Old Bank District
Los Angeles, California
Project Type: Mixed-Use/Multi-Use
Case No: C033003
Year: 2003
SUMMARY Located in the heart of downtown Los Angeles’s historic core, the Old Bank District comprises three historic office buildings that were converted into 230 market-rate, rental loft apartments with 102,840 square feet (9,520 square meters) of ground-floor retail space. The first project completed under a city program designed to promote the development of downtown housing by relaxing building code requirements, the Old Bank District serves as a model for other adaptive use projects in Los Angeles. Redevelopment of the historic buildings along Fourth Street between Spring and Main streets has attracted national attention. Planning for the $33.5 million project began in 1998, and the loft conversions were completed in 2001.
FEATURES
Adaptive use First to use the city’s 1999 Adaptive Reuse Ordinance Pioneering market-rate rentals Public/private financing Historic preservation Old Bank District
Los Angeles, California
Project Type: Mixed-Use/Multi-Use
Volume 33 Number 03
January–March 2003
Case Number: C033003
PROJECT TYPE
Located in the heart of downtown Los Angeles’s historic core, the Old Bank District comprises three historic office buildings that were converted into 230 market-rate, rental loft apartments with 102,840 square feet (9,520 square meters) of ground-floor retail space. The first project completed under a city program designed to promote the development of downtown housing by relaxing building code requirements, the Old Bank District serves as a model for other adaptive use projects in Los Angeles. Redevelopment of the historic buildings along Fourth Street between Spring and Main streets has attracted national attention. Planning for the $33.5 million project began in 1998, and the loft conversions were completed in 2001.
SPECIAL FEATURES
Adaptive use First to use the city’s 1999 Adaptive Reuse Ordinance Pioneering market-rate rentals Public/private financing Historic preservation
PROJECT ADDRESS
400 South Main Street (Fourth Street between Spring and Main streets) Los Angeles, California 90013
DEVELOPER/OWNER
Gilmore Associates 636 South Broadway, Suite 400 Los Angeles, California 90014 213-622-4949 Fax: 213-622-4818 www.laloft.com
ARCHITECT
Killefer Flammang Architects 1625 Olympic Boulevard Santa Monica, California 90404 310-399-7975 Fax: 310-399-8545 www.kfparchitects.com
CONSTRUCTION MANAGER
Prudential Construction and Management 431 West Seventh Street, fourth floor Los Angeles, California 90014 213-625-7600 Fax: 213-625-7606 www.pcmla.com GENERAL DESCRIPTION AND SITE
The Old Bank District consists of three historic buildings—the Hellman, the Continental, and the San Fernando—and a parking garage located at the northern end of downtown Los Angeles’s historic core. Built between 1905 and 1914, the Hellman building at 411 South Main Street was developed by one of California’s leading financiers, Isaias W. Hellman, founder of the Farmers & Merchants National Bank, and its neoclassical facade is a landmark in the National Register–designated Spring Street Financial District. Built in 1904, the Continental building at 408 South Spring Street, a 12-story example of beaux-arts architecture, was the tallest structure in Los Angeles for almost 25 years. Although referred to as separate buildings, the Hellman and the Continental are interconnected and span a full city block on Fourth Street between Main and Spring streets. Built in 1906, the San Fernando at 400 South Main Street was originally six stories high, with a seventh and an eighth floor added in 1911. It is directly across the street from the other buildings. The Old Bank District was the first project to be completed under the 1999 Los Angeles Adaptive Reuse Ordinance, the goal of which is to encourage the development of downtown housing by reducing the length of the permitting and approvals process.
The Old Bank District lies in a mostly commercial area and is surrounded on all four sides by several other districts, each with a distinct identity. To the north lies the Los Angeles Civic Center, the second-largest civic center in the nation. To the northeast is Little Tokyo, a prosperous ethnic community. To the east is the toy district, a strong economic environment that is fully leased with high rents. Sharing space with the toy district, however, is the 12-square-block skid row area, filled with missions and single-room occupancy hotels. To the south lies the fashion district, the largest concentration of fashion-related industries in the United States. To the immediate west is Broadway, a thriving Hispanic shopping street, and just beyond Broadway to the west is the central business district. Although the developer considered a number of other historic sites available in downtown Los Angeles, Gilmore Associates chose to redevelop the Old Bank District, believing it forms a nexus for connecting several disparate elements of downtown.
Gilmore Associates is a California-based limited liability company (LLC) founded in 1998 to pursue the acquisition and development of available historic buildings in downtown Los Angeles and Hollywood. Tom Gilmore joined with Jerri Perrone and Charles Loveman to form Gilmore Associates. Gilmore was formerly the head of Gilmore Design Associates, a New York architecture firm, and the president of the Hertz Group, a real estate development firm focusing on commercial development in downtown Los Angeles. Prior to joining Gilmore Associates, Perrone was a vice president at Sentinel Real Estate in New York and Loveman was an urban planner with the Community Redevelopment Agency of Los Angeles. Gilmore Associates is a small, privately held firm of 15 employees that handles both development and property management.
DEVELOPMENT PROCESS
Downtown Los Angeles historically has suffered from low numbers of residential units that do not meet the high demand for housing. When planning for the Old Bank District began in 1998, census estimates put the number of downtown residents at well below 10,000. The downtown residential market consists of two extremes: high-rise luxury apartments and low-income, affordable, and transitional housing. Between July 1998 and June 1999, only 1,940 net new housing units were built in the city of Los Angeles while the population increased by 65,000 people, according to the Los Angeles Housing Crisis Task Force Summary Report. The developer saw that there were few market-rate residential opportunities and no true urban housing in the downtown area.
Gilmore points to his love of New York’s vibrant urban areas and his shock and dismay at the underdeveloped urban areas in Los Angeles as his inspiration for redeveloping the Old Bank District. The historic core provided economic opportunities for the developer to renovate blighted buildings that did not interest other developers. At the time, Gilmore began focusing on the historic core, where he found structures that were underutilized and prime for redevelopment.
The buildings in the Old Bank District remained intact through what Gilmore calls “an incredibly fortunate error.” In the 1920s, the Los Angeles business district arose around the residential base of Bunker Hill, the current location of the central business district. During the late 1960s through the 1970s, downtown Los Angeles experienced significant deterioration and blight due to suburbanization. When the residents of Bunker Hill moved to the suburbs, the city, instead of reinvesting in the original commercial core, decided to build the current central business district on top of the blight of Bunker Hill. City planners demolished the deteriorated residential components of Bunker Hill and relocated the businesses and retail tenants from the historic center. Once the commercial businesses abandoned the historic core there was no economic incentive to tear it down, so it was left intact. From the late 1960s through 1998, the historic core remained largely vacant, or served as a movie set.
FINANCING
In the early stages of development, Gilmore Associates hired the Los Angeles office of Robert Charles Lesser and Company to conduct a market study. At the time, there were no reasonable “comparables” for market-rate housing in downtown Los Angeles. Because of this, the developer and market analysts looked at models from Denver, Portland, and Seattle.
Once the residential buildings in the Old Bank District were completed, the development community discovered a new niche market. Residents were willing to pay significant rents of $1.40 to $1.80 per square foot ($15.05 to $19.35 per square meter), which has since risen to almost $2 per square foot ($21.50 per square meter) in some spaces, for minimal amenities. These rental units have attracted the 25- to 35-year-old professional target market that many developers, prior to the completion of the Old Bank District, never thought would move downtown.
The Old Bank District is now the comparable that other developers use to obtain funding. The banks that initially funded Gilmore Associates became the banks that supported the next round of similar adaptive use projects in the area. Gilmore Associates is happy to “open their books” and share their lessons with other developers—the firm knows that the health of the Old Bank District is directly related to continued residential development in downtown Los Angeles.
Gilmore Associates financed the project with the assistance of equity partners as well as city and federal agencies. After the sales contract was signed, the properties were placed in escrow in 1998. Because there was virtually no demand from other buyers for the buildings, the developer was able to continue to hold them in escrow for over a year while financing was arranged.
Total rehabilitation costs of $33.5 million were paid by $2.5 million in developer’s equity and $31 million in debt financing. The bulk of the financing—$26 million—came in the form of U.S. Department of Housing and Urban Development (HUD) 220 loans, which provide financing for market-rate housing in blighted areas with no affordable component. The HUD loan was paired with a $3.5 million loan from the Community Redevelopment Agency of Los Angeles, which was subsequently raised to $5 million.
The buildings qualified for the 20 percent historic tax credit administered through the Federal Historic Preservation Tax Incentives Program, which is jointly administered by the U.S. National Park Service and the Internal Revenue Service. Under this program, certified historic structures are eligible for a tax credit of 20 percent of the costs of rehabilitation if they meet National Park Service standards. The credit is granted for a five-year period.
The buildings qualified for $6.6 million in historic tax credits (20 percent of $33.5 million in construction costs). The National Trust for Historic Preservation’s Heritage Property Services division brokered the sale of Gilmore Associates’ historic tax credits to the National Partnership Investment Corporation (NPICO), a multifamily tax credit syndicator subsequently purchased by AIMCO. AIMCO purchased the credits from Gilmore Associates for roughly 90 cents on the dollar, creating almost $6 million in additional equity for the project. Half of this equity was paid upfront, with the remainder paid out as construction milestones were hit.
LLCs were formed for the ownership and management of each building, with Gilmore Associates acting as the general partner. AIMCO holds a 99.9 percent interest until the tax credits expire, at which point Gilmore Associates can take over the LLCs. AIMCO receives the tax credit and the depreciation for five years. Gilmore Associates receives a large, but deferred, development fee and a standard 3 to 4 percent management fee, with ownership reverting in five years.
PLANNING AND APPROVALS
The redevelopment of the Old Bank District came about, in part, because of the 1999 Adaptive Reuse Ordinance. This ordinance is intended to encourage the conversion of commercial buildings to live/work space without the regulations and standards that limit new construction. The goal of this ordinance is to expedite the review of projects, thereby reducing construction time and providing innovative ways to address construction, seismic, and safety issues. The three buildings were mostly vacant when the developer took ownership of them in 1998.
Converting the steel-frame and concrete buildings from commercial to residential use required full mechanical, electrical, plumbing, seismic, and fire/life-safety retrofits. Fire/life-safety requirements are imposed by the fire department and mandate the number of exits, fire alarms, and other safety systems necessary in a residential building.
The developer submitted the plans to the fire department and the building and safety department for review in order to obtain building permits. The departments tried to review the plans according to the requirements of both the new Adaptive Reuse Code and the existing Historic Building Code, which did not always coincide. Since the Old Bank District was the first project to fall under the jurisdiction of the city’s 1999 Adaptive Reuse Ordinance, the developer faced challenges and delays in the approvals process that negated the benefits of the ordinance’s expedited reviews process.
The biggest issues were the Hellman and Continental portions of the project and the adjacent parking garage. Although the Hellman and the Continental were generally considered to be two separate buildings, they are actually an amalgamation of several interconnected buildings of varying heights. The developer believed it was vital that the buildings remain interconnected for easy pedestrian flow within the building and into the parking garage. However, the fire department and building and safety department were not comfortable with that idea.
Although the developer requested separate permits for the Hellman and Continental buildings, the fire department chose to treat the two structures as one. Since the highest section was 13 stories, the fire department classified it as a high rise. To ensure the fire department’s comfort with the continued integration of the two buildings and to meet the high-rise requirements, the developer integrated each building’s fire alarm system into one large system. Gilmore Associates was willing to accommodate the fire department’s request. However, the department did not determine that the fire alarm system was required until after the developer’s plan, loan, and construction documents were completed. This requirement added 16 months to the development process and $1.5 million to the anticipated project costs.
The developer felt fortunate that the city was willing to raise the amount of its initial loan from $3.5 million to $5 million to cover the additional costs associated with the permitting process. The developer felt able to afford the additional debt because the real estate market was strong at the time. With the San Fernando building already completed and in the leasing process, Gilmore Associates knew that there was strong demand for this product type, enabling the developer to show a pro forma that indicated it could support the additional debt level. Throughout the process, the developer relied on the financial and political support of the mayor’s office and other municipal agencies. There was a consensus that the revitalization of the historic core was important and the developer was given tremendous community support.
DESIGN
Today, the buildings’ exteriors appear very similar to how they looked 80 years ago. The building retrofits were completed in tandem with the necessary preservation efforts under the historic preservation codes, since all three buildings are located in a designated historic district. The developer found creative ways to seismically retrofit the structures without intruding into the historic spaces. Sheer walls were added to the inside of the buildings with the least amount of disturbance at the column sides, which are important historical features of the buildings.
Most of the buildings’ floors originally were seismically retrofitted in the 1960s, a process that destroyed much of the historic fabric. Since the ground floors of each structure were significantly altered as the edifices were converted to modern uses, the developer made a special effort to reproduce the historic features and floor plan on those floors.
Once the remaining historical elements of the building were restored, the developer worked with Killefer Flammang Architects to design the loft interiors—with more of a raw edge than the other residential units that were coming on the market at the time. The architects chose to leave the concrete and steel beams exposed and did not restore the exposed wall surfaces beyond what was required for safety reasons. All of the mechanical equipment and conduits were left exposed. Even damage to the walls sustained from the seismic retrofit was left in place.
Most of the loft units are open-plan spaces with high ceilings and big windows. Bathrooms and kitchens are clustered together to serve as a room divider. Walls do not reach the ceiling and the only doors are to the bathrooms and closets. The lofts feature large tiled bathrooms, sandblasted concrete floors, and fully equipped kitchens with granite countertops and stainless steel appliances.
MARKETING AND MANAGEMENT
Because the project generated local and national press coverage, additional marketing was not a necessity. Only a few small advertisements in local newspapers were needed. The buildings filled rapidly and are now 99 percent leased.
Managers have made an effort to engage residents by asking for comments and suggestions as well as by hosting resident meetings. The management style is interactive and the developer makes it a point to be on the property twice a day. Tenants are given some freedom: they are allowed pets, can paint their apartments, and are even permitted to construct legal walls, as long as they present the developer with a plan.
Renters primarily are young, single professionals, living by themselves or in groups of two or more. Tenants’ ages range from 25 to 35, with students from local colleges constituting 10 to 15 percent of the renters. A number of tenants work in creative businesses such as photography, Web design, and entertainment, with about half the residents working in downtown Los Angeles.
The Hellman building features 98 loft units ranging from 535 to 1,560 square feet (50 to 155 square meters) in size, and renting for $856 to $2,600 per month. There is one, one-bedroom unit measuring 2,320 square feet (215 square meters) and one three-bedroom unit of the same size, both of which rent for $2,850 per month. Three two-bedroom units range in size from 2,220 to 2,330 square feet (206 to 216 square meters) and rent for $2,350 per month. The penthouse has 2,095 square feet (194 square meters) and rents for $2,095 per month.
The Continental building has 55 lofts ranging from 656 to 1,300 square feet (61 to 120 square meters) in size, with monthly rents ranging from $910 to $2,500. The 2,750-square-foot (255-square-meter) penthouse rents for $4,500 per month.
The San Fernando building contains 69 lofts ranging in size from 585 to 1,420 square feet (54.3 to 132 square meters), with monthly rents running from $790 to $2,500. The 1,430-square-foot (133-square-meter) penthouse rents for $3,000 per month.
Parking for residents is provided in an adjacent parking lot and parking structure that were purchased by the developer. Each unit is entitled to one parking space that can be rented for $75 per month.
Occupying 102,840 square feet (9,554 square meters) of retail space spread among the ground floors of the three buildings are Pete’s Café and Bar (5,717 square feet/531 square meters), Banquette Café (824 square feet/76.5 square meters), the Fourth Street Gallery (691 square feet/64 square meters), Old Bank District General Market (1,185 square feet/110 square meters), Quizno’s Subs (1,797 square feet/167 square meters), the Bank Gallery (1,063 square feet/99 square meters), Victoria’s Hosiery (2,593 square feet/241 square meters), and a yet-to-be-named clothing store (667 square feet/62 square meters). There are several other ground-floor commercial spaces still available that developer expects to fill soon. Average annual retail rents are approximately $0.50 to $1.50 per square foot ($5.37 to $16.12 per square meter).
EXPERIENCE GAINED
Gilmore Associates believes that a strong idea should be the foundation of a development. Efforts should be made to involve city and county officials in the project, rather than just accommodating them.
The developer learned that potential renters consider price first and then size when looking for an apartment. Many people were willing to pay $850 to $1,100 per month for a 450-square-foot (41.8-square-meter) apartment in an urban environment. By offering mostly larger units with higher associated rents, the developer was pricing a number of potential renters out of the market. In the future, Gilmore Associates plans to build a greater number of smaller units.
In the future, Gilmore Associates expects that developers will have to deal more extensively with issues related to the imbalance between affordable versus market-rate housing in downtown Los Angeles. Gilmore believes that as the Adaptive Reuse Ordinance is applied to hotels, there will be some clashes between developers and advocacy groups concerning affordable and transitional housing. Because the Old Bank District was the first project completed under the new ordinance, the developer wanted to limit the project to all market-rate housing to prove that mid-priced housing could be built successfully in downtown’s historic core. Gilmore believes that future buildings there will consist of 80 percent market-rate and 20 percent affordable, mixed-income housing.
Gilmore Associates believes it has proven that loft conversions in downtown Los Angeles are financially viable. In addition to the Old Bank District, dozens of other adaptive use projects are being planned or are nearing completion in the area, including the Flower Street Lofts, adjacent to the Staples Center; the Santee Court Lofts in the fashion district; and the Victor Clothing Company Lofts in the historic core. The developers of these projects have looked to the Old Bank District as an example of successful adaptive use. The Old Bank District serves as a model of successful urban housing in downtown Los Angeles. If all planned projects are completed, close to 4,000 loft units will become available over the next two years. Gilmore expects that these new units will create the critical mass needed to pave the way for an additional 100,000 residents in downtown Los Angeles in the next ten to 15 years. PROJECT DATA LAND USE INFORMATION Site area (acres/hectares): 1.85/0.75 Residential units: 230
GROSS BUILDING AREA Use Square Feet/Square Meters Office 72,146/6,702 Retail 102,840/9,554 Residential 307,205/28,539 Parking 200,755/18,650 Total 682,946/63,445
LEASABLE AREA Use Square Feet/Square Meters Office (property management) 72,146/6,702 Retail gross leasable space 69,897/16,493 Parking garage 200,755/18,650
RESIDENTIAL UNIT INFORMATION Hellman Floor Area Number Range of Initial Unit Type (Square Feet/Square Meters) Leased Rental Prices Loft 535–1,560/50–145 98 $856–2,600 One bedroom 2,320/215 1 $2,850 Two bedrooms 2,220–2,330/206–216 3 $2,350 Three bedrooms 2,320/215 1 $2,850 Penthouse 2,095/195 1 $2,095
Continental Floor Area Number Range of Initial Unit Type (Square Feet/Square Meters) Leased Rental Prices Loft 656–1,300/61–120 55 $910–2,500 Penthouse 2,750/255 1 $4,500
San Fernando Floor Area Number Range of Initial Unit Type (Square Feet/Square Meters) Leased Rental Prices Loft 585–1,420/54.3–132 69 $790–2,500 Penthouse 1,430/133 1 $3,000
RETAIL INFORMATION Tenant Number of Total GLA Classification Stores (Square Feet/Square Meters) General merchandise 1 1,185/110 Food service 3 11,157/1,036 Clothing and accessories 1 667/62 Gift/specialty 2 1,754/163 Recreation/community 1 1,260/117 Other 1 668/62 Total 9 16,691/1,550 Percentage of GLA occupied: 37 Annual rents: approximately $0.50 to $1.50 per square foot/$5.37 to $16.12 per square meter Average length of lease: 3 to 10 years
DEVELOPMENT COST INFORMATION Site acquisition cost: $6,156,000
Construction Costs Retail: $3,524,785 Residential: $15,508,756 Total: $19,033,541
Soft Costs Architecture/engineering: $868,969 Project management: $250,000 Marketing: $192,000 Legal/accounting: $72,500 Taxes/insurance: $488,406 Title fees: $99,395 Construction interest and fees: $1,759,448 Other: $2,421,403 Total: $6,152,161
Total development cost: $31,341,662
Total development cost at completion (if different): $33,000,000
DEVELOPMENT SCHEDULE Planning started: December 1998 Site purchased: December 1999 Sales/leasing started: June 2002 Project completed: October 2002
DIRECTIONS
From Los Angeles International Airport: From the airport exit take the CA-1 S/Sepulveda Boulevard south ramp toward I-105. Take the I-105 east/Imperial Highway west exit toward Imperial Terminal. Merge onto I-105 east toward Norwalk. Merge onto I-110 north toward Los Angeles. I-110 becomes CA-110 north. Take the 4th Street/3rd Street exit, number 22B. Take the 4th Street ramp. Turn left onto West 4th Street. Follow 4th Street until you cross Spring Street. The Old Bank District is on the right at 4th and Spring streets continuing down to 4th and Main streets.
Driving time: 20 minutes in nonpeak traffic.
Sam Ragsdale, report author Leslie Holst, editor, Development Case Studies David James Rose, copy editor Joanne Nanez, online production manager
This Development Case Study is intended as a resource for subscribers in improving the quality of future projects. Data contained herein were made available by the project's development team and constitute a report on, not an endorsement of, the project by ULI–the Urban Land Institute.
Copyright © 2003 by ULI–the Urban Land Institute 1025 Thomas Jefferson Street, N.W., Suite 500 West, Washington D.C. 20007-5201 Located at the southeast corner of Fourth and Main streets, the San Fernando building was built in 1906 by Colonel James B. Lankershim. Originally a six-story structure, the seventh and eighth floors were added in 1911. Today, the San Fernando offers 70 rental lofts. Units are semi-industrial in style with open-plan spaces and feature fully equipped kitchens with granite countertops and stainless steel appliances. Bathrooms include a porcelain bathtub/shower with slate tile enclosures and the same high ceilings and concrete floors found throughout the units. The Hellman building encompasses the Farmer's & Merchants National Bank Building (shown here) and is an example of neoclassical architecture. An image of the Old Bank District as it appeared in the early 20th century. Site plan.