Real Estate Forum - July August 2011

NEWS FRONT
Hollywood Development Gets Ready for Its Close-Up

HOLLYWOOD—Is Hollywood the new hot spot? Certainly a few property owners who recently unveiled projects there seem to think so. Millennium Partners and Argent Ventures have revealed plans for a mixed-use development of up to one million square feet with the iconic Capitol Records Building as its centerpiece. The proposed project would be a transit-oriented complex of new uses including residential units, a hotel, office space, a sports club, restaurants and retail.

Redwood Partners Inc. of Newport
Beach, CA is under way on upgrades to a
recently acquired $40-million portfolio of
four apartment properties totaling 222
units. Also on the apartment side, the
Related Cos. and PATH Ventures have
started construction on a new 49-unit proj-
ect that will provide housing for the home-
less and other special-needs residents on a
site donated by philanthropist Morton
LaKretz. The $12-million project, called
LaKretz Villas, is a five-level building located
one block from the Beverly/Vermont Metro
Station.

From Banking Trenches, a New View of the West

As a 25-plus year banker prior to joining Voit Real Estate Services, my perspective is a bit different than many in the industry. During a brief foray into development, which by luck was between 2000 and 2003, I learned about real estate and how truly difficult it is, and then returned to banking with a fresh and more educated understanding.

I re-entered banking in 2004, and ended up with a front-row seat at one of the largest train wrecks in history as the real estate market started to collapse in 2008. I saw many of the major financial firms throughout the country collapse. Next, I saw the result it had on the commercial real estate industry, as longtime business titans lost their entire companies overnight. Now, from my vantage point within a forward-facing commercial real estate firm, I can see that resetting values will allow people to once again run profitable businesses, particularly in the Western US.

Banks are moving away from foreclosing on commercial real estate because it is simply too expensive to manage. Instead, the banks will more often work on reducing interest rates on debt, reduce re-margining requirements and allow short-sales instead of foreclosing.

Before this change of direction by the banking industry, many waited for the flood of foreclosures, initially believing that this

By Cary Calkin

would kick-start the market based on the ability to pay close to nothing for property. In reality, however, the banking industry’s new approach will actually provide a better opportunity.

With the banks now enabling real estate owners to retain their distressed property, the worst properties will be kept off the market altogether. This will, in turn, keep values from decreasing as deeply as they otherwise would. Therefore, the opportunities for operators, brokers, title companies and others will still exist, and they will be stronger.

The lack of a flood of valueless property on the market will keep demand in the Western US at more even levels. As the economy slowly improves, and values stabilize, the knowledge that the worst properties won’t be coming back to the market anytime soon will mean that business executives seeking office or industrial space will be willing to make realistic deals. In addition, investors seeking any of the commercial property types throughout the West, will find opportunities to either participate in short sales or make offers directly to the current owners.

With interest rates low, job growth slowly returning to the Western US and the ability to find property either on a short-sale basis or at a true value, the real opportunity will be the renewal of the most important lifeblood of the industry—a slew of transactions.

Cary Calkin is the director of asset services for Voit Real Estate Services, based in Newport Beach, CA. He may be contacted at CCalkin@voitco.com. The views expressed here are the author’s own.