Homework answers / question archive / RED 435 SPRING 2021 FINAL TAKE HOME EXAM Deadline: Tuesday, May 11, 1:00 pm PT Conceived in 2006, The Grand Avenue project in downtown Los Angeles (in the Bunker Hill area) has survived multiple recessions as it approaches completion in 2022

RED 435 SPRING 2021 FINAL TAKE HOME EXAM Deadline: Tuesday, May 11, 1:00 pm PT Conceived in 2006, The Grand Avenue project in downtown Los Angeles (in the Bunker Hill area) has survived multiple recessions as it approaches completion in 2022

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RED 435 SPRING 2021 FINAL TAKE HOME EXAM Deadline: Tuesday, May 11, 1:00 pm PT Conceived in 2006, The Grand Avenue project in downtown Los Angeles (in the Bunker Hill area) has survived multiple recessions as it approaches completion in 2022. Since its inception, the residential, hotel and retail markets in downtown Los Angeles (DTLA) have changed dramatically. For your final exam, your primary job is to evaluate DTLA residential and hotel markets. You may touch on the retail, but this is not a major aspect of the analysis though it is a big selling point of the project and can’t be entirely ignored since vacancy in the retail would really hurt the residential and hotel above. You are to examine how the hotel and residential markets in DTLA improved after the Great Recession, assess how COVID is impacting the current market and offer your projections about the future. You will use the Grand Avenue project to help organize your analysis. It will be tempting to dive right into the real estate metrics to identify what is happening in each of the product areas within this market, but first you should evaluate the broader trends impacting this market and establish the key demand drivers in DTLA and how these drivers may impact the future of these product types in this location. While overall Los Angeles is experiencing a housing shortage, it is not universal; pricing and location are key aspects to lining up supply with demand in a market. For example, the DTLA housing market really took off just prior to the Great Recession and has since shifted somewhat from condo to rental multifamily properties. Likewise, luxury housing was not always key component of the DTLA housing market. What drove these trends and created such a large housing market in DTLA (such as employment changes, demographic shifts, transit infrastructure etc.)? Who is the target customer for these units (don’t forget to consider what their income profile is relative to the rental or ownership pricing)? How have the demographics in this area shifted as a result? Likewise, the hotel sector depends on other demand drivers (business activity and tourism to name a couple) and retail is often dependent on and the happy recipient of growth in residential, business and tourism activity within its trade area. Once you have laid the groundwork for what’s driving the DTLA market in general, then you will need to look at the current supply and demand data points for the residential and hotel product types at the Grand. Vacancy/occupancy, rent growth or RevPAR/ADR’s, absorption rates etc. over time are all important markers for understanding your market and product, you will need to look backward as much as forward, context is important here so consider the trajectories before COVID and what a post-COVID recovery could look like. Be sure to explain the market competition for the residential and hotel components and how The Grand is positioned to compete (or not). For projections about the future feasibility of this project, how do you think some of the longerterm impacts of COVID will impact the DTLA market and The Grand? With potential moves from urban to suburban, rental to ownership, office to work from home – these changes could have real impacts on a market like DTLA and a project like The Grand. In your final step, you should offer the basic financial assumptions (and your sources) you would use regarding rents, cap rates, vacancy, growth rates etc. and explain how these would compare (the more specific the better i.e. average monthly rents/RevPAR’s/ADR’s/occupancies in 2018 vs. 2021/2022) to the numbers the developer had likely submitted to the investors and lenders when they started construction in 2018. What do you think is the financial prognosis in the near term and long term? That said, a proforma is not a deliverable for this exam. I want to avoid you getting lost in the numbers, rather you are to focus on everything else up to that point. Since this is a final exam, this is to be completed individually. With that in mind, unless there is some significant error or confusing language, I do not plan on answering questions since it is an exam format. As in your case studies, you may use your online sources, be sure cite them in your text and on your resources page. Avoid seeking all of your information from just one or two sources. Some useful resources about the residential market in DTLA: https://www.marketplace.org/2017/01/26/downtown-los-angeles-becomes-giantconstruction-zone/ https://la.curbed.com/2020/1/2/21034785/los-angeles-development-housing-shortage http://www.ladowntownnews.com/news/downtown-development-the-latest-information-on121-local-projects/article_37ba5320-b84d-11e8-8ff2-5337ebf00886.html DEVELOPMENT OVERVIEW Located at the epicenter of Grand Avenue’s cultural corridor, The Grand is downtown Los Angeles’ newest dynamic destination for shopping, dining, and entertainment, as well as a paradigm-shifting place to live. With more than 176,000 square feet of retail space anchored by chef-driven restaurants and a collection of shops; a movie theater complex; an Equinox Hotel®; and residences, The Grand combines lifestyle, arts, culture and entertainment to provide a truly unique experience in Los Angeles. Designed by renowned architect Frank Gehry, The Grand will complement the adjacent Disney Concert Hall and will connect with the nearby arts and cultural institutions through Gehry’s distinct design. Gehry’s vision for The Grand was to create a centerpiece for Grand Avenue that promotes community gatherings and cultural performances in an open space, in addition to providing shopping, dining and residential experiences. The Grand’s residential tower will rise 39-stories high with more than 436 luxury residences, 20% of which will be affordable rate units. 176,000+ SF RETAIL, DINING & ENTERTAINMENT 436 LUXURY RENTALS 20% AFFORDABLE RATE RENTALS 309 ROOMS A 20-story, 309-room Equinox Hotel will flank the residential tower and includes 12,000 sq. ft. of meeting rooms and facilities, ballrooms, and 27,000 sq. ft. of restaurants, lounges and out-door amenities. Between the two towers, a large, vibrant public plaza with open terraces will host outdoor music and art, accessible to all visitors. HOTEL 1,063 PARKING SPACES INCLUDING VALET THE GRAND - DUSK VIEW WITH WALT DISNEY CONCERT HALL Renderings by Red Leaf, Courtesy of Related-CHEC DEVELOPMENT OVERVIEW BANK OF AMERICA PLAZA DEPARTMENT OF WATER AND POWER HQ PRIME GRIND COFFEE ÂU L?C LA BAR FEDORA M GRAND AVE ARTS HOPE STREET HOPE STREET NICK AND STEF’S OTIUM WELLS FARGO CENTER 1ST STREET PATINA MUSIC CENTER MARK TAPER FORUM AHMANSON THEATER KENDALL’S BRASSERIE ENUE D AV GRAN COLBURN SCHOOL OF PERFORMING ARTS MOCA SAFFRON MENDOCINO FARMS NOW RESTAURANT & BAR OMNI LOS ANGELES HOTEL WALT DISNEY CONCERT HALL 2ND STREET 3RD STREET VESPAIO OCHO MEXICAN GRILL LA PETITE BOULANGERIE SMOKE SALAD HOUSE MARKET CAFE STARBUCKS CALIFORNIA PLAZA DOROTHY CHANDLER PAVILION THE BROAD STREET THE EMERSON L.A. TEMPLE 255 GRAND MUSEUM TOWER APARTMENTS BLUE COW KITCHEN PANDA EXPRESS STANLEY MOSK L.A. COUNTY COURT HOUSE OLIVE STREET ANGELS KNOLL M PERSHING SQUARE GRAND PARK LAS MORELIANAS MADCAPRA OLIO GCM PIZZERIA THE OYSTER GOURMET ROAST TO GO STICKY RICE LA TOSTADERIA M HILL STREET FEDERAL COURTHOUSE THE REDWOOD BAR & GRILL BIRDS & BEES BAR BACO MERCAT M MACCHERONI REPUBLIC CIVIC CENTER / GRAND PARK M CHERRY PICK CAFE KAWADA HOTEL CATHEDRAL OF OUR LADY OF THE ANGELS •• •• • CULTURAL LANDMARKS GREEN SPACES OFFICE HALL OF RECORDS GRAND CENTRAL MARKET CASA INDIA FUTURE RESIDENTIAL COLBURN SCHOOL EXTENSION GOLDEN ROAD RAMEN HOOD HORSE THIEF JOSE CHIQUITO LA CITA BAR LA HUERTA VALERIE KENNETH HAHN HALL OF ADMINISTRATION HISTORIC BROADWAY LAW LIBRARY BROADWAY RETAIL & DINING HOTEL & RESIDENTIAL THE GRAND - SITE MAP Courtesy of Related - CHEC BLUE BOTTLE CAFE BRADBURY BUILDING EL POLLO LOCO TIMES MIRROR SQUARE & L.A. TIMES SQUARE A NEW CULTURAL CENTER FOR LOS ANGELES Located within walking distance of eight different entertainment and cultural venues, The Grand’s Frank Gehry-design will create a natural synergy with the neighborhood’s arts destinations and play host to its own permanent and temporary public art installations. Nearby arts and culture venues include the Music Center, Walt Disney Concert Hall, The Colburn School of Music, The Broad museum and the Museum of Contemporary Art, forming a dynamic mixed-use district fitting for the cultural center of Los Angeles. SUSTAINABILITY The Grand has incorporated sustainable and innovative features throughout the development. The Grand exceeds energy efficiency requirements with high efficiency heating, cooling and hot water systems, LED lighting, ENERGY STAR equipment and appliances, and smart controls. Use of the city’s potable water supply is reduced through significant rainwater collection and reuse for irrigation systems and water efficient fixtures. The Grand also offers residents and visitors access to sustainable and unique amenities including EV charging stations, on-demand electric vehicle car sharing and over 150 bicycle parking spaces. The Grand’s site design enhances the neighborhood fabric with mixed uses and an activated, pedestrian friendly streetscape. CIVIC CENTER A PARTNERSHIP THAT BENEFITS THE COMMUNITY The Grand is the result of a collaborative public-private partnership, guided by the Los Angeles Grand Avenue Authority, a joint powers authority comprised of the County of Los Angeles, the City of Los Angeles, and the former Community Redevelopment Agency of the City of Los Angeles (CRA/LA). The Grand will generate broad community benefits including an estimated 10,000 new jobs, much-needed affordable housing, $397 million in revenues to the City of Los Angeles and $68 million in revenues to the County of Los Angeles over the next 25 years. The destination will attract thousands of visitors from across the nation and around the world, along with downtown residents and visitors from other communities throughout the region. EASILY ACCESSIBLE TO ALL The Grand is within walking distance to two Metro Rail stations: The Civic Center/Grand Park Station served by the Red and Purple Line subways; and the under construction Grand Avenue Arts Station, part of the Regional Connector Transit Project that will provide direct connection to the Gold, Blue and Expo lines, set to open in 2021. DEVELOPMENT OVERVIEW ABOUT RELATED COMPANIES Related Companies is a global real estate and lifestyle company defined by innovation and the most prominent privately-owned real estate firm in the United States with over $60 billion in assets owned or under development including the 28-acre Hudson Yards neighborhood on Manhattan’s West Side, The Grand and Related Santa Clara in California and The 78 in Chicago. Formed over 45 years ago, Related is the largest private owner of affordable housing and a fully-integrated, highly diversified industry leader with experience in virtually every aspect of design, development, acquisitions, management, finance, hospitality, sustainability, and sales. Related’s mixed-use, residential and commercial office properties have been consistently heralded for their placemaking vision – bringing together iconic design, arts and culture, dynamic programming, and innovative wellness programs. Headquartered in New York City, Related has offices and major developments in Boston, Chicago, Los Angeles, San Francisco, South Florida, Washington, D.C., Abu Dhabi and London, and boasts a team of approximately 4,000 professionals. Related was named to Fast Company Magazine’s list 50 Most Innovative Companies in the World. For more information about Related, please visit www.related.com. ABOUT CHINA HARBOUR ENGINEERING COMPANY LTD. China Harbour Engineering Company Ltd. (CHEC) was established in the 1980s. As a subsidiary of China Communications Construction Company Ltd. (CCCC), a Global Fortune 500 company, it explores the overseas market on behalf of CCCC. At present, CHEC’s more than 90 branches and representative offices around the world conduct business in over 100 countries and regions with more than 15,000 employees undertaking hundreds of international projects whose total contract amount is over $30 billion. CHEC has the integrated ability of investment, construction and operation covering the whole industrial chain in such fields as marine engineering, dredging and reclamation, roads and bridges, railways, airports, municipal works and environmental protection and complete plant. With advantages in capital, technology, marketing, talent and equipment, CHEC provides first-rate services for its customers around the world and has constructed many landmark projects with international influence. THE GRAND – DUSK VIEW WITH WALT DISNEY CONCERT HALL Renderings by Red Leaf, Courtesy of Related-CHEC THE GRAND – NORTHERN VIEW WITH WALT DISNEY CONCERT HALL Renderings by Red Leaf, Courtesy of Related-CHEC THE GRAND – DTLA SUNRISE OVER THE GRAND Renderings by Red Leaf, Courtesy of Related-CHEC THE GRAND – THE GRAND COURTYARD AT TWILIGHT WITH FRANK GEHRY SCULPTURE Renderings by Red Leaf, Courtesy of Related-CHEC THE GRAND – RETAIL & EQUINOX HOTEL Renderings by Red Leaf, Courtesy of Related-CHEC BANK OF AMERICA PLAZA DEPARTMENT OF WATER AND POWER HQ PRIME GRIND COFFEE ÂU L?C LA BAR FEDORA M GRAND AVE ARTS HOPE STREET HOPE STREET NICK AND STEF’S OTIUM WELLS FARGO CENTER 255 GRAND THE EMERSON L.A. DOROTHY CHANDLER PAVILION 1ST STREET VESPAIO OCHO MEXICAN GRILL WALT DISNEY CONCERT HALL 2ND STREET 3RD STREET THE BROAD PATINA MUSIC CENTER MARK TAPER FORUM AHMANSON THEATER KENDALL’S BRASSERIE VENUE AND A LA PETITE BOULANGERIE SMOKE SALAD HOUSE MARKET CAFE STARBUCKS COLBURN SCHOOL OF PERFORMING ARTS MOCA SAFFRON MENDOCINO FARMS NOW RESTAURANT & BAR CALIFORNIA PLAZA OMNI LOS ANGELES HOTEL TEMPLE STREET GR MUSEUM TOWER APARTMENTS BLUE COW KITCHEN PANDA EXPRESS STANLEY MOSK L.A. COUNTY COURT HOUSE OLIVE STREET ANGELS KNOLL M PERSHING SQUARE COLBURN SCHOOL EXTENSION GOLDEN ROAD RAMEN HOOD HORSE THIEF JOSE CHIQUITO LA CITA BAR LA HUERTA VALERIE M HILL STREET CATHEDRAL OF OUR LADY OF THE ANGELS CIVIC CENTER / GRAND PARK M CHERRY PICK CAFE KAWADA HOTEL HALL OF RECORDS FEDERAL COURTHOUSE THE REDWOOD BAR & GRILL BIRDS & BEES BAR BACO MERCAT M MACCHERONI REPUBLIC FUTURE RESIDENTIAL GRAND PARK LAS MORELIANAS MADCAPRA OLIO GCM PIZZERIA THE OYSTER GOURMET ROAST TO GO STICKY RICE LA TOSTADERIA GRAND CENTRAL MARKET CASA INDIA KENNETH HAHN HALL OF ADMINISTRATION HISTORIC BROADWAY LAW LIBRARY BROADWAY BLUE BOTTLE CAFE BRADBURY BUILDING EL POLLO LOCO TIMES MIRROR SQUARE & L.A. TIMES SQUARE CIVIC CENTER •• •• • CULTURAL LANDMARKS GREEN SPACES OFFICE RETAIL & DINING HOTEL & RESIDENTIAL THE GRAND - SITE MAP Courtesy of Related - CHEC