‘Mr. Downtown’: Kennedy Wilson’s Justin Weiss on the Evolution of Downtown LA

By luck or fate, he found a job at the Downtown Center Business Improvement District in 2006 and helped shape and support the area’s renaissance. During his work at the BID he was responsible for the recruitment of large-scale hotels, creative office tenants and national retailers to small mom-and-pop boutiques. Notable Downtown deals that Weiss helped facilitate include City Target, Bottega Louie, Urth Café and The Ace Hotel.

Weiss was an early believer in the potential of the once-rundown and forgotten Downtown Los Angeles. In 2008, he helped co-found LaunchDTLA, a lifestyle and promotions company that develops and hosts the well-known, “No Networking Allowed, Young Downtown” party. LaunchDTLA has helped open some of Downtown’s most iconic establishments, including Perch, US Bank Tower Penthouse and Arts District Brewery.

Weiss recently spoke to Commercial Observer about foreign investment, future trends and his path to becoming, “Mr. Downtown,” from his offices in Beverly Hills.

Commercial Observer: In terms of development, it seems there has been an influx of foreign capital in Los Angeles, specifically Asian capital, when you look at the developers Downtown. Why are they attracted to the area and what is it like working with them?

Justin Weiss: You have billions of dollars of development that are foreign-capital-based. You have four projects that are $3 billion in construction just Downtown from foreign capital. You have the Oceanwide project opposite the Staples Center that we’re doing the retail on. You have Metropolis which is halfway completed, that’s 1,000 condos, Hotel Indigo, [with] 70,000 square feet of retail and then you have the Wilshire Grand Hotel which Hanjin [the holding company behind] Korean Airlines and that was a close to a billion-dollar project, with the Intercontinental Hotel and then you have various centralized properties by LA Live, by the Car Wash side about to open on Figueroa. There are numerous properties in South Park, including the W Hotel, the [Shenzhen] Hazens group. So, the Chinese investors have been really driving the market Downtown.

Why is that and what is it like to work with them?

First off, there have been more recent restrictions where you’re not seeing as much Chinese investment. You know the EB-5 program [the name of the employment-based fifth preference visa that entrepreneurs and their families are eligible for a green card and permanent residence) was a big boom to the foreign investment particularly in China. The overall strength of the U.S. economy, the optimism of the future of the U.S. economy, particularly those in Far East Asia and the Pacific there’s a desire to invest in the U.S., but to invest in places that are high-profile, in locations that they know are going to grow and L.A. is a perfect place if you are an East Asian investor, whether you’re Chinese or Japanese or Hong Kong, Korea, South Korea because we’re the gateway to the Pan-Pacific here. We’re one flight from the Pan-Pacific and from East Asia so that’s another desirable characteristic to Los Angeles.

In terms of what has been able to grow there, I understand retail has been slower to blossom. From your perspective, what’s done well, what’s taken longer to take root?

Well, you can’t look at downtown in a vacuum. You have to look at downtown L.A. relative to other downtowns that are 15 to 20 years ahead of us in their urban revitalization. A lot of people say, “well you don’t have this, you don’t have that,” and my response is the renaissance began in 2000. We’ve only been doing retail in downtown for the last three or four years. When you think about it in mainstream retail, we’re babies. It’s going to take a long time before downtown L.A. is established the way that Pasadena or Santa Monica are established when it comes to retail.

Second, I can tell you as a retail broker downtown we’re leasing space and we’re doing it rather quickly.

Restaurants and bars led retail for a long time, but now we’re in that stage of retail development in downtown that the hard and soft good tenants are starting to come in.

You look at Broadway and you look at the kind of tenants that are coming in on Southern Broadway, you have tenants like Apple (AAPL) and Vans, the Gap. ABC is already there. Aesop’s is there. A Jordan brand Jumpman store is coming In. You look at Nordstrom Rack and H&M that are already down at Fig and 7th.

It’s getting there. It’s always tough to bring in the pioneers. Retailers are not pioneers. They’re always followers. The Urban Outfitters of the world are rare so once we get one pioneer in a certain part of downtown, the rest will follow. If you look at the Arts District, Dover Street Market is coming, you had Phillip Lim as well opening up a retail store. You look at [ROW DTLA], it’s a creative office campus. They have some of the most eclectic mix of retailers in there so its strong. We don’t have the velocity that you see in retail in West Hollywood, but West Hollywood is 30 years older than us.

Also in downtown L.A., you have much better density in terms of people living and working in downtown than in other parts of the city. So, you have different neighborhoods in downtown that maybe today, you walk down the street and say, “Oh, this is a nothing neighborhood,” but in a year from now when all the developments are done in that neighborhood, it’s going to turn into a Class A location.

Looking forward, what are some of the trends you’re seeing Downtown?

You’re seeing billions of dollars in investment pouring into Downtown. That’s what’s so exciting about what’s happening now. A few years ago, all of the neighborhoods Downtown were distinct. You’d go through two or three blocks of dead streets before you’d get to the Historic Core, to Little Tokyo to the Arts District. Now, there’s a seamlessness to it that’s just really nice. That doesn’t mean that there aren’t dead zones. Homelessness, especially in the Historic Core makes things a little more challenging there. We have 16 different districts and nine or 10 of those districts are seeing incredible growth. Chinatown is on the tip of everybody’s tongue right now. Mori Motto is opening up a restaurant very close to where the new state park is really soon. Roy Choi is a restaurateur that came in a few years ago. Food and booze always revitalize an area. [It’s] just like what happened in the Arts District. Urth Café and Bestia launched that area; you’re seeing the same thing in Chinatown.

The Arts District now, you have buildings selling in the Arts District at a higher price per foot than properties anywhere else Downtown. It’s still rather unproven yet developers that are very savvy and sophisticated that developed Brooklyn and Soho and San Francisco have come in and invested major dollars into that area. It’s really exciting. You have buildings that are selling for $700 a foot in the Arts District. You have thousands of housing units that are under construction or are entitled or are going to become entitled in the Arts District, plus a lot of creative office. Creative office is probably thriving more in the Arts District probably more than any other place Downtown right now.

Why?

Because in the Arts District you have that hip factor, that sexy urbanism that reminds developers of certain parts of Chicago. They see the arts district today and it reminds them of Tribeca [in Manhattan] 30 years ago and they think, wow, this is it. They’ve seen that evolution so they see the same thing in the Arts District as they’ve seen there.

Also you just have the structures. The great thing about Downtown is that for 50 years Downtown was such a shithole that you had all these old buildings that were Beaux-Art constructed in the ‘10s, ‘20s, ‘30s and ‘40s that weren’t even worth tearing down. If you look at the Arts District or any other place Downtown, you see these beautiful buildings with 100-year-old trusses and brick are still there to rehabilitate and reoccupy and a lot of creative users love that. You also have the infrastructure there, the accessibility to freeways. We don’t have a transit line in the Arts District yet, but when you walk out there, in certain parts, you sense it, you feel it.

How did you land your job at BID?

I graduated from UCLA and went to study abroad for a year in Florence, Italy. When I was there, it was the first time I experienced living in a real mixed-use environment. When I got back to L.A. and was living at my parents’ house for a little bit, it was such a shock going back to a suburban model. I realized the benefits of urbanism and became really attracted to it. I always loved New York. Just through serendipity I got an opportunity to work in Downtown and I was all over it. I was intrigued by it.

When I came back to L.A. I decided I wanted to go into real estate and just through connections, I was able to set up an interview with Tom Gilmore [Gilmore Associates]. He’s like the godfather of Downtown redevelopment. And he was the first guy to take a few old buildings on skid row and turn them into luxury lofts. He didn’t have an opportunity for me, but he referred me to Hal Bastian and Carol Schatz, who ran the business improvement district at the time. There was an opportunity to take a job doing economic development for Downtown Los Angeles. This was in 2006 when the renaissance had just begun. So, I was able to get in on the ground floor, doing basic economic development for Downtown for when nobody knew about Downtown.

What started the renaissance?

The renaissance, it began in the year 2000 when the Staples Center was built and that’s when Tom Gilmore launched his properties and Geoffrey Palmer opened a luxury 700-unit apartment building downtown and then you had the Disney Concert Hall and then you had the business improvement district. All those things came together in 2000 to mark the renaissance. It was like the stars aligned.

The business improvement district was important because you had 500 square blocks Downtown and within those 500 square blocks you had 100 trash cans in all of Downtown and no abatements and security. It was really downtrodden, so the BID captured a little more money for the property owners to be able to pay for extra security, maintenance and economic development.

That’s how a lot of other downtowns were revitalized was through property owners coming together and saying we can’t rely on the city anymore, we need to form our own little government to run our downtown. That’s what the property owners in Downtown L.A. have done, so by the time 2006 came along, the first wave of development hit Downtown. We had a lot of developers like the BIMGroup and Lee Homes at Forest City [Realty Trust] that built apartments and condos Downtown and they were doing really well and then you had the first wave of restaurants and bars that came into Downtown, too.

So, 2006, 2007, nobody in the mainstream really paid attention to Downtown, but it was clear when I started working at the BID, the resurgence was inevitable. You just had to give it time.

Today, one of the things that has been a deterrent to the appeal of downtown is the presence of Skid Row and the homelessness issue. How are you working within that? The city has done things like pass a linkage fee on developers to go toward the creation of more affordable housing.

Which is awful, but yeah.

Tell me why it’s awful in your opinion?

Well, there’s a housing shortage in Los Angeles and you need at a minimum over 100,000 units to start to get into balance in Los Angeles. All that a linkage fee does is it increases the cost for developers to build something which gets passed on to people that are looking to rent. It actually causes rents to continue to go up overall throughout the market. The amount of affordable units that are going to get built due to that linkage fee is rather minimal compared to the overall need of the market for units. Also, these projects just don’t pencil out and adding a linkage fee just makes it very difficult for developers to build multifamily unless they build luxury. The net effect is it’s actually going to cause less units to be developed overall in L.A. than more. Then you add Measure J [the measure that extended the half-cent sales tax passed in 2008 to fund transit projects and highway capital projects] on top of it, which has certain labor requirements that make it even more difficult. L.A. zoning itself is regulating itself out of the freedom that a lot of developers need in order to build housing and allow a healthy market to develop.

What is it about the zoning here that is so different, are their pros and cons when you look at places like Brooklyn or Manhattan?

The quick answer is in Los Angeles, we’re a suburban place. We’re not built on an island. Back in the ’60s, ’70s, ’80s and

’90s, mixed-use housing didn’t exist in L.A. You didn’t see many high-rise apartment buildings or condos being built. It wasn’t popular. There was a lot of suburban housing. So, the building and zoning code in L.A. and the regulations from the fire department and building and safety favored single-family houses. And then you look at the setback requirements and you look at things like phase occupancy, having to have a whole entire structure done before people can occupy a project which costs developers a lot of money.

We had a building code and zoning that didn’t favor urbanism. Even the conversion of old historic buildings to lofts up until the year 2000, you couldn’t do that in L.A. until the passing of the Adaptive Reuse Ordinance [approved 1999, the ordinance expedited the approval process for the conversion of historic and under-utilized structures into new housing units], which had existed in cities like New York for decades. Those are still zoning challenges that developers face today. You know being able to build by right is tough in the City of Los Angeles. That’s why it takes so long and it’s so expensive and why housing costs so much is the amount of money it costs developers to hire land use consultants and lobbyists to try and get their properties upzoned so they can build.

The good thing about Downtown is you have less of that and you have a lot more buy-right density that developers have when they buy a lot. But the hurdles are still there to overcome when it comes to building in L.A. You’ve got to go through 12 different departments.

Parking is also a big issue. If you’re building in New York, the parking requirements are significantly less. The good news is that there are initiatives that are being put together by the housing committee and City Council to actually allow developers to build without parking close to transit. That’s coming, but we need it and we need it immediately.

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