From left: Bridgid Coulter of Blackbird, Kat Lau from Industrious and Jim Doorne of IWG
The Real Deal and SPACES are teaming up next week to bring a panel of
co-working leaders to LA.
On November 20 Bridgid Coulter of Blackbird, Kat Lau from Industrious, and Jim Doorn of IWG will lead a panel discussion at Playa District LA examining the fast-changing landscape for creative office spaces, titled “Is co-working built to last?”
Bridgid Coulter is the founder and CEO of Blackbird House, the first flexible office space that focuses on women of color. Blackbird, which opened this summer, aims to “foster a collective of women of color and their allies, of all ethnicities and genders, with similar values rooted in diversity and inclusion with a focus on Productivity, Wellness and Community.” Although its first location is in Culver City, Coulter has plans for the firm to expand quickly across the nation and internationally. Before Blackbird, Coulter founded an eponymous interior design studio in Santa Monica.
Jim Doorn is IWG’s Executive Vice President for the Western US. As EVP, Doorn oversees co-working brands including Regus and SPACES, totalling more than 300 locations. With 19 years of experience in the flexible workspace industry Doorn has seen its evolution into the powerful sector that it is today.
Hiten Samtani
Katharine Lau is the senior director of real estate at Industrious, whose eight Los Angeles locations include one inside Playa District. Prior to Industrious, she served as Manager of Development at Equinox, supporting the expansion of its portfolio of fitness clubs, and has previous experience at L&L Holding Company and PGIM Real Estate.
TRD’s West Coast publisher Hiten Samtani will moderate. The panel discussion comes on the heels of WeWork’s failed IPO attempt and ouster of former CEO Adam Neumann, a seminal event in the history of the co-working sector. Interested in joining us? Buy tickets here.
L.A. City Attorney Mike Feuer and a rendering of the Koreatown project (Credit: Getty Images)
For two years, developer Michael Hakim and the city of Los Angeles were on the same side. Activists had sued to reverse city approval on his 27-story development project in Koreatown, and Hakim’s Colony Holdings agreed to mount a legal defense alongside city lawyers. Now the city is suing Hakim.
L.A. City Attorney Mike Feuer sued Hakim last week claiming he owes the city more than $220,000 for its ultimately failed defense of Hakim’s project in court last year, according to the L.A. Times. Hakim said he hasn’t yet seen the city’s suit.
The City Council approved Hakim’s 269-unit residential project in 2016 and soon after a group called “Fix The City” sued the city to reverse the approval.
The city defended the approval and required Hakim and his company Colony Holdings to reimburse it for any costs incurred. Last year a judge sided with Fix The City, reversed the approval and ordered the city to conduct a comprehensive environmental impact study of the project.
The judge also ordered the city to pay Fix The City around $211,000 in legal fees and costs, which it did. Now the city wants that reimbursement — plus other fees — from Hakim.
The suit comes just a few weeks after the L.A. Times reported that the son of Councilmember Herb Wesson — who represents the district where Hakim wants to build his tower — got a break on rent for a unit at an apartment building Hakim owns while the Koreatown project was under consideration at City Hall. L.A. County District Attorney Jackie Lacey said her office would look into the situation.
Fix the City frequently sues the city and developers over projects and programs that could lead to denser development. Last year it sued over a city plan to allow more development near Metro Expo Line stations and this year it took on the city’s Transit-Oriented Communities program. [LAT] — Dennis Lynch
Douglas Elliman’s Scott Durkin (Credit: Getty Images, iStock)
Douglas Elliman is hoping it’s found a divine trinity in a new tool that combines marketing, business management and a customer relationship management system.
The platform, which launches next week, was beta-tested by the firm’s top-selling Eklund-Gomes team and partly developed using the team’s “book of business,” according to team CEO Julia Spillman.
It’s called Elliman Studio and was developed by Gabriels Technology Solutions.
“It wasn’t something that was off-the-shelf,” said Scott Durkin, Elliman’s president and COO, noting that it took more than a year to develop. “We changed it in many, many ways to accommodate the luxury agent.”
Fredrik Eklund (left), Julia Spillman and John Gomes (Photo by Guerin Blask)
He declined to say how much Elliman spent on the product or how much the firm will be shelling out for agents’ ongoing subscription costs to Gabriels, the real estate website creator of the CRM of Sotheby’s International Realty and other brokerages and of a retail CRM for individual agents.
Elliman Studio provides agents with templated property websites that can be customized and come with a unique URL for any listing, as well as templates and easy distribution for internal and external marketing campaigns. Finally, it serves as a repository for client contact information, with a system of financial reports allowing agents to forecast their income and deal volume.
Many of Studio’s features were informed by the “wishlist” of agents on the Eklund-Gomes team and Spillman herself, who worked closely with Elliman’s technology team and Gabriels engineers. The California office also participated in the testing.
Spillman acknowledged she wasn’t solely motivated by altruism; the team had been looking to upgrade its previous CRM, built off Salesforce, and was facing a $100,000 bill to do it. She approached Elliman’s technology team in search of an alternative. She and Durkin both claim the brokerage was already beginning to develop Studio with Gabriels, so the Eklund-Gomes jumped into participating in developing and testing the platform.
“This is a great investment that Douglas Elliman has done for us,” she said, but added, “I will be shocked if every agent in the company doesn’t find one additional deal [as a result of using Studio].”
Durkin admitted that while none of the tools in Studio is itself new, putting them in one place accessible to the entire company at no cost is a significant step and is key for recruitment and retention.
“It’s really an accountability program,” he said, noting the goal is to help agents close more deals. “If this is a successful venture for them, we reap the benefits as well.”
Durkin also emphasized that the tool is owned by a third party and the company would not have access to agents’ data. Privacy and security was a point of concern earlier this year after Compass acquired Contactually, a cloud-based CRM system whose users include agents at other firms such as Sotheby’s and Berkshire Hathaway. Before the acquisition, Compass had been developing its own CRM in-house.
Agents who leave Elliman could even take over payment of the subscription fee to Gabriels Technology Solutions to continue using a pared-down version of the system, Durkin confirmed.
Studio will launch across most of the brokerage’s offices Nov. 18, along with training sessions and materials, according to the company. It will reach Colorado and California locations next year, when a mobile app is also slated to debut.
The slew of iBuying companies that have popped up in the last two years aren’t low-balling sellers, but they don’t appear to be making much of a profit, either.
Despite the convenience and rising popularity of selling homes online, the iBuying industry — essentially, where a corporation like Zillow uses an algorithm to buy a house, spend a small amount on renovations, and sell it again — is working with microscopic profit margins, if they make money at all.
Zillow, for example, lost an average of $4,826 on each home sale in the third quarter, after interest expenses — up from $2,916 in the second quarter, the company revealed last week.
Where firms like Zillow and OpenDoor do make some money is on the transaction fee, which runs between 6 percent and 9 percent, according to the Wall Street Journal.
“We’re looking to move it as quickly as possible and earn our money off the transaction fee,” Zillow CEO Rich Barton said last month. “And ultimately because this transaction sits at the nexus of all of these adjacent markets that we know so well, that are big businesses in and of itself, they’re dying to be integrated into one thing.”
A new study by real estate professor Mike DelPrete found that iBuyers such as Zillow and Opendoor purchase homes at only 1 percent less than the value of the home, as assessed by First American Financial Corp (quick math: $3,800 on a $270,000 home). DelPrete, who analyzed 20,000 transactions from iBuyers, also found that Zillow and OpenDoor on average made 3.3 percent, or $8,900, when they resold the home.
The convenience of not going through a traditional real estate agent — who charge between 5 percent and 6 percent — along with giving their buyers cash, is attracting more customers. But whether iBuying can sustain such a low profit-margin business or survive a downturn remains unclear.
“How are they ever going to make money?” DelPrete asked.
Keller Williams CEO Gary Keller (Credit: Wikipedia, iStock)
Sales at Keller Williams rose 5.6 percent during the third quarter, even as the Austin-based franchise faced increasing competition from rivals.
The company said the dollar value of closed deals in the U.S. and Canada was $101.7 billion during the quarter, up 1.2 percent year-over-year. The value of contracts signed during the quarter rose 9.3 percent year-over-year to $105.1 billion.
But amid competition for agents from tech-focused firms, including eXp Realty, Keller Williams’ headcount has been erratic. As of September 30, the franchise had 162,289 agents in the U.S. and Canada — up 3 percent from the first quarter of 2019 but down 4.5 percent year-over-year.
Founded in 1983 by Gary Keller, Keller Williams claims to be the largest real estate brokerage franchise, with more than 185,000 agents worldwide. Outside of the U.S. and Canada, Keller Williams said third-quarter sales hit $1.2 billion, up 9 percent year-over-year. By comparison, national home sales rose 2.8 percent during the third quarter, according to the National Association of Realtors. Sales volume rose 6.4 percent.
After becoming one of the largest brokerages in the world by agent headcount, Keller Williams has been betting heavily on technology. In 2018, co-founder and CEO Gary Keller said the firm would spend up to $1 billion to develop tools to help agents.
Over the past year, the firm has rolled out several new products, including Kelle, a virtual assistant; Command, a suit of apps including a CRM; SmartPlans, a workflow management app; and Designs, a real estate-centric graphic design app.
Keller Williams is also partnering with Offerpad to bring its instant home-buying program, called Keller Offers, to 12 new markets by the end of 2019.
“We’re making huge strides in our journey to deliver the end-to-end platform that our agents need to provide the personalized, data-enriched experience their clients expect,” Josh Team, Keller Williams’ president, said in a statement.
With a handshake between leaders in the Oval Office on Oct. 11, the U.S. and China entered into a tentative truce in a nearly two-year-long trade war.
Tariffs remain in place on imports to both countries, but the agreement signals that the situation could stabilize in the short term.
While industry professionals wait for a final end to the trade war, they’ve developed a number of contingencies — in particular, using Vietnam as an intermediary for goods and investments. Since it began in 2018, the tariff tussle has exacerbated a pullback in Chinese capital in effect since the Chinese government began to restrict the outflow of funds from the country in 2017.
Los Angeles-area developers had previously benefited from billions of dollars in Chinese investment. From 2013 to 2018, Chinese investment into L.A. County commercial assets for the first half of the year averaged $123.5 million, according to CBRE data. In the first half of this year, that number dropped a stunning 67 percent to just $40.5 million. Capital controls were the primary culprit, the analysis found.
Fears that the trade war will damage the Chinese economy further are motivating nationals seeking to move money out of the country, but capital controls continue to make it a challenge, said UCLA economist William Yu.
Yu said the Chinese government is typically happy to let investors buy stakes in U.S. companies in some sectors — particularly those in the tech sphere — but commercial real estate investments not so much.
“If they feel that you are making speculative investments by leveraging Chinese money and you fail, the cost might be borne by the Chinese taxpayer because the money is coming from state-owned banks,” he said.
Yu pointed to Anbang Insurance Group as an example. The government had already started to limit foreign investments in early 2017 when news broke that Chinese authorities were investigating allegations of fraud by Anbang’s then-Chair Wu Xiaohui, who spearheaded the company’s three-year-long, multibillion-dollar U.S. real estate shopping spree.
When a Chinese court sentenced Wu to 18 years in prison for embezzling $1.6 billion from the company and raising $10.2 billion illicitly, prosecutors specifically pointed out concerns for the national economy, saying Wu compromised “the safety of investors’ capital” and “crushed national financial security.”
Since then, some Chinese investors have pulled back. Dalian Wanda Group sold its One Beverly Hills project to rival developer Beny Alagem last fall for a reported $420 million. Greenland USA is reportedly seeking a buyer for one of the three residential towers at its massive Metropolis project. Financing issues are reportedly why work has been stalled at Oceanwide Plaza, a project by Chinese developer Oceanwide Holdings.
The rise of Vietnam
Vietnam has become a key middleman for investors on both sides of the conflict, according to Michael Smith, director of international trade at the World Trade Center Los Angeles.
Builders and subcontractors stateside are importing more building materials from Vietnam to avoid the tariffs, and Chinese investors are putting money into the Vietnamese suppliers.
“What would have flowed to the U.S. goes to Vietnam to fund supply chain businesses,” Smith added. “The longer [the trade war] draws out, the more focus shifts to new areas and on developing contingencies.”
The costs of construction materials imported from China, including cabinets, light fixtures and countertops, are up about 25 percent since the trade war started, according to Chris Tourtellotte, managing director of Century City-based developer La Terra.
“You can mitigate some of that, but not all of it, by sourcing materials from other distributors in the U.S. and Vietnam, but it’s still more expensive than before,” Tourtellotte said.
The U.S. has imported $42.8 billion in goods from Vietnam so far this year, compared to around $31.9 billion during the same period last year, the strongest year for Vietnamese imports in history, according to the U.S. Department of Commerce.
Kitchen sinks and light fixtures aren’t all that Vietnam is exporting to the U.S. As Chinese capital dries up in L.A., some Vietnamese investors are stepping up.
“We’ve hosted a number of Vietnamese delegations looking for investment opportunities over the last several months,” Smith said.
But Vietnam can’t entirely fulfill the U.S. appetite for investment capital and materials. Imports through the ports of L.A. and Long Beach — the nation’s two busiest — were down by 2.4 percent this year through August, according to a Q3 report by NAI Capital.
“The trade war and tariffs are undoubtedly influencing the ports’ cargo volume,” the report read.
Even if U.S. and Chinese leaders put an end to the economic conflict, two years of trade warring could permanently change the supply chain. China’s share of the supply chain will at least be reduced and “may be eventually dismantled” if the trade war rolls on, Yu said.
In the long term, China will either have to buy more from the U.S, to balance the two countries’ trade, or the supply chain will move elsewhere.
“I don’t expect they will rebuild the supply chain in China,” he said.” It’s beyond economics, it’s geopolitical.”
Clockwise from top: Robert Shapiro, Viktor Gjonaj, and Robert C. Morgan (Credit: Rochester Institute of Technology, LinkedIn, iStock)
On October 15, developer Robert Shapiro—who pleaded guilty in August for leading a $1.3 billion real estate Ponzi scheme—received the maximum sentence of 25 years in prison. Drawn out over two years, the court case laid bare how his now-defunct Sherman Oaks-based investment firm, the Woodbridge Group of Companies, defrauded more than 7,000 investors, among them many elderly retirees and ABC News anchor George Stephanopoulos.
Certain elements of Shapiro’s flagrant self-enrichment scam may be especially standout—he stole somewhere between $25 million and $95 million and spent at least some of the money on expensive wine and Picasso works—his fraudulent behavior is hardly an outlier within the industry. In the decade since Bernie Madoff first made headlines, Ponzi schemes have proliferated: The SEC has prosecuted 50 percent more of these cases in the last 10 years, many of which are tangled up with real estate. In fact, the Woodbridge scam isn’t even the only one that made headlines this year. Check out these five other examples from 2019 alone.
1.) Back in May, the SEC charged upstate New York residential and commercial real estate developer Robert C. Morgan and two of his business operations with fraud for siphoning and misusing investor funds. According to the complaint, Morgan—whose company, Morgan Management, at the time included 140 properties and 34,000 units across 14 states—raised more than $110 million from 200 mostly small investors starting in 2013, funds he claimed that would be used to improve multi-family properties while, in reality, were diverted to pay back earlier investors, prosecutors said.
The SEC also alleged that Morgan had directed more than $11 million to repay an inflated, fraudulently-obtained loan for an unrelated apartment complex, while additional charges filed by the Justice Department accused him of conspiracy to commit bank fraud, wire fraud, and money laundering. In the months since the indictments, Morgan has shed properties, most recently selling about half his portfolio to Pennsylvania-based company called Morgan Properties, which is reportedly separate and unrelated to his own entities.
2.) In August, Carl Chen, the owner of Delaware-based real estate company Chenmex, was sentenced to 51 months in prison after pleading guilty to fraud in relation to a multi-year Ponzi scheme. Between 1991 and 2017, Chen collected a total of $6.4 million from 41 investors according to court documents that also revealed that he “generally promised investors annual returns of 10 to 15 percent and signed a promissory note guaranteeing each investor interest-only payments on a monthly basis until such time as he paid back the investor his or her full principal investment.”
In 2013, Chen’s holdings could no longer float the interest payments to investors and the scam began to cave in. In 2016, as investors began to demand their money back, Chen offered a mortgage on his own home in exchange for an investor not demanding immediate repayment; the following year, he filed for Chapter 7 bankruptcy, seeking to discharge the $6.7 million lent to him by investors. The judge who sentenced Chen this summer called the case “one of the most horrendous white-collar offenses that I remember seeing.”
3.) This Ponzi scheme has a mystery element: Detroit commercial real estate developer Viktor Gjonaj disappeared this summer in the wake of multiple mounting lawsuits—one of which alleged that he stole from investors, including his wife, in a multi-million dollar pyramid scheme. Gjonaj was accused of doctoring purchase agreements in order to make investors believe they were buying ownership interests in properties in Southeast Michigan that were actually already owned by the investors.
There was a web of more than 30 companies “all designed for the sole purpose of defrauding investors and keeping the money hidden,” according to court documents cited by Crain’s Detroit Business. Gjonaj’s business partner, Gregory Vitto, was initially named in one suit, but has since been dismissed. He claims he was merely another victim: “I was used just like the rest of the people,” Vitto wrote in in text message to Crain’s. “He owes me a ton of money also.” As of mid-September, Gjonaj had been heard from but remained out of sight.
4.) In September, the SEC charged Chicago property developer Glenn C. Mueller and his companies with violating federal securities laws, alleging that his “fix-and-flip” real estate investment pitch was in actuality a $41 million Ponzi scheme. Mueller is accused of defrauding more than 300 investors over the past five years, many of whom were retirement age, claiming that their money would be used to buy and renovate apartment buildings across the state when actually Mueller used the money from new investors to pay off existing others. While the SEC appointed a federal equity receiver to take control of Mueller’s businesses and marshal assets to benefit his victims, it remains unclear if they will all get their money back: While his main company, Northridge Holdings, is estimated to be worth $100.4 million, liabilities exceed $113 million.
5.) Meanwhile, in Utah, former real estate investment guru Rick Koerber was convicted on 15 charges of fraud, wire fraud, and money laundering following 10 messy years of litigation by federal prosecutors. He was ultimately sentenced to over 14 years in prison. Koerber collected more than $100 million in investments from family and friends between 2004 and 2008, claiming the money would be used to purchase real estate but instead using the funds to support a lavish lifestyle as well as a hamburger franchise and a sexy horror film production. He was also accused of using money from new investors to pay previous investors in order to keep up the scam.
The Koerber case has been particularly contentious for the way he exploited fellow followers of the Church of Latter Day Saints. “He knew exactly what to say and do to get members of the Mormon community to trust him. He spoke their language,” federal prosecutor Tyler Murray said during the trial. Prosecutors pushed for a 20-year prison term; ultimately, Koerber was sentenced to 14 years and change. It is estimated his investors lost a total of $45.2 million.
From left: Priyanka Chopra and Nick Jonas, and Sophie Turner and Joe Jonas
Brotherly love is alive and well between Nick and Joe Jonas. The brothers spent a combined $34.1 million on homes in Encino, setting neighborhood records in the process.
Nick, the younger of the two, and his wife Priyanka Chopra bought a 20,000-square-foot spread for $20 million, while his older brother Joe and his wife Sophie Turner spent $14.1 million for a 15,000-square-foot home just three miles away, according to the Wall Street Journal. Both are new construction homes.
Chopra and Nick’s modern-style home has seven bedrooms, 11 bathrooms, high ceilings, and ample outdoor space. Joe and Turner’s home, while smaller, has 10 bedrooms and 14 batrhooms. There’s a wine cellar, home theater, gym, and an office.
The two deals are records for the neighborhood, which neighbors Sherman Oaks and Tarzana on the San Fernando Valley side of the Santa Monica Mountains.
The Agency’s Carl Gambino represented the buyers on both deals. He’s worked with the brothers before. In 2016, he represented Joe Jonas when he bought a home in Sherman Oaks for $3.7 million.
Gambino also represented Nick Jonas last month when he sold a Beverly Hills home for $6.9 million.
The brothers and their eldest sibling, Kevin Jonas, broke up their hugely successful pop band in 2013, but reunited earlier this year. They’ve sold over 17 million records. [WSJ] — Dennis Lynch
A Chicago real estate agent was unable to access basic marketing materials after joining brokerage Compass. A hotel owner in India is facing eviction after hospitality startup Oyo stopped making payments. And an employee for Rappi, a Colombian delivery startup, was told he would need to buy a new phone after he was robbed on the job.
These people are among those sidelined by startups backed by SoftBank’s $100 billion Vision Fund, which provided them with immense sums of capital and a simple mantra: grow as fast as possible. Those startups have grown at breakneck speed with little oversight or regard for corporate governance, according to the New York Times.
WeWork and Uber, the two most prominent examples of SoftBank’s bets going awry, have provided a window into how the Japanese conglomerate has inflated the value of startups with profound consequences.
This fall, WeWork abandoned plans to go public after investors refused to accept its $47 billion valuation, and its charismatic CEO Adam Neumann left the company after SoftBank paid him more than $1 billion. SoftBank was forced to provide the company with a $9 billion lifeline to salvage it from potential bankruptcy. At Uber, the ride-share startup had an underwhelming IPO and recently posted losses of more than $1 billion.
Since these companies have floundered, some have begun to look at early warning signs in other startups backed SoftBank’s Vision Fund, which has invested in 88 companies.
Rappi, a Colombian startup received $1 billion from SoftBank and contracts delivery drivers in nine Latin countries. The company does not provide insurance or safety equipment such as a helmet to protect riders, who earn $1 per delivery. Dozens of riders have been injured.
Compass, which is valued at $6.4 billion thanks to large investments by SoftBank, has recently faced tough questions about its parallels to WeWork. According to the Times, Chicago broker Tricia Ponicki joined the firm after being offered generous incentives, but made just one deal this year. She has returned to former brokerage @properties, where she used to annually pull in $100,000.
Another firm, Oyo, a $10 billion Indian startup founded by a 19-year-old in 2013, has also been propped up by the Vision Fund. In some cases, it has stopped paying hotel owners, to whom it directs customers, forcing them into financial hardship. [NYT] –– David Jeans
Goodwin Gaw with the Bradbury Building, Hollywood Roosevelt and Hollywood and Highland. (Photos by Alamy)
If the prevailing wisdom is that a) retail real estate is suffering and b) Chinese investment is on the wane, then Goodwin Gaw’s recent investment is a head-scratcher.
Over the summer, his real-estate-focused private equity firm, Hong Kong-based Gaw Capital, bought the L.A. shopping center Hollywood and Highland for $325 million. That it was the country’s largest single-address retail transaction outside of New York in years only fueled the intrigue.
The property is smack dab in the middle of L.A.’s bustling tourism district and it’s packed with dozens of shops, which haven’t exactly thrived in the face of e-commerce. In fact, lenders say the mall is about 80 percent occupied.
What was even more surprising for some was that Gaw Capital — one of the biggest firms of its kind in Asia, with $23 billion under management and a portfolio that stretches from Vietnam to England — was making a huge bet on American soil at a time when other Chinese real estate companies were pulling back amid a deepening trade war.
The firm’s home city has been convulsed by months-long street protests that have led to injuries and arrests and even shut down the airport. Perhaps Gaw was freshly bullish on overseas markets as some sectors of Hong Kong were struggling.
The reality, as it turns out, is more nuanced.
While Gaw Capital owns a number of other flashy properties around the globe, including New York’s Standard Hotel, in L.A. it’s been a major if unshowy player for decades, with about two dozen holdings.
Indeed, the company’s California-born chair, the 50-year-old scion of a wealthy real estate family, actually did his first deal in Hollywood at the age of 26, when he purchased the run-down Hollywood Roosevelt Hotel and turned it into a see-and-be-seen destination.
He is that rare Asian investor to have a foot firmly planted on both sides of the Pacific, according to brokers who have worked with him.
Prone to a very long-term buy-and-hold strategy, in neighborhoods that others might dismiss as too dicey, the limelight-shunning Gaw tends to downplay current events and market gyrations when investing.
“If you buy right, and you have the right concept for buildings, they turn around pretty quickly,” he told The Real Deal. “And I don’t usually divest unless I can find something more interesting.”
The Hollywood and Highland deal, brokers explain, could fit his general pattern of behavior.
“Goodwin is brilliant in that he can see around the corner before anybody else,” said Hal Bastian, a commercial broker with Amalgamated Metropolitan Properties who was worked Downtown since 1994. Bastian owns a unit in the Douglas Building, a five-story 1898 property Gaw Capital converted into a 50-unit condo in 2005.“He does things first-class.”
California connections
Goodwin’s U.S. roots run deep. Born in San Francisco in 1969, when his parents were studying at the University of California, Berkeley, he later attended boarding school in Lawrenceville, New Jersey before picking up two degrees at the University of Pennsylvania. In 1993, he earned a master’s in construction management at Stanford.
L.A. was next. For a few years, Gaw worked as an asset manager for Kennedy Wilson, a commercial real estate firm, helping Japanese investors divest themselves of U.S. real estate after their buying spree in the ’80s, he said.
In 1995, he made the deal for which he may be best known, the purchase of the Roosevelt, a 12-story hotel on Hollywood Boulevard. Built in 1927, the Spanish Colonial-themed hotel had hosted the first Academy Awards in 1929 but had become run-down by the mid-20th century.
Christina Gaw (Getty Images)
To buy it for $9.5 million from Clarion Hotels, Gaw raised some money himself, he says, though $1 million came from his father, the late Anthony T. Gaw, the billionaire founder of Pioneer Global Group, a Hong Kong real estate conglomerate with telecom holdings. East West Bank, founded in 1973 to serve California’s Chinese-American community, contributed financing.
After a $20 million renovation, the hotel morphed into a celebrity-packed hotspot, attracting the likes of Paris Hilton and Courtney Love to raucous parties that often drew police and ambulances as well.
In 2017, the 335-room property collected $50 million in revenue, according to news reports. That was up from $8 million in 1995. A spokesperson declined to provide more recent data.
Partial to jeans paired with jackets and shirts without ties, Gaw reads more tech bro than real estate mogul when he’s spotted on the property. And while he may have a sixth sense for soon-to-be-hip enclaves, he’s not the kind of executive to end up in gossip pages himself.
In fact, Gaw — a resident of Hong Kong who’s married and has twin boys — says he mostly ends up at taking a room at the Roosevelt when he’s in L.A. to make sure the property is up to snuff.
A deep-pocketed dynasty
Gaw USA, which had $2.3 billion in assets under management as of the second quarter of this year, is currently investing its third U.S. fund. The $719 million fund drew from institutional sources, like college endowments, sovereign wealth funds and pension funds, according to the firm, which is a bit of a family affair. Gaw’s younger brother, Kenneth, is Gaw Capital’s president and generally is considered the number-cruncher.
The Standard Hotel in New York (Getty Images)
His sister, Christina, who formerly worked for Goldman Sachs, is the chief fundraiser, in charge of capital markets. The fourth managing principal is Humbert Pang, who’s based in Shanghai and handles mainland China investments.
The family matriarch, Rosanna Wang Gaw, meanwhile, chairs Pioneer Global Group, the company founded by Anthony, who died at 57 in 1999. Born and raised in Burma before relocating to Hong Kong, Anthony launched Pioneer as a textile manufacturer, though he later branched out into shipping and banking. Anthony was also an early investor in the Industrial and Commercial Bank of China, China’s largest bank, which took itself public in 2006 in a $22 billion offering.
In 2017, the Gaw family was worth $3 billion, Forbes said.
While equity investors generally favor a single national market, they say Goodwin Gaw, who speaks Cantonese, Mandarin and English, straddles both East and West with ease.
“He is considered savvy in both markets by his investors, which is rare,” said Jerry Tang, a managing director of Natixis, which financed the Hollywood and Highland project and provided a $170 million loan for the Standard Hotel purchase, in addition to other deals.
“Goodwin has always been a little bit of a real estate James Bond, a sophisticated quick study who can maneuver in and out of most asset classes in many sought-after markets in varied regions around the world,” said a commercial broker who wished to remain anonymous in order to avoid jeopardizing their dealings with Gaw.
“And he is usually armed with large quantities of ready-to-be-deployed capital,” they added.
As a manager, Gaw likes to delegate. Tang, for one, said he dealt mostly with Gaw’s L.A. office in putting the Hollywood and Highland purchase together. “He’s kind of a low-key guy,” he said. “But he’s connected.”
Historic properties
Interested in reviving down-at-the-heels historic properties, Gaw, after buying the Roosevelt, quickly turned his attention to the Downtown area, along Spring and Main Streets, which was L.A.’s central business district before Bunker Hill’s high-rises sprouted in the 1960s.
In 1996, he bought 818 West Seventh Street, a 12-story brick-and-terracotta 1925 former furniture showroom, along with 611 Wilshire Boulevard, a more modernistic tower, for about $20 million.
No. 818, still an office, its ground level ringed with shops, is today home to Downtown Properties. Founded by Gaw in the mid-1990s, the company manages and leases office, hotel and multifamily buildings in L.A. as well as similar properties in Pasadena and San Francisco.
Gaw was a full-time resident of L.A. until 2003, when he returned to Hong Kong to expand his portfolio. He went on to create Gaw Capital in 2005. Though essentially an offshoot of Downtown, Gaw Capital is now Downtown’s parent company.
A standout in Downtown’s portfolio is the Bradbury Building, a five-story 1893 office building at 304 South Broadway whose skylight-topped, metal-staircase-lined atrium has been a magnet for location scouts for years, serving as a set for movies like “Blade Runner.” Goodwin purchased the building, a National Historic Landmark, for about $6 million in 2003.
Other addresses, though,were converted to condos, like El Dorado at 416 South Spring and the Rowan at 460 South Spring, both in partnership with Tom Gilmore, an L.A. developer.
Gaw’s Downtown moves were well-timed, brokers say. In 1999, the Staples Center opened, giving some suburbanites a reintroduction to the area. The same year, L.A. amended its Downtown zoning to more easily allow apartments to be mixed in with the businesses. It spurred a development mini-boom — even if the area was dicey at night, said Bastian, who moved Downtown in 1994. “We still had people shooting up outside our doors,” he said.
Today Downtown has 80,000 residents, up from 18,000 in 1998, Bastian said.
Gaw’s bet on Downtown was a smart one. It’s also reflective of his philosophy ofbuying existing buildings as opposed to constructing new ones. “In general, I don’t like to underwrite the development risk,” he added. “A lot of times, the development risk comes from not really understanding localized politics.”
After his return to Hong Kong in 2003, the SARS epidemic hit, sinking Hong Kong property values. But instead of writing the city off, Gaw, unrattled by grim headlines, started snapping up real estate, an approach he also took more recently in a post-Brexit-referendum-vote London.
“I actually wish there was more disruption in the property market. We would have bought more. But I just haven’t seen enough disruption,” Gaw told the website Bisnow last month.
Asian angst
True to form, Gaw seems unfazed by the recent retreat by Chinese investors, spurred by the trade war with the U.S. but also more generally by President Xi Jinping’s continuing clampdown on overseas investing.
Gaw is quick to point out that troubled Chinese companies like Anbang Insurance Group and Greenland Group are located in mainland China and not in Hong Kong, which despite being under control of China since 1997 has operated somewhat autonomously. “The Chinese government has nothing to do with Hong Kong,” he said, adding in a post-interview statement, “we are NOT a traditional Chinese investor.”
“If anything,” Gaw added, “I’m looking for any correction in the market to redeploy capital.”
Still, Hong Kong, where Gaw Capital owns several properties — with partners, it bought 625 King’s Road, a 26-story office tower, for $605 million this year — can seem like not such an ideal place for doing business, either. Since June, the city has been wracked by nearly continuous protests, some of which have turned violent and resulted in building damage. And those protests, which began over concerns about a controversial new Chinese extradition law, have already taken a bite out of the office leasing market, according to news reports.
“People are starting to question the credibility of Hong Kong as an Asian hub,” said Edward Pan, a Colliers vice president working with clients looking to move money to the U.S. and Australia. “Hong Kong will never be the same.”
But Goodwin Gaw is staying put. “This is not the L.A. riots,” he said, referring to the 1992 tumult in the wake of the Rodney King case. “This is a bunch of kids playing war games on the weekend.”
4Site Real Estate’s Todd Wexman and the entryway at the Cha Cha Cha condo building
Developer 4Site Real Estate is taking heat for the choice of name for a recently completed condo project in East Hollywood.
The firm named the 24-unit unit development at Virgil and Melrose avenues “Cha Cha Cha” after the popular Caribbean restaurant it replaced. 4Site principal Todd Wexman called the name choice an homage to the restaurant and thought the former owners would be “flattered.” But at least one former Cha Cha Cha owner feels quite the opposite, according to Curbed.
“I was in such awe when I saw that they had the audacity to do that,” said Javier Anaya, adding the name was “a slap in the face.”
The 24-unit project also borrows the restaurant’s bright tropical-themed color scheme and has a neon sign resembling the sign that hung above the Cha Cha Cha restaurant.
Units range from 550-1,700 square feet and are priced between $400,000 and $950,000, according to the property website. Monthly HOA fees are $445. The industrial-styled building has a communal pool and gym.
The Cha Cha Cha restaurant opened in 1986 and operated for 30 years. It shut down in 2016 after 4Site bought the property for $2.5 million.
Anaya said he and the other owners had an opportunity to buy the property themselves or relocate the restaurant, but said those options were too expensive. They now own the local chain Pinches Tacos, according to Curbed.
4Site has built 10 condo and small-lot projects over the last decade and has at least two others in the works. Last year the firm filed for a 200-unit apartment and hotel project in Lincoln Heights. The project is moving through the planning process. In 2017, 4Site filed for a 54-unit project in Westlake. [Curbed] — Dennis Lynch
Masrour and Mansour Barzani and the two Beverly Hills properties
A pair of all-cash deals in Beverly Hills lead to two prominent members of the Barzani family, the most powerful and influential family in Iraqi Kurdistan.
The two homes — totaling $47 million and spanning 21,000 square feet and 12,000 square feet, respectively — were purchased by a Virginia man linked to Mansour and Masrour Barzani, according to Variety.
Masrour Barzani was elected Prime Minister of the autonomous Kurdistan region and Mansour is head of the region’s security council. Both are the sons of former Iraqi Kurdistan Region President Masoud Barzani. Numerous other family members hold top positions in the regional government.
Their grandfather is Mustafa Barzani, the first leader of the Kurdistan Democratic Party and a key figure in the Kurdish independence movement. The family is one of the most wealthy families in the northern Iraq region, if not the most wealthy, and has been accused of corruption and monopolizing various businesses in the region.
The purchases in Beverly Hills closed three months apart last year. The so-called Maison 613 in the Flats area sold first for $27 million. The opulent abode has an indoor basketball court, a two-lane bowling alley, and home theater, as well as what Hilton & Hyland called in marketing materials “the most advanced, orchestrated lighting, sound and security systems imaginable.” Architect Roy Sklarin designed the home.
The second home is the Foothill Manor, about a mile away. The home dates from 1970, but is every bit as extravagant as Maison 613, and is much more private. The home sits on a hillside up a private drive and shaded by trees. It has the usual trappings of high-end Beverly Hills estates, including a gym, screening room, and landscaped grounds.
Neither home appears to be occupied, according to Variety. Masrour Barzani reportedly owns another mansion in McLean, Virginia where he regularly stays during trips to meet with U.S. officials.
While the Barzani family is fabulously wealthy — some estimates of their wealth reach as high as $48 billion — around 87 percent of households in Iraq’s autonomous Kurdistan Region make less than $850 per month, according to the United Nations Population Fund. [Variety] — Dennis Lynch
The car wash at 1666 N. Vermont Avenue (Credit: Google Maps)
Two brothers who got into hot water over a car wash wage theft issue a decade ago, are hoping to replace one of the facilities with a 139-unit mixed-development in L.A.’s Los Feliz neighborhood.
Prolific Santa Monica-based architect Daryoush Safai is working with the two brothers on designs for the project, according to Benny Pirian, who along with his brother Piaman Pirian was accused in 2009 of not paying 54 car wash employees a total of $1.25 million in wages.
Back in 2010, the Pirians made headlines when each pleaded no contest to a half-dozen criminal counts, including conspiracy and grand theft, and labor code violations at their car washes. The Pirian brothers were each sentenced to a year in jail by the L.A. City Attorney’s office a decade ago.
When reached for comment, Benny Pirian told The Real Deal that neither he nor his brother actually ended up serving jail time but had repaid the $1.25 million fine. City officials confirmed it.
“I don’t want to talk about this. It happened eight or nine years ago. I don’t want to be rude, but it’s not relevant to my project,” he said.
The site, which is located at 1666 N. Vermont Ave., is eligible for density bonuses and other incentives as part of the city’s Transit Oriented Communities program, which provides incentives that encourage market-rate developers to include affordable units in projects located near transit hubs.
The program aims to streamline the development process and incentivize affordable housing development by implementing a section of Measure JJJ, which was passed by L.A. voters in Nov. 2016.
The Pirians purchased the property along Vermont Avenue in 2011.
Through their limited liability company Vermont Real Estate Properties LLC, the Pirians want to raze the car wash along Vermont Avenue and build a multifamily development in its place. It’s unclear what the Pirians paid for the property, but Benny said the family has owned it since the early 2000s. The other three car washes owned by the Pirians in Hollywood and Northridge were previously sold, Pirian said.
The brothers filed plans for 16 of the 139 units to be set aside for “extremely low-income” renters, and roughly 12,000 square feet for commercial space.
The property is situated on a 28,000-square foot lot at the intersection of Vermont and Prospect Avenue.
Oprah Winfrey and Jeff Bridges with the home (Credit: Getty Images and Realtor.com)
What Oprah wants, Oprah gets. And the billionaire mogul wants to expand her real estate empire in Montecito.
Winfrey paid $6.85 million to acquire actor Jeff Bridges’ Spanish revival home in Montecito, which sits next door to Seamair Farm, a 23-acre plot that borders her main 43-acre compound known as “Promised Land,” according to Variety, which first reported the news.
With the deal for Bridges’ home, Winfrey has now spent a total of $86 million acquiring Montecito real estate.
Sally Hanseth of Coldwell Banker is listed as sales and buying agent on the celebrity deal.
Bridges, who also paid $6.85 million for the home in 2014, listed the home in March for $8 million. But Oprah waited six months for a price chop before she made her move, according to Variety.
Bridges’ former property features a carriage house and horse facility with five stalls as well as redwood and oak grove trees.
The transaction further solidifies Montecito as Winfrey’s base. The talk show host and media entrepreneur initially bought in a 42-acre property in Montecito for $50 million in 2001. It contains her main home, a 23,000-square-foot neo-Georgian mansion with six bedrooms, 10 fireplaces. Winfrey bought out the neighboring Seafair Farm equestrian ranch for $29 million in 2015.
She now controls about 70 contiguous acres, with 13 separate buildings, two pools, ocean views and a tennis court.
As Winfrey has bought into Montecito, she has exited out of Chicago, the city where she got her media start on WLS’s AM Chicago in 1984.
WeWork co-CEOs Artie Minson and Sebastian Gunningham
WeWork lost $1.25 billion in the third quarter — up from $497 million in the same time period last year.
The parent of the troubled-office startup also reported a surge in revenue to $934 million in the months following Sept. 30, the Wall Street Journal reports, citing a report to debtholders this week.
The $1.25 billion loss falls in contrast to the $638 million loss posted in the second quarter. The company blamed the third-quarter figures on rising expenses outpacing growth.
The startup’s mounting losses had caused concern among potential investors when the company attempted to go public this fall. The ill-fated plan led to the company’s valuation dropping from $47 billion to about $8 billion, and the ousting of founder and CEO Adam Neumann.
Since Neumann’s departure, the company has been scrambling to get back on track. It is reportedly in talks with T-Mobile US Inc. chief executive John Legere about taking over the position. [WSJ] — Sylvia Varnham O’Regan
Council President Herb Wesson and a rendering of District Square
Los Angeles city officials will draw up an ordinance to create “anti-displacement zones” around new market-rate developments.
The City Council directed city departments to draw up the ordinance on Wednesday, according to Curbed. The proposal comes from Council President Herb Wesson, whose district stretches several communities south of Wilshire Boulevard as well as Koreatown.
Real estate development has driven rapid change in many of those communities over the years, and politicians like Wesson have been wary of the impact. Wesson said that market-rate development is “designed to strengthen” local economies, but often negatively impacts long-time residents.
Developers who do not include affordable units in their projects would have to reserve at least 30 percent of their units for renters using Section 8 vouchers. As proposed, there would be a three-year cap on rent increases in units within one mile of a qualifying development.
New developments often prompt landlords to increase rents at neighboring buildings. Those increases — by design or otherwise — sometimes force out residents who can’t afford to pay the new rents. The proposed ordinance appears designed to head that off, at least in the short-term.
The ordinance would create new avenues for residents and nonprofits to buy buildings from landlords, according to Curbed. The city would create an online portal residents could use to find housing they can afford in their neighborhoods.
Wesson officially introduced the concept in a September letter to the South L.A. Planning Commission, expressing his opposition to Charles Company’s 577-unit market-rate District Square project planned in Crenshaw.
The project has gone through several changes over the years. Wesson supported an earlier version that included a supermarket and other retail space, but opposes the latest version proposed in May. Two community groups are pushing the city to disapprove the plan.
“We have no need for a six-story development consisting of 577 luxury apartments that will be unaffordable to most of the neighborhood’s current residents,” he said at the time. [Curbed] — Dennis Lynch
After everything that’s happened at WeWork, shareholders now have a new worry.
SoftBank is delaying a $3 billion tender offer for WeWork shareholders. In a letter WeWork sent to shareholders Nov. 8, and obtained by The Real Deal, the Japanese conglomerate’s offer would commence “within five business days of the completion” a $1.5 billion investment in the struggling office startup.
That $1.5 billion payment was released to the company Oct. 30, which would have made the deadline for the tender offer Wednesday, Nov. 6. But no offer was extended, sources said.
The delay is the latest pang of uncertainty for WeWork investors, many of whom are employees whose compensation packages include company stock.
A person close to SoftBank said the tender “is going to happen soon,” but would not provide a timeframe.
“It’s just taking a little more time than expected due to the time needed to get all the technicalities in order,” the individual said, without providing specifics.
The completion of the tender offer is contingent on “the receipt of required regulatory approvals” and the absence of litigation, bankruptcy proceedings and defaults on any debt owed, according to the letter.
Representatives for SoftBank and WeWork declined to comment.
After WeWork abandoned IPO plans because of an icy reception from public investors, SoftBank pushed out co-founder Adam Neumann and took a majority stake in WeWork. The $9.5 billion rescue package — a $5 billion debt facility, the $3 billion tender offer and a $1.5 billion commitment — staved off a potential bankruptcy this month.
The saga led to WeWork’s valuation dropping from $47 billion — a figure set by SoftBank in January — to $8 billion. Many investors who bought stock in recent years are now underwater.
WeWork reported to shareholders Wednesday that it lost $1.25 billion in the third quarter as rising expenses outpaced growth.
Woodridge Capital Partners’ CEO Michael Rosenfeld and Sales Director Mary Ann Osborn with a rendering of the project
Spurred by a mall – yes, a mall – luxury residential sales in Century City are up, and now the area’s most ambitious project in a decade is finally nearing completion.
After a myriad of delays, Century City based-developer Woodridge Capital Partners is slated to finish both the 143-condominium unit North Tower and 125-unit South Tower by December 2020, according to Mary Ann Osborn, director of sales for the towers.
Construction completion would be a major vindication for Woodridge, which has faced financing and permitting delays since the City of Los Angeles approved the Pie Cobb Freed & Partners-designed project in 2013.
The question, though, is how many luxury residential condos a neighborhood synonymous with law firm offices can support. Woodridge’s Century City development represents the first big project to go to market since a $1 billion renovation of the Westfield Century City mall, and the first since the Related Companies’ successful Century City condo tower was completed a decade ago. Those factors make it a bellwether for the area’s luxury market.
“I think there will be a tremendous demand,” said Susan Smith an agent at Hilton & Hyland with listings in Century City. “But these are the type of projects [in Century City] that haven’t existed before.”
There are some data points that suggest the development may succeed.
The North Tower units are now on the market – the first listings arrived in March — and Woodridge has already claimed $200 million in pre-sales last month (Osborn, who was previously the sales director for Related’s tower, did not provide an updated number).
Prices start at $2 million and go up to as much as $50 million for each of the six penthouses (most listings on the MLS range from $2,000 to $2,500 a foot). The $2.5 billion project also features a 394-key hotel called The Fairmont, with 63 additional Fairmont-branded condos. Once completed, the massive development will add 100,000 square feet of retail and restaurant uses to the area. Amenities include multiple swimming pools, a spa, a game room and a private walkway to the recently renovated Westfield Century City mall.
Michael Rosenfeld’s Woodridge, which paid $367 million to acquire the property in 2008 and landed $1 billion in construction financing, is targeting out-of-state buyers to scoop up condos in addition to purchasers from local neighborhoods.
Real estate agents also voiced optimism the condos would sell fast — Coldwell Banker’s Jade Mills called Century City an “established luxury market” — and the data does suggest the luxury market is gaining strength.
Home sales north of $1 million in the 90067 zip code, covering most of what is widely thought of as Century City, jumped from 23 during 2010 to 55 in 2013, to 70 in 2018, according to data provided by Jonathan Miller of Miller Samuel real estate appraisers.
Most of those deals happened at the luxury condo tower at 1 W. Century Plaza, including a $22.5 million sale in 2015, the decade’s highest, per Miller Samuel’s data. Megadeveloper the Related Companies completed the 42-story, 140-unit high rise in 2010, known as “The Century,” and it’s been the only significant new luxury property to date in the neighborhood.
Related’s condo bet in Century City didn’t look good in the beginning. Sales were initially slow at the Robert A.M. Stern-designed condo due to the recession, according to the project’s first sales director, Coldwell Banker’s Valerie Fitzgerald. But it wound up a success, selling out in 2017 and attracting many buyers from L.A.’s tony west side neighborhoods. Even Rihanna moved to the tower from her Pacific Palisades home.
“Quite honestly, The Century was the first residential building in Century City since the ‘80s,” Woodridge’s Osborn said. “But people were drawn to it because of the walkability aspect and security and amenities, and the retail.”
Growing luxury residential demand in Century City is partly about the desire for another walkable neighborhood in a city with some car fatigue, agents said (the extension of the Purple metro line, slated to be completed in 2025, should add to that). It’s also about a mall that got a $1 billion makeover.
“The Westfield Century City mall has led to a tremendous increase in demand,” said Hilton & Hyland’s Susan Smith. “When I grew up here, Century City was just an office space, but it is becoming a central attraction.”
As malls have been pared down or shut down throughout L.A., Westfield Corp. completed a $1 billion renovation of its Westfield Century Mall in 2017, with a bet on the neighborhood’s growing luxury residential footprint. The mall revamp included a VIP service with private lounges, elevators, and shopping hours.
Mostly, the mall is a selling point in distinguishing Century City from other West Side neighborhoods in which residents may spend hours in the car to get to restaurants and shops. “People can walk to dinner in Century City because of the Westfield [renovation],” Fitzgerald said.
The mall has sparked talk of further Century City residential development, including a plan by JMB Realty to build a 483-unit condo high rise that has moved forward in fits and starts.
JMB’s latest plan calls for two condo high-rises on Avenue of the Stars, but there is no timeline for construction completion or presales.
Streamers are gobbling up remaining space in LA, but how much is left to go around? (Illustration by Brian Stauffer)
The streaming wars’ latest skirmish came in October when Apple announced it would produce the World War II series “Masters of the Air” in-house at the company’s AppleTV+ studio in Culver City.
Hollywood saw the news as proof that Apple is joining Netflix and Amazon Studios as streaming’s biggest threats to film studios, and that it would be foolish to bet against Apple, what with its $1 trillion-plus valuation.
“Apple is ready for takeoff,” the Hollywood Reporter gushed.
But Apple TV+ is also the most acute example of an issue affecting streaming giants, and perhaps the future of Los Angeles’ world-famous entertainment business: a lack of space.
Developers — most prominently Hackman Capital, Hudson Pacific Properties and Lincoln Property Company — have delivered on massive tenant improvements in order to get Netflix, Amazon and Apple to lease their L.A. buildings, transforming the city’s office market.
“We have the benefit of being the clear No. 1 entertainment capital of the world, and that’s not going to change,” said Michael Hackman, founder and CEO of Hackman Capital, which fully leased its Culver Studios to Amazon and paid $750 million for the 25-acre CBS Television City campus in December.
Despite a flurry of blockbuster lease deals, the A-list streamers still have far less space to make content in the city compared to the old-line studios they increasingly compete against. Even though developers are scrambling to repurpose space to accommodate them, their sheer appetites will likely lead them to look outside L.A. for the real estate they need. And there’s little room to grow. L.A. County soundstage space is at 92 percent capacity, according to Film LA.
“When it comes to property,” said Michael Soto, a researcher at Transwestern, “the legacy studios basically have a 100-year head start.”
Streamers jet into LA
Once upon a time, the Los Gatos, California-headquartered Netflix had a friendly relationship with the major studio players, such as Disney, Warner Bros., Universal, Sony, Paramount and recent Disney acquisition Fox.
That started to shift in 2013 when Netflix premiered its much-acclaimed original series “House of Cards.”
Netflix “realized that if they owned original content and their own distribution path via streaming, they can achieve greater independence and competitiveness,” said Gene Del Vecchio, a marketing professor at the USC Marshall School of Business. Also, original programming meant decreased reliance on licensing content made by studios, Del Vecchio said.
But to make its own content, Netflix needed space close to actors, directors and screenwriters, not to mention grips, sound engineers and costume designers.
In other words, Netflix had to get serious about L.A.
In 2017, the company dispensed with its modest satellite office in Beverly Hills and moved into Hollywood, renting out 418,000 square feet of studio space at the Sunset Bronson lot from Hudson Pacific Properties. A year later, Netflix extended its lease at Sunset Bronson until 2031. The company simultaneously rented out Epic, a 13-story, 328,000-square-foot building across the street from Sunset Bronson, another lease that runs through 2031, and another parcel owned by Hudson Pacific.
When the dust had settled, Netflix had leased approximately 1.6 million square feet of Hollywood space. (The company also added to their space by setting up a 60,000-square-foot studio in Burbank this October.) Meanwhile, Amazon and Apple were similarly reshaping Culver City.
Last year, in a bid to ramp up its Prime video originals, Amazon moved production centers from Santa Monica to the fabled Culver Studios, filming site of both “Citizen Kane” and “Gone with the Wind.”
Hackman Capital leased the property to Amazon, and the Westside L.A. developer is expanding the studio to 721,000 square feet, an undertaking mostly financed by $620 million in Deutsche Bank loans.
“I sincerely believe their real estate acumen because everything they did on the warehouse side really proved to be ahead of the curve,” Hackman said of Amazon. “They figured out very quickly that they had to have their own studio lot, and when they know what they want, they make it happen.”
The streamers’ moves helped spur a “building boom in Culver City,” said Kevin Klowden, executive director at the Milken Institute, a Santa Monica-based economics think tank.
“Streamers have joined — and even dominate — the studio leasing market,” said JLL’s Carl Muhlstein.
Space race
But the soundstages and office spaces leased by Netflix, Amazon and Apple don’t compare to what the studios own.
Take Paramount.
Show business observers knock the 107-year-old, Hollywood-based company for routinely placing last among studios in worldwide box office revenue and lagging in production. Paramount is scheduled to release 13 movies by the end of 2019, while Netflix is set to produce 90 films.
When it comes to land, though, the tables are turned.
The Paramount lot will reach 4.1 million square feet once a $700 million, 1.4 million-square-foot expansion is completed.
The story of Paramount v. Netflix in Hollywood is similar to the dynamic in Culver City.
A 20-minute walk from the Apple TV+ studio along Washington Boulevard leads to the 2 million-square-foot Sony Pictures lot, also dating from 107 years ago. The other, even bigger studios — Disney, Warner Bros. and Universal — own millions of square feet in office and soundstage space across Burbank and Studio City.
Disney also has the Santa Monica soundstage space used by Hulu, of which it has full control following a deal with Comcast.
Disney, Warner, and Universal are all set to start their own streaming platforms within the year.
Is the space disparity of great concern for streamers? Maybe not, since real estate since content providers lend and borrow real estate.
The grand front-porch entrance to Culver Studios.
“You see Paramount trucks on the Disney lot, and Disney trucks on the Paramount lot,” Muhlstein said, a practice that the studios may extend by leasing lot space to streamers.
But the land issue may also prompt streamers to have a wandering eye. “Netflix is making the majority of its films outside Los Angeles,” Klowden noted.
What streamers want
Streamers are not eager to discuss their real estate needs. Netflix declined comment, and messages left with Apple and Amazon were not returned.
Developers and real estate agents were also loath to talk, lest they break the militant NDAs signed with the companies. (As oneagent put it: “On background, Amazon is a very private company.”)
Sources close to Netflix did disclose that personnel in Los Angeles, not Los Gatos, make its local real estate decisions. The L.A. team includes Matt Tevenan, the company’s vice president of real estate and workplace production, and Ty Warren, vice president of physical production.
General patterns can be pieced together, in terms of what Tevenan, Warren and other streamer decision-makers look for.
“Streamers and tech companies in general prefer to invest in their core business,” said Craig Coan, a real estate attorney at Greenberg Glusker. “L.A. real estate is very expensive to buy, and I think you would rather invest capital in creating content than real estate.”
Streamers, though, are unafraid to throw money toward tenant improvements.
“Because of the volume of activity they have to create for a global audience, it doesn’t work with the traditional ‘network’ schedule … of hey, I have a show, I’ve got a pilot, I’m going to see how it goes, then I’m going to run it for a certain amount of months per year and do a year-to-year deal,” said Bill Humphrey of Hudson Pacific, the point person for Netflix’s lease at the Sunset Bronson studio.
“They are able to lease a number of stages and associated production office space, knowing that they are going to have a continuation of the content going on in those spaces and facilities on an ongoing basis for many years,” he added.
The investment could be for soundstages — which require high ceilings, specific acoustics and lots and lots of parking. Money could also go toward designing office spaces replete with the sofas and Ping-Pong tables tech companies are known for.
Humphrey believes that his firm has an edge, given its concentration of Hollywood properties. “Creative people I talk to say Hollywood is central, because you’ve got studios and the lot production in the Valley — in Burbank especially. You’ve got Paramount down the street and you’ve got Fox and Sony toward Culver City.”
Also toward Culver City is the Amazon-occupied Culver Studios, which Hackman Capital purchased for $85 million in 2014 with an eye toward the streamers and their increasing demand for space.
Hackman said the streamers have “unique and very specific” requirements, including 40- to 50-foot ceiling height, wardrobe space, room to build set designs, and other physical compartments.
Such environments can triple rents, Coan said.
It also means lease agreements of 12 to 14 years. That’s double the typical lease agreements for soundstage space.
“These leases are longer than usual, probably because of the magnitude of the improvements,” Coan said.
While the streamers take great care with their leases, where they lease is less important.
Why Hollywood and Culver City emerged as streaming hubs is “simply because of availability,” Coan said.
“Culver City is generally going through a process of redevelopment,” said Matthew Ball, the former head of strategy at Amazon Studios and now a venture capitalist in the media space. “It is less hyperdeveloped than Santa Monica or Venice.”
What the future holds
Entertainment and real estate market experts alike portrayed Netflix, Amazon, and Apple as consummate real estate pragmatists, companies that are not animated by any grand vision or belief in the primacy of a particular locale.
“Studio space demand has escalated, but I don’t think there is a drastically different change in where shows are made,” said Ball.
The former Amazon executive gave the example of a show that’s made in New York state one year, learns its soundstage is to be occupied by another show and then sets up shop in Vancouver for the next year.
L.A. figures into the streamers’ equation as the most important market, Klowden said, but also one with drawbacks.
Lack of space is the biggest disadvantage, but L.A. also has more expensive labor and less generous tax credits than states including Georgia and New Mexico.
The same October 2018 week that Netflix announced its Epic building lease, the company said it would accept $14.5 million in state and local tax credits to build a production space in Albuquerque.
Netflix also announced plans for 260,000 square feet of office and soundstage space in New York City this April.
The streamers’ flexibility about location leaves developers unsure how much more to build, though they are moving ahead full steam on a few projects.
Developers could get creative in finding more space. “Abandoned shopping centers are arguably a resource,” Coan said. “You could convert an old Sears into a soundstage.”
Other L.A. neighborhoods, like Atwater Village and El Segundo, and perhaps Netflix’s Burbank move indicate a foray into the valley. The question is what developers can move quickly enough to satisfy streamers’ ravenous but specific real estate appetite. “These streamers,” Coan said, “are looking for space everywhere.”
Facebook CEO Mark Zuckerberg and Hudson Yards (Credit: Getty Images)
Facebook has officially inked its long-rumored lease at Hudson Yards.
The tech giant will take more than 1.5 million square feet of office space across three buildings and 30 floors of the development, landlords Related Companies and Oxford Properties Group announced on Thursday. This includes about 1.2 million square feet at 50 Hudson Yards, 265,000 square feet at 30 Hudson Yards and 57,000 square feet at 55 Hudson Yards.
“We’re excited to expand our offices there starting in 2020,” Facebook’s vice president for global facilities and real estate John Tenanes said in a statement.
Facebook’s deal means that 30 Hudson Yards is now completely leased, while 55 Hudson Yards is 99 percent leased, and 50 Hudson Yards is 75 percent leased. The overall Hudson Yards development is 91 percent leased, according to the developer.
Facebook had been in talks to lease 500,000 additional feet at Hudson Yards since at least August. The company had also reportedly been looking at space in SL Green’s One Madison Avenue and Vornado Realty Trust’s 15 Penn Plaza.
Yu said the Chinese government is typically happy to let investors buy stakes in U.S. companies in some sectors — particularly those in the tech sphere — but commercial real estate investments not so much.
“When it comes to property,” said Michael Soto, a researcher at Transwestern, “the legacy studios basically have a 100-year head start.”
