Amid a housing crunch, empty offices in downtown Los Angeles appeal

The shimmering office towers of the downtown Los Angeles skyline conceal a hard truth — much of the space is empty.

In the years since the pandemic, which upended workplace norms and evaporated demand for office space, landlords downtown have watched in frustration as the value of their office buildings has plummeted. More than a few have faced foreclosure, leaving owners anxious about the need to get tenants back in their buildings or find another use for the millions of unused square feet.

An uptick in office lease signings has led some to hope the office rental market has hit bottom, but others, like landlord and developer Garrett Lee, believe there’s a more reliable path forward than trying to convince tenants to return: converting offices into apartments.

The idea took on new urgency this month as wildfires destroyed thousands of homes in Los Angeles’ Pacific Palisades neighborhood and Altadena, a community in the foothills just north of the city, exacerbating the region’s long-running housing shortage. Downtown is zoned for some of the densest residential development in Los Angeles County.

“We have an unprecedented need for housing right now,” Lee said. “There needs to be an even greater effort than before to build housing of all unit types and rent levels.”

Lee is president of Jamison Properties, a prolific converter of midsize, older L.A. office buildings into apartment buildings. Now, Jamison is about to plow fresh ground by turning into housing a glossy 32-story office tower built on the edge of downtown in 1987.

Efforts to create a second act for underused office towers that were the height of prestige a generation ago are part of a larger drama playing out in a financial center that has lost much of its shine in the years since the pandemic. Restaurants and shops have struggled with the departure of many workers while homelessness and a sense that sidewalks aren’t safe has risen and helped lead to the departure of some office tenants.

“Downtown is torn between believers in downtown and nonbelievers who say it’s gone downhill and isn’t coming back,” Lee said. “We see a very big split between the two.”

While many downtown office buildings built before World War II already have been converted to residences or hotels, the eye-catching skyscrapers built in the late 1980s and early 1990s have mostly remained offices. A successful makeover of Jamison’s L.A. Care tower at 1055 W. 7th St. could set an example for repurposing prominent office towers that were built relatively recently and designed to house corporate businesses for decades to come.

The city is close to adopting a new building code that will make it easier for developers to get approvals to convert offices built after 1975. A previous code for conversions that focused on buildings erected before that year, when construction standards were less stringent, led to a boom in office, apartment, condo and hotel conversions starting in the early 2000s.

Jamison is close to securing city approval to convert 1055 W. 7th St. “with very little structural retrofit,” Lee said, which will reduce construction costs by about 10% and save a lot of time compared to the company’s previous conversions of midcentury office buildings, which required significant improvements to meet city seismic codes.

The ability to convert some office buildings to residential use without going through a full structural retrofit is a game changer for developers in another way too, Lee said. They can leave rent-paying office tenants in place while they convert empty floors to apartments, instead of having to empty the whole building for the retrofit.

“You can skip a floor or go around them,” he said of office tenants. “That really opens things up for converting 30-year-old buildings” like the ones that dominate the downtown skyline.

Lee plans to start work this year on 1055 W. 7th St., which will be converted to 686 apartments. Newer office towers like that one are “night and day” more attractive to convert to housing than midcentury buildings from the 1950s and ‘60s, he said, and should command higher rents.

“The bones are so much better,” he said, with floor-to-ceiling windows and panoramic views. Much of the mechanical, electrical and plumbing system can be reused “because it’s still very adequate to today’s standard.”

Floor by floor, though, the buildings get a complete makeover.

“We fully gut the interiors,” Lee said, removing the walls, lighting and plumbing that served office occupants. When the floors are stripped down to the concrete, developers are ready to rebuild them as apartments.

There’s room at 1055 W. 7th St. to create amenities such as a gym and co-working space so tenants have a place to do their jobs outside of their apartments. Other tenant attractions probably will include a theater, golf simulator, karaoke room and card room — amenities Jamison added in earlier conversions in Koreatown.

Jamison has tentative plans to convert another downtown office building to housing, the 10-story World Trade Center at Figueroa and Third streets, which dates to 1975. It’s unclear how many other office buildings are good candidates for residential conversion, but there is a lot of space going unused — CBRE estimates that more than a third of the 32.4 million square feet in 70 buildings in downtown’s Central Business District is available. That is more than triple the amount considered to be a healthy balance between tenant and landlord interests. When “shadow” office space that is leased but not occupied is considered, overall availability is nearly 37%.

Downtown’s apartment market remained resilient coming out of the pandemic even as the office market stumbled. The neighborhood has about 90,000 residents, a slightly higher population than Santa Monica or Santa Barbara, said Jessica Lall, head of real estate brokerage CBRE’s downtown office. They live in 47,000 residential units, most of which are apartments rented at market rate.

The addition of more residents through conversions and new builds could help restore a sense of life to the Financial District.

Before the pandemic, downtown’s sidewalks often were crowded with office workers going out to eat, shop or take meetings in other buildings. There were homeless people, but a sense of order prevailed on the busy blocks where thousands were employed by law firms, financial institutions and other white-collar companies.

The sense of order has not returned, said office investor John Sischo, who has worked in the real estate business downtown since the 1980s.

The drop in pedestrian traffic caused by workers staying at home during the pandemic and continuing to work remotely has been a drain on the vibrancy and sense of security in the Financial District, which is depressing office leasing and hampering the neighborhood’s comeback, Sischo said.

A 32-story office building in the 1000 block of West 7th Street will be converted to 686 apartments.

(William Liang / For The Times)

“Homelessness is out of control,” he said. “People don’t feel safe coming downtown and you’ve lost all the momentum relating to the desire to live here.”

The changing nature of downtown is one of the reasons Wedbush Securities is moving to Pasadena’s Lake Avenue, “which has recovered more fully from the pandemic,” President Gary Wedbush said.

Wedbush announced in October that it will leave behind Wedbush Center, an office building overlooking the Harbor Freeway, for smaller offices in Pasadena meant to accommodate employees who now work remotely much of the time.

The pullback in leasing also has contributed to plummeting office building values and sales of prominent skyscrapers at deep discounts. Among them was 55-story Gas Company Tower, which sold last year to the County of Los Angeles for $200 million, far less than its appraised value of $632 million in 2020.

Making residences out of struggling office buildings is considered environmentally desirable and can be far cheaper than building new apartments or condos from the ground up, but most landlords are hoping the office rental market is bottoming out and may begin to recover this year.

Leases were signed for more than 600,000 square feet of office space in the fourth quarter that ended Dec. 21, a 21.7% increase from the previous quarter. More than half of that involved renewals of existing leases, with some companies expanding their offices even as others contracted.

Those gains are only a small step forward for a downtown that has been burdened with excess office space since the building boom of the 1980s and early ‘90s.

A 32-story office building in the 1100 block of South Olive Street, where Olympics organizer LA28 rented 160,000 square feet.

(William Liang / For The Times)

The biggest office lease in all of Los Angeles in the fourth quarter was by LA28, the private group organizing and paying for the 2028 Summer Olympics and Paralympic Games in Los Angeles. CBRE said LA28 rented 160,000 square feet in USC Tower, a high-rise on Olive Street a few blocks from the Los Angeles Convention Center, Crypto.com Arena and L.A. Live. LA28 is expected to move downtown later this year from Westwood.

Other new leases downtown are in the works, CBRE broker John Zanetos said. Upward leasing trends in other cities is promising for Los Angeles, he added.

“What we’re experiencing in downtown L.A. is similar to what is happening in Seattle, San Francisco and other cities, which tend to recover in front of Los Angeles in historic real estate cycles,” Zanetos said. “We saw their urban cores start rebounding in the third or fourth quarters and we think that bodes well for Los Angeles.”