You can do a lot with an obsolete Convention Center meeting and storage space.
That's what lay at the southwest corner of Figueroa and 11th streets, before developer and L.A. Kings co-owner Ed Roski teamed with Denver-based billionaire Philip Anschutz to build a highly lucrative sports and entertainment venue.
Staples Center, though, has done far more than generate massive profits for its owners. Since opening five years ago this week (Bruce Springsteen christened the venue with a performance on Oct. 17, 1999), the $400 million complex has shown that a single, albeit huge, structure can be the catalyst for the transformation of a neighborhood. Observers ranging from city officials to housing developers to restaurant managers credit Staples with kick-starting the revitalization that is now sweeping Downtown.
"Its impact has been enormous," said Carol Schatz, president of business advocacy group Central City Association.
While it is difficult to put a monetary figure on Staples' effect on Downtown, certain results are clear. Before the venue opened, South Park - the district on Downtown's southern end that includes Staples - was thirsting for market-rate development. Five years later, roughly $480 million worth of projects are under construction or being planned in South Park. In the past nine months, nearly 500 units have opened in the area.
The spike in housing production that has followed in Staples' wake has not been limited to South Park. In 1999, the number of market-rate housing units throughout Downtown was roughly 4,500. In the past five years, more than 3,000 new units have come online. An additional 3,000 units are under construction, and more than 4,000 are in various stages of planning.
Of course, several factors in addition to Staples, including the city's adaptive reuse ordinance and investments by two risk-taking developers, have contributed significantly to the rise in residential development.
Staples has also helped lure more than half a dozen high-end restaurants to open Downtown, while providing a boon to existing eateries, which report increased sales of up to 400% during Lakers games. The venue has also drawn an estimated 17 million visitors, according to AEG officials, from across the city - and the globe - to Downtown. Perhaps most importantly, it has provided lenders, who have been notoriously wary of investing in Downtown, with proof of the area's potential.
Still, Downtown's greatest change could be on the horizon. The Anschutz Entertainment group (AEG), which operates the arena, is planning a $1 billion sports and entertainment district called L.A. Live directly north of Staples Center [see interview with AEG President Tim Leiweke, page 8]. Many say the impact of this new phase on Downtown could equal - and possibly exceed - that of Staples.
Staples' success almost makes one forget how the arena almost didn't happen. During the mid- to late-1990s, Roski and Anschutz were looking for a place to build a replacement for Inglewood's Forum to house hockey's Kings and basketball's Lakers (Staples' third major tenant, the Clippers, would come later). When they finally settled on Downtown, then-City Councilman Joel Wachs put up a significant hurdle when he questioned the amount of public money going into the arena, and threatened to create a ballot measure wherein voters would have to approve public funds.
Though talks between city negotiators and developers at one point broke down, then-City Council President John Ferraro managed to bring everyone back to the table. Ultimately Wachs helped minimize the amount of public funds going to the venue (it came through a Community Redevelopment Agency loan, which enabled the developers to secure a chunk of the land), and on March 17, 1998, hundreds showed up in South Park for an arena groundbreaking.
"It was the beginning of the rebirth of South Park at a time when we were very anxious about what was going to happen in the area," said Mike Pfeiffer, executive director of the South Park Stakeholders Group. "All of a sudden we saw new developers and new investors starting to look at South Park."
Still, it took several years after Staples opened for developers to begin staking claims on the area.
"You had to build up confidence within the investment community," observed Bobby Turner, a managing partner at Canyon-Johnson Urban Fund, which last year purchased the Transamerica complex four blocks east of Staples for $100 million. The company is now helping to fund South Park's first high-rise apartment complex across the street from Transamerica. "You had to convince the broader community that if you build residential there, that people would buy it or rent it."
One of the first developers to jump was Jeff Lee, president of the Lee Group. In 2001, the company teamed with CIM Group to purchase a 1936 former UPS building at 11th and Flower, one block from Staples. They converted the structure into 91 condos. Lee said Staples convinced him that the area could support residential development.
"We believed AEG's investment was the beginning of the future of South Park," said Lee.
Lee's $35 million Flower Street Lofts opened in February. All but two of the building's 91 units have been sold, some fetching more than $1 million.
Now, South Park is on its way to becoming a housing hotspot. More than $100 million worth of housing projects have opened this year. There are more than 2,000 units under construction or being planned within blocks of Staples worth nearly $500 million (see sidebar).
Pfeiffer said the venue was instrumental in fueling the new housing developments. "Would they have happened without Staples Center? Perhaps, but certainly not at the rate and the intensity they are happening today."
AEG has played a significant role in the housing developments now rising in the venue's shadows. The firm purchased numerous properties surrounding Staples when it took control of the site. It has since sold several of those plots to housing developers; the Lee Group and CIM Group purchased the building at 11th and Flower, which would become the Flower Street Lofts, from AEG. Williams & Dame, one of the lead developers of Elleven, an $85 million condo project at 11th and Grand, bought a portion of their land from AEG.
City officials praise AEG for facilitating housing growth around Staples, rather than keeping the venue isolated from the community. "When AEG acquired a lot of the land, they really looked at the area from a master planning perspective," said Renata Simril, deputy mayor for economic development.
1999 was an auspicious year for Downtown, and the opening of Staples was just one of several important events. That year, the city passed the adaptive reuse ordinance, which facilitates the conversion of old commercial structures into residences.
Also that year, Tom Gilmore announced a bold plan to convert three aging structures at Fourth and Main into loft buildings (he named the corner the Old Bank District). Meanwhile, Geoff Palmer began constructing the $90 million Medici, a 600-unit, resort-style complex just west of the 110 Freeway.
These factors combined to spark the housing boom in Downtown, with the Historic Core experiencing the greatest surge in residential growth. "It was a variety of forces that were all converging," said Jack Kyser, chief economist at the Los Angeles Economic Development Corporation.
Mark Tarczynski, a broker at CB Richard Ellis who handles Downtown properties, pointed to yet another factor that is sometimes overlooked - low interest rates.
"It was kind of the perfect storm of events," said Tarczynski. "With Staples, you had this tremendous catalyst that occurred, and also the capital markets realigned because of low interest rates and low returns in the stock market. Then people wanted to invest in real estate…. Now all of a sudden, capital development dollars are flowing into Downtown."
Another powerful effect of Staples is that is has brought millions of visitors to Downtown. While many arrive expecting the area to be blighted, they leave with the impression that Downtown is clean, safe and full of amenities.
"When people started to come down to a place they hadn't been to in years, or at all, it changed perceptions enormously," said Schatz.
To be sure, some Staples visitors drive in from the Westside, park their cars next to the venue, and leave without ever venturing into Downtown. However, many others explore the area. One such adventure by CIM Group officials led directly to plans for one of Downtown's most pivotal projects: the Ralphs supermarket, which is scheduled to break ground at Ninth and Flower, three blocks north of Staples, next year.
"They happened to be going to a Lakers game," said Tarczynski, who brokered the deal to sell the land to CIM. "They decided to drive around a little bit and see what was going on. That's when they saw the Shuwa property up for sale."
CIM purchased the block-and-a-half site for $37 million. The firm is now developing a $220 million mixed-use project that will include the Ralphs market. The first phase of the project, the $48 million Gas Company Lofts, opened earlier this year.
One of Staples' most noticeable impacts has been on the local restaurant business. After the venue opened, high-end eateries began sprouting up all over Downtown, many of them offering free shuttles to Staples Center. Among the most high-profile new establishments was The Palm, a national steakhouse chain that opened a restaurant at 11th and Flower, one block from Staples, in 2002.
Geoff Ellis, general manager at The Palm, last year told the Los Angeles Downtown News that on Lakers nights, the restaurant takes in an extra $15,000. Pre-event dinners and spill-out from the venue have helped make the restaurant the third highest grossing eatery in the Palm chain.
Zucca, an Italian eatery, opened on Figueroa Street a few blocks north of Staples in 2002. Erwan Erhanno, the restaurant's general manager, said business often triples on Lakers nights.
Paul Tilson, general manager at Café Pinot, which opened in 1995, said concerts at Staples generate at least 20% additional business. Melissa Summers, sales and marketing manager at Arnie Morton's steakhouse - which opened on Figueroa four blocks north of Staples in 2001 - said that during basketball season, fans make up 30% of the restaurant's sales.
"If there's a Lakers game going on, it's almost impossible to get in," Summers told the Los Angeles Downtown News last year. "I have people standing and eating their food at the bar."
However, Staples' effects on local eateries should be not overstated. Few, if any, restaurants depend on the venue to survive.
"It's additional wind in the sails," said Phillip Gates, general manager of Nick & Stef's steakhouse, which opened in 1999. "But if it were to close tomorrow, would we be out of business? No."
Robert Baade, an economist who was commissioned by City Controller Laura Chick to study the venue's economic impact, told the Los Angeles Downtown News last week that Staples has done more to improve Downtown's image than fill the tables at its restaurants.
"In going around and talking to individual businesses, none of them said business just skyrocketed," said Baade, whose 58-page report on Staples was released last year. "Most felt that Staples enhanced the general environment Downtown. People felt it was safer, cleaner. Even though businesses did not show appreciable gains, they still felt like the overall the atmosphere was better."
Still, many say the venue's aggressive booking policy - it averages 240 events each year - has provided a reliable pool of customers that has strengthened the Downtown market.
"Staples brought in a level of stability that we hadn't seen in the Downtown business environment," said Linda Griego, who owns Engine Co. No. 28, a 15-year-old restaurant at Figueroa and Seventh. "It's been able to maintain that. It doesn't have the ebbs and flows that you see in the convention business or the theater business."
One of the biggest questions in determining Staples' success is whether the city's financial contribution proved worthwhile. According to Baade, it did.
"Staples resulted in additional revenues of about $710,000 a year for the city," said Baade. "As far these deals go, L.A. did well compared to what I've seen throughout the rest of the country."
In a letter to Hahn that accompanied Baade's report, Chick commended the city's financial agreement with AEG.
"This study… shows that the Staples Center has been an unqualified success," Chick wrote. "It was built without using City general fund dollars and structured in a way that minimized risk to the taxpayer. The criteria used in structuring the Staples Center should guide the City in future endeavors."
Councilwoman Jan Perry, whose Ninth District includes Staples and most of Downtown, said the project has proven the value of "using public resources to stimulate economic activity."
"It gave us a good template for a public private partnership," said Perry.
Now, the city is faced with the challenge of working out another financial partnership with AEG. The firm is asking for help in building the second phase of the Staples project: L.A. Live. The development - which would include a 1,200-room Convention Center headquarters hotel, 7,000-seat live theater, a movie multiplex and restaurants - is fully entitled. AEG has secured funding for each piece of the project except for the $300 million hotel.
AEG and its development partner, hotelier Lew Wolff, have requested a series of financial benefits (none of which would come from the city's general fund) that would help cover the cost of building the hotel, which is considered a crucial component of the project and the larger revitalization effort in Downtown.
Wolff has been negotiating with city officials since July. Tim Leiweke, president of AEG, had originally predicted that an agreement would be reached by this month, with construction on the theater starting in November. However, negotiations apparently are not going as smoothly as hoped. Leiweke recently told the Los Angeles Downtown News that a deal might not be reached until the end of the year.
Political support for the project is strong. Few, if any, contest the idea that the hotel and the entire L.A. Live project would push Downtown's revival to the next level. However, whether the city can reach an agreement soon remains to be seen. In the meantime, boosters will no doubt be using all of their might to get the deal done. After all, another five years like the last five would be nice for Downtown.
Contact Jason Mandell at firstname.lastname@example.org.
page 1, 10/11/04
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