlords to maintain reserves for a “cash flow sweep,” clause, which makes it mandatory to use excess free cash flows to pay outstanding debt in the event WeWork defaulted on its lease payments. Brown, the Kroll analyst, said this is not unique to WeWork but to tenants that hold a majority of space in buildings.

As the Wall Street Journal reported in July, major landlords like Columbia Property Trust and SL Green have also been demanding bigger guarantees from the company for its leases recently.

“We’ve gotten what we feel is very fulsome coverages between letters of credits and parent guarantees,” SL Green director of leasing Steven Durels said in an earnings call in January. Although he declined to discuss specifics, “I can tell you that from a credit perspective, we think we are well protected.”

With a little more than 48 hours before the clock ran out, three of New York’s most powerful landlords made a desperate, last-ditch phone call to Gov. Andrew Cuomo. By that point, the real estate industry had already spent millions of dollars, hired seasoned lobbyists and launched media campaigns in an effort to eliminate the threat of historic tenant protections on 1 million apartments. Cuomo declined to kill the bill, and landlords across the state say billions of dollars in investment were wiped out overnight.

But across the country in Sacramento, a curious thing happened. The legislature on Wednesday passed AB-1482, a statewide rent control measure that will affect an estimated 8 million people, and top industry trade groups barely made a peep.

The California Apartment Association, which represents the owners of around 65,000 rental units in the Greater L.A. area, dropped opposition to the current form of the bill after negotiating to extend an exemption to units older than 15 years (lawmakers first proposed a 10-year limit), limiting vacancy decontrol, and restricting municipalities from instituting rent caps lower than the cap in AB-1482.

The CAA, which has pushed the state to loosen development restrictions in favor of denser residential development, declined to answer questions about AB-1482, which in most cases will limit rent increases to 5 percent plus inflation.

But tenant sources on both coasts say that while the measure dramatically expands a form of rent regulation, the industry’s relative silence may actually be an astute strategy to pacify progressives’ calls for radical change. In other words, a year after soundly defeating Proposition 10, a ballot measure that would have repealed a statewide ban on new rent regulation, they aren’t crying over AB-1482.

“CPI plus five percent is causing most people to breathe a sigh of relief, we can live with that,” said Dean Zander, an executive vice president and multifamily specialist at CBRE. “It’s not unfair, it’s not gouging, and I don’t see it affecting sales or values at all.”

Zander believes the measure could spark even more investment in the state because it provides some certainty to investors.

“There’s no fear of the unknown,” he said. “We have a super strong market in California and knowing that 1482 passed, we know what to expect and we can underwrite for that.”

George Azrt, a lobbyist with Extell Development and a longtime political strategist in New York, said landlords in California made out better than their counterparts on the East Coast.
“There’s no doubt that rent control is the cause of the moment, nationally. Everyone is trying to figure out what to do about the housing crisis. But a statewide rent cap, which passed yesterday, while stringent — is not as stringent as New York.”

Here’s what AB-1482 looks like under the hood, and how it compares to New York’s new rent law:

Regulatory control

• California: AB-1482 does not set up a dedicated agency or department to handle enforcement. A tenant’s first choices for enforcement is the court system. They can also file a complaint with the California Department of Fair Employment and Housing if they feel their landlord is violating the law, according to a spokesperson for the bill author, Assemblymember David Chiu.
• New York: Homes and Community Renewal is the state agency that regulates New York’s rent regulated housing stock. The agency is often a source of frustration for tenant advocates and the real estate industry alike, and has faced budget cuts over the years. The nine-member Rent Guidelines Board, which is appointed by the New York City mayor, also sets yearly rent increases for rent-regulated housing in the five boroughs.

Just cause eviction protections

• California: Once a tenant has occupied a unit for 12 months, the landlord cannot evict the tenant unless certain requirements are met. For example, a landlord can evict a tenant if they fail to pay rent, breach a lease, undertake criminal activity on the property or cause a nuisance as defined by state law. Those are considered “at-fault just cause” evictions. The landlord can also execute a “no fault” eviction if they or immediate family will occupy the unit or convert, if they convert the unit into a condominium, plan to demolish the unit or are required to by law. In those cases, the landlord must pay the tenant for relocation costs.
• New York: Multifamily and small landlords alike breathed a sigh of relief when State Sen. Julia Salazar’s controversial bill, which would have prevented landlords from evicting tenants without “good cause,” was left off the final version of the rent law. Salazar’s bill would have prevented evictions as a result of rent increases at 150 percent of the Consumer Price Index, which in New York City was 1.8 percent as of August, according to the Bureau of Labor Statistics.

Vacancy decontrol

• California: Landlords are allowed to raise rents to market rates when a tenant lawfully vacates a unit regulated under AB-1482. From there, they are limited to rent hikes of 5 percent plus inflation.
• New York: Vacancy decontrol was eliminated with a stroke of Gov. Andrew Cuomo’s pen in June. Now, real estate attorneys say that except under very specific circumstances, there is little incentive for vacancies. Prior to June, landlords of regulated apartments were able to deregulate apartments if certain conditions were met: if the apartment’s rent was over the $2,700 limit and there was a vacancy.

While AB-1482 is a state-level measure, it does not repeal Costa-Hawkins, which barred any municipalities from regulating units built after that year. Tenant advocates tried to repeal Costa-Hawkins through the Proposition 10 ballot measure last year, but 60 percent of voters rejected the measure.