Ghost Town No More: The Transformation of Downtown Los Angeles

It’s five o’clock on a Friday in Downtown Los Angeles circa 1995. Bankers and businessman check their watches, walk down to their cars, and drive off to their respective homes or apartments throughout Los Angeles. This was the picture of what downtown used to be, a ghost town with vacant offices and a bleak economic outlook for the neighborhood.

Thanks to the emergence of the Staples Center, downtown is no longer the ghost town it used to be. In the past 15 years the neighborhood of downtown Los Angeles has seen a dramatic rise in the number of businesses that have decided to open up shop . But what is driving this dramatic rise?

Many experts believe the growth was buoyed because of AEG’s Staples Center, which is true, but there are several other factors that were just as effective. For example, the creation of Metro Rail, which brought people from Pasadena into this neighborhood, furthering economic activity. Another factor was the completion of the Walt Disney Concert Hall in 2003. There were many roadblocks from 1987 to 2003, but the necessary funds were collected, and it has brought a world-class architecture project to downtown. So we see an amalgamation of investment through private, public, and philanthropic means along with a coincidence of good timing.

The reason why the Staples Center garners much of the praise for this revitalization is because this multi-purpose stadium hosts over 250 events and around 4 million visitors a year, an outstanding number of people to see the revitalized downtown neighborhood. Now, with the construction of LA Live, there are many pull factors like restaurants and bars that see visitors of the Staples Center come early for the event and stay once the event is over. Before the completion of the arena, downtown was best known for the juxtaposition of skid row and financial businesses. In the early 1990’s, banks located in downtown began to consolidate and merge their offices, thus creating empty office buildings and spaces throughout the neighborhood.

Los Angeles is a city that, despite the economic woes of its state, can be seen as a beacon of hope with a global interest that has seen investment from several Chinese firms as well as Korean Airlines. This sentiment has become increasingly more evident with the construction of the Wilshire Grand building that is owned by Korean Airlines. The Wilshire Grand building will become the eighth largest building in the United States, once completed. Generally speaking, the more skyscrapers and construction cranes a city has, the healthier their economy is. That is not always true, but in this case it demonstrates that Los Angeles, and the booming downtown, want to compete on a global scale. Sure, the rebuilding of the downtown neighborhood has been a slow process since the late 1990’s, however, according to Nate Berg, “many in the city are hopeful that the Wilshire Grand is part of a new wave of investment downtown that will help the city compete internationally” (Nate Berg, The Guardian). It seems as though Nate’s sentiments are justified in terms of the investments being brought to the neighborhood, when there are plans for chains like Whole Foods, retailers like Urban Outfitters, and several local restaurants who have decided to expand to the downtown area.

In order to put the rise of downtown in context of, towards the end of 2013, “Six parking lots in downtown Los Angeles recently sold for $82 million” according to Dawn Wotapka of the Wall Street Journal. A staggering amount of money for some parking lots that have plans to be turned into an apartment complex. This is just one deal of many that have transpired over the past 15 years, and the figures seem to keep rising.

However, the other side of this story is the issue with occupancy rates, and whether or not there are too few apartments or too many people. Wotapka reports, “With more people flocking downtown, the vacancy rate for apartments has fallen. In the third quarter, downtown Los Angeles had a vacancy rate of 3%, down from 3.3%” Along with the dropping vacancy rates in downtown, which means in increase in demand, the consequence is that the average price of rent jumped almost 4% in the final quarter of 2013.

To shed more light and data  on the rise of housing in downtown, Wotanka found, “There are about 14,000 apartment units in downtown Los Angeles. About 5,100 units are under construction, and more than 3,400 units were built between 2008 and 2013, according to Polaris Pacific, a real-estate sales, marketing and research firm. More than 3,000 additional rental units have been approved, with another 7,000 proposed. Meanwhile, there are only 17 condo units for sale and 68 under construction.”

Although there are some concerns that there has been such a vast amount of investment for housing downtown that we could see a drop in prices, the consensus among real-estate executives is that the demand will still stay fairly constant and strong. This prediction is justified by a recent report on the diminishing availability of apartment buildings and the relationship with rent prices. Since 2010, rent in the downtown neighborhood has increased by 18.2% and is still predicted to grow because of the strong demand.

There has been a rush of residents flocking downtown, but that does not mean that it was equipped with the necessary provisions of a typical neighborhood.Another major indicator of the downtown area boom, although it may seem trivial at first glance, is the addition of Whole Foods to the flourishing neighborhood. The development of a Whole Foods in downtown serves not only high-priced, fair trade organic groceries, but as a symbol of the seriousness of downtown as a vital area in Los Angeles. As David Pierson of the Los Angeles Times reports, is “a major development in the neighborhood’s gentrification efforts.” He is not the only one praising the development of the high end grocery store. City Councilman Jose Huizar recently stated, “Downtown Los Angeles is like a city within the city that needs a diverse range of services – including grocery stores,” Huizar said in a statement.  “Bringing Whole Foods Market to downtown is long-awaited news that represents a major coup.”

But Whole Foods is not the only successful chain that has chosen to explore the downtown area. The recently remodeled United Artists Building, now called the hip Ace Hotel, provides another example of what downtown has become. With locations in London, New York, and Panama, to name a few, the expansion to the downtown area exemplifies the “hip” and “young” vibe that the area now exudes.

Downtown has made tremendous strides and has overcome many obstacles to get the state that it is in today, and many real estate executives believe that the best has yet to come for this burgeoning neighborhood. With rising rents and diminishing vacancy rates, an interesting few years are expected to come in the housing market, with several apartment complexes to be completed. However, in retrospect, you have to look back to the addition of the Staples Center, the Walt Disney Concert Hall, the completion of LA Metro rail lines into downtown, and the subsequent development of L.A. Live as the genesis of this downtown explosion.

The Changing Face of Brick & Mortar Retailers: The Rise and Fall of the Shopping Centre

Edited & Updated

Growing up surrounded by expats in a foreign environment, days at the mall were often a nostalgic subject among my American schoolmates. Indeed, the mall was something of a hallmark for American society to many of us non-Americans. Yet only a few years later, the sprawling shopping centres that were once the favoured activity of families and teens across America, have become relics of a bygone era. Mall mogul and C.E.O. of one of America’s largest privately held real estate companies, Rick Caruso, went so far as to call the traditional mall a “historical anachronism – a sixty-year aberration” that no longer meets the needs of retailers, communities, or the general public. Once known as the ‘temples of consumption,’ the American mall has become outdated and obsolete. Years of haemorrhaging to e-commerce sales has left its mark, driving under anchor retailers and leaving traditional malls increasingly empty. Up from 0.6% in 1999, e-commerce has grown ten times, with sales reaching 6.0% of total retail sales in Q4 2013, according to the U.S. Census Bureau. Meanwhile, total retail foot traffic for the key shopping period of November and December saw declines of 28.2% in 2011, 16.3% in 2012, and 14.6% in 2013. Over the same period, online sales increased at more than double the rate of its brick-and-mortar counterpart. As retailers physical sales as a percentage of the revenue stream drop and e-commerce’s market share burgeon at an expected compound annual growth rate of 13.6%, they are faced with a chilling prospect – adapt or perish.

growth_bigFor malls and brick-and-mortar retailers, the emphasis now lies on what Rick Caruso calls the need for “reinvention of the shopping experience.” Rather than be what was once, according to a 1971 news article, a “monument to big spending and the shopping spree,” the modern mall looks to capitalise on a growing demand for experiential shopping.

“The future of malls is about experience, creating a destination,” says Executive Vice President of Business Development for Mall of America, Maureen Bausch, in an article for Fortune. “It’s about giving the customer an experience they’ll leave their laptop for.” In response to the rising threat posed by e-commerce and declining foot-traffic, real-estate investors and retailers alike have grudgingly initiated plans for the costly redesign and rebuilding of malls across the country. The vision: expand the massive structures to become lifestyle hubs, complete with fitness centers, cinemas, farmer’s markets, massive and unconventional attractions like indoor ski slopes and aquariums.

Rick Caruso, CEO of Caruso Affiliated, speaks at the National Retailers Federation’s annual convention in New York.

Before launching into the spectacle and staggeringly high cost of this overhaul however, it is worth noting the hesitation caused by a culture of surefire investment in commercial property that has hindered, and in some cases, already doomed particular malls and retailers.

The Rise of the American Mall

Following their inception in the 1960s, the spread of malls to suburbia grew rapidly and confidently as downtown areas fell into decline. In a review of one of America’s first enclosed malls, Architectural Record called it  “more like downtown than downtown itself.” As these malls grew in popularity, so too did their bankrolling parents – the Real-Estate Investment Trusts (REITs). Created by Congress in the 1960s, REITs are companies that own and often operate income-producing real estate. These large-scale proprietors enable ‘average investors’ to purchase equity in commercial projects. REITs provide investors with a  pro-rata share of income while offering an easy gateway to the benefits of real estate ownership without the common obligations, risk, or expenses. REITs investors also enjoy special tax treatment – an REIT is exempt from paying federal income tax so long as it pays out 90% of its net income to common shareholders. Though REIT stock took a hit in 2008-9, with many forced to slash dividends to investors in order to free up cash flow caused by the recession’s contractions, most of these dividends rebounded in 2010-11 thanks to severely lowered interest rates. Because REITs borrow money short term to fund their purchase of long term investments, they benefit from the Federal Reserve’s ‘tapering’ or quantitative easing policy. By increasing the money supply, the Fed drives down interest rates to the benefit of REITs.

REIT stock has risen significantly, mirroring lowered interest rates.

This benefit has not, however, translated into economic recovery for most malls. Following the 2008 collapse, consumer and personal spending as well as retail sales sunk to record-lows. Bottoming out in 2009, personal spending was down -1.5% from a high of 0.6% while retail sales slumped to -3.0% over the same period. Yet across the board, these losses were expected to reverse along with rising economic activity. As Jeff Jordan points out in his 2012 blog post for Quartz, however, vacancy rates and rents have “shown virtually no improvement” despite economic revival. As REITs and retailers have reshuffled their finances to accommodate for this lag, the focus has shifted to luxury goods and overseas sales. The rising demand for value or luxury items has been well-documented, in the fashion industry, between supermarkets, and even with malls. This polarisation has resulted in a widening gap that leaves many middle-market brands (and their respective malls) in a literal no-man’s land. For example, mid-market retailers like J.C. Penney and Sears, concerned with market saturation and oversupply, have begun cutting back on stores, raising mall vacancy rates across the country. In contrast to the relative stability achieved between 2002 and 2008 vacancies at regional malls spiked to 9.4% in Q3 2011, according to a Reis Report. The mid-market, as a whole, is expected to decline by 1-2% per year through to 2017, according to a recent article in Forbes.


Industry-giants like Simon Property Group have already adjusted for this market shift. The group recently isolated its ‘traditional’ properties saying that “it will spin off into a separate company its strip centers and smaller enclosed malls.” At the same time, REITs have capitalised on the rapid recovery of the nation’s affluent, seeing increased performance in Class A malls, which demand the highest rents. In comparison, Class B and C shopping centres that serve lower- to middle-income crowds remain in deep trouble. While vacancy rates for Class A malls have dropped back to and even below their pre-2008 levels, B and C malls are faring significantly worse with vacancies still 40% above pre-recession levels. The future of these malls, who occupy the mid-market position and are removed from the now-bustling and hip areas in-town, is bleak. Though some have been successfully converted into community centers, churches, and schools, their ultimate demise (and demolition) seems almost inevitable.

Middle-market stores like J.C. Penney have seen a crippling decline in foot traffic and sales-per-square foot.

Towards the Future

Despite this apparent impending doom, however, there is hope for the better-off malls and retailers to achieve success. Many malls have adjusted their offerings for the digital era, selling products less conducive to online sale, like jewellery and sporting apparel. At the same time, a more diverse selection of stores, particularly small brands, keeps things interesting.

“The industry was effectively finished, no one wanted to shop at a store anymore,” says Ton Van Dam, a Dutch businessman and shopping center tycoon. “But we have evolved, and now they come to try and compare different brands, to engage with the product.”

Ton Van Dam

A founding partner and former investor in Multi Corporation, a shopping centre developer responsible for more than 180 shopping centres across 12 European countries, Van Dam stresses the need for a complete shift in the way retailers operate.

“It is all about selling and sharing the experience” he goes on to explain. “The main focus now is experiential shopping, creating an in- and out-of-store experience and community that…motivates people to be part of it in person, to share it with their friends.”

The experiential focus Van Dam describes is already a fast-emerging trend among retailers. British fashion-house, Burberry, made waves as was one of the first to offer a digitally-integrated shopping experience. In its flagship store, full-length mirror screens in the fitting rooms correspond with radio chips in clothing to show the item being worn on the runway. Store associates recommend products based on data from iPads that log all the items a customer has previously purchased in store or online, allowing for a more personalised shopping experience.

“The aim of these efforts is to bring Burberry’s online brand environment, to life in a physical space for the first time” says Burberry Chief Creative Officer Christopher Bailey.

Burberry’s in-store experience merges the digital feats of its ecosystem with the personalisation and attention to detail in its stores.

In the US, Verizon Wireless debuted its first ‘Destination Store’ at the Mall of America. A dynamic space that allows customers to interact and engage with the products on offer, the store includes six ‘lifestyle zones,’ that give customers the opportunity to use the technology in scenarios relevant to them.

The Verizon Destination Store encourages customers to interact with products in scenarios relevant to them.

Malls have like the Mall of America have diversified their offerings by expanding into non-retail categories. The Minnesota-based mall is hoping to become more of a destination, planning to include an office tower and J.W. Marriott on site. The Dubai Mall, the world’s largest, plays host to 75 million people a year. It features a 10-million litre aquarium with over 400 sharks and rays, as well as a ski slope and an ice rink.

The Aquarium at the Dubai Mall, the world’s largest.

Harnessing the power of e-commerce as opposed to resisting it, these malls and retailers are working to transform the shopping experience. Digital and online sales offer a host of measurable metrics that allow companies to form a deeper understanding of their customer. Basic tactics include the personalisation of the shopping experience, dynamic pricing strategies, and easy-access to post-sales service.

“The digitalisation of our brand has been one of the biggest challenges faced by the company,” says John Clarke, Vice President of External Communication at the 140-year old HEINEKEN International. “But it has also given us fantastic ways through which to better understand our customer, their habits, their preferences. It has really altered the way we approach our communications.”

In addition, digital sales have greatly altered the supply chain. Customers now visit stores to compare products, only to buy them online later. Similarly, customers can request in-store pickup, allowing retailers to stock precise amounts of particular products and offer a more tailored product selection. Today, the shopping experience begins end long before customers cross the threshold of a physical store. More and more the brick and mortar environment feeds off of what is happening online, anticipating customer needs. In Apple’s retail stores, ever the shining beacons of forward-thinking retail, technology called iBeacon, which uses short-range technology to track how customers move around in-store, sends relevant promotions in the form of push-notifications.

The integration of digital into the actual product, too, has gained stead. Heineken created “the Sub,” a pressurised countertop  beer tap that chills a chosen ‘torp,’ a mini-keg of torpedo-like design in order to pour the perfect beer without even leaving the kitchen. HEINEKEN International offers several of its 250 different beer brands in torp-format. Merging physical and digital, the Sub measures which torps are consumed most frequently and makes recommendations via a smartphone app to order more torps of the same or similar brand when they run low.

The Heineken ‘Sub,’ allows beer enthusiasts to swap different beer brands in the form of ‘torps.’

The number of behemoth malls that dot the American and global landscape almost certainly prevent them from going extinct, however bad business may be. But for many of these malls, which occupy the traditional space, their success depends on the ability of management and brick and mortar retailers to enhance the mall experience.  The nation’s top malls leverage their sheer size to go beyond retail, moving instead to engage their customers with a relevant, changing tenant mix and exciting design, their success shows there is still viability in the mall model.

The Resurgence of Some and the Death of Many

The number of malls that dot the global retail landscape almost certainly prevent them from going extinct, however bad business may be. Success, though, hinges on the ability to adapt to the changing retail climate. For many of the malls in the traditional space, their age, location, and design mean it may well be too late. Built for a past retail heyday, the already uphill battle to transform retail combined with a massive oversupply of property, the fate of these malls is mostly decided.

For the nation’s top malls, though, the ability to leverage their sheer size to go beyond retail, moving instead to engage their customers with a relevant, changing tenant mix and exciting design, and achieve success shows there is still viability in the mall model. For now, the experiential shopper is entertained. But one must ultimately wonder, for how long?

The Cost of Hollywood: Runaway Production

Hollywood, California: long synonymous with film and television production; the Mecca of the entertainment industry. If you weren’t here, you weren’t anywhere. That said, movies and TV aren’t all about entertainment. To the hand that feeds them, they’re investments, and huge ones at that. Putting together a budget for the production of a film is a complex and intimidating process. That’s where state-based tax incentives come in, easing the financial burden and encouraging productions to stick around the area to generate future economic benefits. However, such incentives have spread to other states and countries, disrupting California’s film business at its core and bringing into question it’s worth.

Dubbed runaway production, it has waged a war of attrition on Hollywood production over the last decade, and if not for the government incentivized projects (represented by black on the graph below, provided by runaway production outreach program FilmWorksLA), 2010 would have been a record low year for Los Angeles productions.


California’s legislation on film production credits was established as a defense system to incentivize production in-state. “The motion picture and television industry is responsible for 191, 146 direct jobs and $17.0 billion in wages” in California, according to the Film Commission of California. In an interview with the Los Angeles Daily News, Louis Friedman, producer of 2013’s Lone Survivor, believes production planning around tax credit is “’the single most important financial decision made” and it “affects both the creative look and financial bottom line from day one.’” This production season is bread and butter for the highly skilled – and highly populated – pool of artists, technicians, and other crew people in the state.

However, that legislation has served as a model for other states’ and regions’ incentive programs to surpass. In California, the program was “crafted with limits, from a $1 million minimum to $75 million maximum [in regards to overall budgets] on feature films, and further restrictions on drama series,” not to mention a lottery system that deals with the high demand. This leaves out a lot of areas of production, as major tentpole films’ budgets soar higher and higher and TV shows take bigger and bigger slices of the market. Sensing this sitting-duck situation, the film lobbies of other regions responded.

Canada was the first big player to encroach on Hollywood’s territory in any serious way, putting into law their first production tax incentive in 1997 (just one year after the “all-time high in 1996” of film productions in Los Angeles, noted by  FilmWorks). For awhile, Variety reports, “it was only lower-budget series for cable that set up shop outside of Southern California…usually in Canada…[b]ut now the network-studio congloms play a kind of incentive sweepstakes” and pit California cuts against out-of-state cuts. As Variety points out, “these days studio chiefs insist that filmmakers…take advantage of out-of-state incentives…[whose] savings are crucial in a franchise-obsessed era when big-budget movies commonly cost north of $200 million to produce.”

States like New York, North Carolina, Louisiana, Michigan, and many others got into the game. Kevin Klowden, director and managing economist at the Milken Institute’s California Center, estimated a total loss of “4500 production jobs…between 2005 and 2012,” compared with the “7900 production jobs the state should have gained during that period.” New York now has a $420 million annual cap on tax credits, compared to California’s $75 million cap, and has begun to offer additional incentives for productions that complete post-production work in New York as well. Stan Spry, founding partner of up-and-coming management and production company The Cartel, knows this reality very well: “Tax incentives and rebates have been a massive part of our financing plan. We’ve been able to finance up to 40% of production budgets due to incentives…why stay in LA when you can save almost half the money somewhere else?”

Another industry professional, Michael Karnow, creator of SyFy’s Alphas, mentions for that show “we shot in Toronto to save money,” but out-of-state locations “could end up being an asset. It can turn out to be very exciting to turn a problem into an opportunity, and not only let the benefits be financial, but creative.” He mentions Breaking Bad as such an example, one of the most groundbreaking shows of the last decade…almost completely shot in New Mexico, and tailored specifically to the state. It’s interesting to note the original pilot of Bad was written to take place in Southern California…until AMC heard those incentives calling.

This competition, though, now faces the same question that California does: what exactly are the economic benefits of these incentive programs? Other states and countries realized Hollywood was a state of mind, and put into action measures to replicate that mindset for cash-desperate filmmakers. At its peak around 2010-2011, 42 states were offering over $1.4 billion combined in tax credits to productions, hoping to reap economic gains. However, it helps to recall that California’s incentives were built to keep productions inside of its already-developed infrastructure, not to lure runaway production away from Michigan or New Mexico. Historically, California remained the center for production because it housed the developed pool of workers, artisans, and talent, aged like fine wine. Other states don’t have that history, and therefore may not have the job force or economy in place that would benefit from film and television productions.

Take Michigan: leading up to 2011, $57 million had been given out annually to productions each year, with high profile movies like Oz, The Ides of March, and Transformers 3 basing their filming in the state. The problem here became that the Michigan Film Office did not have to disclose the true costs/benefits of the program. Responding to fervent state government criticism, who believed the program wasn’t bringing the economic growth its proponents promised, the program was scaled back in 2011, capping total credits at $25 million and changing the classification of the credits from tax breaks to grants. Michigan legislature, led by Gov. Rick Snyder, now “obligates the [Michigan] Film Office to report back on the specific movie projects that it finances; and to openly declare the criteria it uses to award subsidies,” according to the Tax Foundation. Snyder argues this new criteria makes transparent expenditures that were once “hidden in the tax code.” The Tax Foundation analyzed Michigan and other states’ specific programs, and ruled the incentive programs “distort[ed] the allocation of resources, provide[d] only temporary jobs and benefit[ed] special interests at the expense of the taxpayer.” Other states have scaled back recently as well, with only 35 states offering incentive programs currently.

However, there’s still been a huge increase of programs spanning the globe, and California and its competitors face a race to the bottom. New Los Angeles Mayor-elect (and therefore Prime Minister of Hollywoodland) Eric Garcetti is well aware of this possibility. “’We lost feature films. That’s sad. They may come back to some degree, but probably by and large won’t.’” Instead of competing neck and neck for the most generous incentives, Garcetti wants California to stay ahead of the curve, focusing on creating an environment for a wider spectrum of media production. His plan is to remove the $75 million cap, and make incentives a more viable option for premium cable shows, commercials, visual effects, and even videogames. Garcetti admits he’s seen unfavorable studies, projecting the state seven cents on every incentive dollar spent, but believes there is an unseen multiplier in effect due to California’s historical place as the home of production, and that productions spur economic activity up to five times that incentive dollar’s worth.


Garcetti has charmed his way into many meetings in Sacramento already, but he is facing strong opposing arguments from other neglected California groups. A coalition, made up of the MPAA, the Directors Guild, the Teamsters, and the IATSE artisan union, will work to “win over powerful [opposing groups]…such as the California Teachers Assn.” Groups like the teachers believe more Hollywood tax cuts are merely “giveaways to the glitterati,” similar to the arguments that shut down other states’ programs’ momentum. The Tax Foundation rebuffs Garcetti’s and groups like FilmWorks’ arguments about the film and TV’s  key place in states’ economies, believing state legislators should make sure they’re not just lining the pockets of “one particularly vocal and connected industry.” While it is certainly true that the Clooneys and the Spielbergs don’t need much pocket padding, California is a unique economic home of the production worker, and Garcetti wants to make sure it stays their home. An ally, assemblyman Mike Gatto, quoted in Variety, says, “’incentives offer a return on investment that has more to do with individuals’” than studios. “’This is about the regular, workaday people who make a living from production.’”

Despite questions of its long-term economic worth, California undoubtably has a large group of uniquely skilled workers that are facing the possibility of major disruption and possible migration. Garcetti’s planned innovations are important to the future of the state now that Hollywood has proved to not be as stationary as it once appeared.


Interviews with:

Stan Spry, Co-Founder and Head of Production, The Cartel Management & Production, West Hollywood, California

Michael Karnow, writer & creator of SyFy’s Alphas, Venice, California

Other sources:

MPAA, State-by-State Statistics

Tax Foundation,