Victor Coleman, CEO of West L.A.-based real estate investment trust Hudson Pacific Properties, made the news last week when the firm sold a Northern California office complex it bought from Blackstone to YouTube for $215 million. But Coleman also has his hands full on his home turf. Hudson Pacific is busy in Los Angeles.
The firm made a big bet on the Arts District last year, acquiring an entire square block between East Fourth Street, Molino Street, Fourth Place and Mateo Street, with the exception of one parcel.
Those projects are in preconstruction phases, while the shovels have hit the dirt on two out of three of Hudson’s massive projects on studio lots in Hollywood.
We caught up with the CEO of Hudson, which reported $151 million in revenue for the third quarter, to chat about his unbridled enthusiasm for Arts District, but not necessarily all of Downtown.
Where did you grow up?
I grew up in Vancouver, Canada.
What was your childhood like?
Fantastic. You can’t beat growing up in a small town in Canada.
How did you get into real estate?
My father owned a furniture company, which he ultimately sold but kept the real estate. This was my first introduction to the business, although I never worked directly with him.
Describe your morning routine.
My mornings always consist of a workout — often running — and coffee, followed by an early arrival at the office.
Where do you live?
West Los Angeles: Pacific Palisades.
What do you consider your greatest accomplishment?
On a personal level, clearly my kids. On a professional level, building and leading two exceptional, New York Stock Exchange listed companies.
Where trends are you seeing in the L.A. office market?
What you’re looking at today in L.A. office is that fundamentals are as strong as ever. Our Netflix lease is the largest, highest-rent lease in Hollywood to date and it is common knowledge that large entertainment companies are shopping in the area. Occupancy is moving towards the top of the cycle. As a result, cap rates are the lowest we’ve seen. Yet valuations are not showing that.
Why?
Where the economy is perceived nationally is not how the L.A. office market is performing. Nobody wants to believe in any good news. Everyone is concerned about tech and oil and the world economy. It seems to be a part of the cycle where people are saying, ‘You know what, I’m much better off betting short than betting long.’ That is the national play.
The Arts District is not yet a proven market for office, but you said on an investor call that you expect it to see “Beverly Hills” level rents. What did you see as proof that your projects will succeed?
I can only speak to what we see on our end in terms of interest from tenants, which is a lot more than (the space) we have. There is no real competition except for the Ford Factory building, which Shorenstein has been marketing for a year and a half. Rent at that asset and our asset is pretty equal.
What is rent at that asset?
Suffice to say rents at our assets and Shorenstein’s asset are well in excess of what other people are quoting in the District.
So your confidence is based on the interest you have seen personally, not on other office leases in the Arts District?
Yes, but you’ve got a lot of embedded growth in place. It’s already got the loft housing, the galleries…Soho House, the nightlife and the restaurants. It will only be a 2 million-square-foot office market between our projects, Shorenstein’s Ford Factory, Atlas Capital’s Alameda Square and a couple smaller projects, so people know it’s limited.
Downtown L.A. only saw a marginal decrease in vacancy in the fourth quarter. Do you think it will improve?
We’re not keen on all of Downtown L.A. Historically, it’s proven to be a very weak market. It has not done well, in good times or bad. We haven’t seen positive absorption. The (Financial District) has subperformed and you’re only seeing tenants move around there. I’m not too keen on the (Financial District) but I like South Park and the Arts District.
What does your dream project look like? The one you’d be working on in a perfect – or maybe a future – world?
I find the intersection of technology and real estate fascinating. There will be exciting advances in building automation and intelligence over the next decade. You’re seeing this now with driverless cars. I’d enjoy building something like a groundbreaking master planned, live/work project that fully embraces these types of disruptive technologies.