Law firm activity in downtown Los Angeles: 1996 year in review.

Contrary to popular belief, not only is the Downtown Los Angeles office market still alive, it had a record year of gross leasing activity. Why? Because over the past six months, there has been a flurry of activity with firms trying to lock-in "bottom of the market" rents for the long-term. An indication of the changing market is the significant decrease in premiere building (i.e. Sanwa Bank Plaza, California Plaza) opportunities for firms over 75,000 square feet.

In April 1994 there were 26; today, there are about 4 opportunities for such space. The high vacancy rates are misleading because there is less quality space available in the premiere buildings. With no new buildings planned in Downtown for the next four years, the premium space being leased today is committed for the long-term (10 years).

Another prevalent trend in Downtown last year, which helped boost the occupancy level, was the number of firms (both legal and non-legal) that relocated from other markets to Downtown. The driving forces behind this trend were that Downtown offers the cheapest rental rates for space in the highest quality buildings (the west-side and tri-city rates have been driven up by the entertainment boom), access to mass transit and the central location, which is finally paying off for the Downtown market.

The three largest law firm transactions in 1996 were driven by the changing market and firms realizing that the prime blocks of space were being leased up, which led to these firms signing new leases long before their current commitments were due to expire. Morgan, Lewis & Bockius signed a lease for 83,000 square feet at California Plaza I, while its existing lease at Chase Plaza does not expire for 4 more years. Another firm that expanded and made a new long-term commitment was Riordan & McKinzie, leasing 63,000 square feet at California Plaza I and extending its lease term. And at the end of 1996, Sheppard, Mullin, Richter & Hampton renegotiated its lease, extended its term for 10 years and will occupy approximately 132,000 square feet at 333 South Hope Street.

New Firms Moving to Downtown

Another positive indicator that things are improving in Downtown are the number of new firms entering this market. Parker, Mills & Patel relocated from Woodland Hills into a new 6,500 square foot office at 865 South Figueroa. Bacon & Hamilton, a West Covina firm, opened an additional office of 3,000 square feet at the 800 Wilshire Building. At the 550 South Hope Street Building (home to Brobeck, Phleger & Harrison) Nelson & Brown, another new addition to Downtown, leased 3,500 square feet and Gumport Reitman & Montgomery leased a 4,700 square foot office.

At Manulife Plaza, Kane, Ballmer & Berkman moved a few blocks west into Downtown, leasing 10,000 square feet. Yoka & Smith, formerly located in Mid-Wilshire, leased 9,000 square feet at the First Interstate Tower.

In May, Grace, Skyocypec, Cosgrove & Schirm moved into approximately 22,000 square feet at 444 Plaza, relocating from 5700 Wilshire Boulevard. The firm later leased an additional 5,412 square feet at AT&T Center for storage space. AT&T Center attracted two additional law firms, leasing 5,900 square feet to Kopeski & Wilkie (a spinoff from the former Adams Duque & Hazeltine firm) and 2,919 square feet to Richard J. Matthias & Associates.

Other new firms opening offices in 1996 included Feldman & Shappery, a spinoff of Hornberger & Criswell, leasing 3,829 square feet at Home Savings Tower, Rodriquez & Choi at the 777 Tower and Beckman, Davis, Smith & Ruddy leasing 5,834 square feet at Sanwa Bank Plaza.

New Space

At Sanwa Bank Plaza, there was some space trading with Long & Levit relocating to 20,077 square feet of Debevoise & Plimpton's former offices, allowing Sonnenschein, Carlin, Nath & Rosenthal to expand into some of Long & Levit's former space, ultimately leasing 54,821 square feet.

Ropers, Majeski, Kohn, Bentley, Wagner & Kane did one of the fastest transactions last year, leasing and relocating to a full floor (25,000 square feet) at ARCO Plaza. Activity continued at ARCO Plaza with Carlsmith, Ball, Wichman, Case & Ichiki renewing its 25,000 square foot lease and Angel & Neistat relocating from International Tower into 8,188 square feet of former Bright & Brown space. Preston, Gates & Ellis, a firm that opened its Los Angeles office in Sanwa Bank Plaza not too long ago, relocated to 12,900 square feet of former Shearman & Sterling space at Citicorp Plaza.

Four law firms signed leases at the First Interstate Tower at 707 Wilshire. In addition to Yoka & Smith (mentioned above), longtime Downtown firm Honn & Secof will be moving into its new 5,000 square foot office in early 1997. Borton, Petrini & Conron leased 12,000 square feet, relocating from the One Wilshire Building. Manning & Marder expanded, taking another 5,000 square feet, bringing its office size to 28,000 square feet.

Williams & Zevnik, formerly located at First Interstate World Center, leased a full floor (24,145 square feet) of the former Mudge Rose space at Wells Fargo Center. And relocating from Wells Fargo Center into 10,717 square feet at California Plaza was Gansinger, Hinshaw, Buckley & Padilla.

Renegotiations & Renewals - A Prevalent Trend

There has been a tremendous amount of activity in renewals and renegotiations because of building owners desire for onerous personal guarantees for out-of-pocket expenses. One of the more prevalent trends in the market is for firms to renegotiate and extend their leases, reusing their existing space. After lengthy evaluation of the market, Nossaman, Guthner, Knox & Elliott re- signed at Union Bank Plaza, leasing 28,000 square feet for another 10 years. Hill, Farrer & Burrill will also do the same thing at Union Bank Plaza, leasing 32,426 square feet. And in the same building, Dumas & Associates will remain, leasing 7,000 square feet.

1996 was a great year for California Plaza I, which in addition to the Morgan, Lewis & Bockius and Riordan & McKinzie, renewed a lease with Sulmeyer, Kupetz, Baumann & Rothman for 22,955 square feet and Tan & Sakiyama renewed its 2,798 square foot sublease. Other law firm activity included the Law Offices of Burton McCullogh, renewing its 1,563 square foot lease at Sanwa Bank Plaza and Kamine, Steiner & Unger that renewed its 3,118 square foot lease at the World Trade Center.

Firms that continue to grow include Quinn, Emmanuel, Urquhart & Oliver, expanding at 865 South Figueroa and Heller, Ehrman, White & McAuliffe, leasing an additional 1,978 square feet of space Sanwa Bank Plaza.

Law Firms No More

Downtown Los Angeles said goodbye to some long-time veterans in 1996. Kindel & Anderson bought out of its existing lease obligation at the Bank of America Tower, prior to closing shop in December. Quinn, Kully & Morrow's name ceased to exist after merging its firm with Arnold & Porter. Debevoise & Plimpton closed its Los Angeles office, Hufstedler et. al and Mudge Rose went away in 1996 and the long-time downtown presence of Adams, Duque & Hazeltine was over last fall.

Sports Arena Update

Excitement and renewed interest in the Downtown Los Angeles market has been generated by the possibility of a new Sports Arena. This Arena would bring new jobs, new firms and new industries Downtown (including the entertainment industry, which has never seriously considered this market before) and create an excitement about this marketplace that has not existed.

After months of negotiations, the Arena company has agreed to cover the annual debt service, making the deal a "revenue neutral" deal (translation: no annual cost to the taxpayers).

This will be done through revenues generated from the Arena. The City of Inglewood is a clear and aggressive threat to Downtown - they have the ability to close a deal with the Arena Company without dealing with the bureaucracy that has bogged down our City Council.

The City of Los Angeles needs to demonstrate that it wants to attract and retain business, not drive it away because of its layers of red tape and bureaucracy. Sports & Entertainment are the biggest drivers of revenue and jobs in the LA Region. We want business in the City because it brings jobs and tax dollars to the City, which in turns pays for the public services that we need (police, schools, medical, etc.).

Let me be perfectly blunt, what do we have to lose? The area for the proposed Arena is less than desirable right now. The Arena project costs the City no money - we get to enjoy the benefits that other cities derive from an active Downtown, without any significant investment. The Arena will generate an exponential level of revenue to the City that can't be derived from other typical means.

Let's hope that our City Council seizes this opportunity and gets this transaction done.

Law Firms in 1997

Although the prime opportunities are dwindling for the large firms in premiere buildings, small and mid-size firms can still find good built-out spaces but need to be more proactive than they have in the past.

A number of law firms have unique opportunities available but are not actively marketing those spaces. A small or mid-size firm needs to keep updated on current market conditions so that when a good opportunity becomes available, the firm can take advantage of it. The market in Downtown is definitely improving and law firms require more sophisticated representation to acquire the highest quality space at the best rate.

Kathryn Schloessman is Senior Vice President and Managing Officer of CB Commercial's downtown Los Angeles office. Kathryn is responsible for heading CB Commercial's National Law Firm Advisory Services Group. The law firm advisory services group is comprised of real estate professionals in the major U.S. markets who are law firm representative specialists and who assist both law firms and their clients in all of their real estate concerns.