W Hollywood...It's a Start

Those who know me well have endured more than their fair share of my yammering about the experiences I had working on the W Hollywood project. From not-for-print debauchery working with the sales & development teams, mind numbing schmoozing into the wee hours, and non-stop promotion of the Wow and Wonder of Starwood, I am intimately familiar with all things W Hollywood. One day I will write a t.v. series about it. Think ‘Law & Order,’ meets ‘The Office,’ with Real Estate development as the backdrop. Trust me, there’s something there.

You can imagine, then, my eagerness to experience how the big vision known only to me as architectural drawings, renderings, virtual tours, and scale models had actually come to life amid the most iconic intersection in the world. Sadly, but not surprisingly, the dream, or at least my vision of it, somehow got lost in translation on the corner of Hollywood & Vine.

Don’t get me wrong, it is an amazing project that serves as a decent example of exactly the type of development that Los Angeles needs. The W Hollywood was a marquee development for the CRA in their push for smart growth, sustainability, and transit-oriented development in Los Angeles, so it's a real feather in their cap to see the project succeed. I am a true believer in the urban renaissance taking place in Hollywood and, now that the economy is in the tank and building starts have all but seized, it's especially exciting for Hollywood to see the vertical result of all the hard work and planning that went into this project.

Since its opening on January 28th, the hotel, night club, and restaurant are brimming with activity, basking in the glow of their newness. The crowd is mixed, but slightly more upscale than the typical Hollywood club set.

The service needs some work. Intuitively, you can sense that the staff had but a couple of weeks to develop their plan of action, and they aren't operating like a well oiled machine just yet. I sat at the bar of Delphine, the hotel's casual restaurant, for ten minutes before the guy next to me noticed I hadn't been approached about a drink and took it upon himself to flag down the bartender. It was a test on my part, and I probably would have been thirsty for at least another five minutes had the guy not intervened. A small detail, perhaps, but lack of attention to detail and service drives me batty and is a sure fire driver towards eventual obsolescence for a restaurant if you ask me. I'm sure they'll step it up soon. Moving on...

My biggest regret about this project is the fact that this progressive undertaking happens to be built around a dying brand. I had a sneaking suspicion at the time I worked for the project that all of this austere, modern grayness would lose some of its hip sensuality in full scale. Not to mention the fact that the W decor and design elements were already a bit dated when this project was in full planning five years ago. The unfortunate reality is that the sleek, minimalist architecture that seemed so 'now,' is all but over today. I hate to say it, but the building and interiors already look drab and the paint on the walls has barely dried.

Elements that were supposed to really set the W Hollywood apart, like the public art displays, are lackluster. Erwin Redl's 'Wave of Lights' over the motor court entrance was supposed to be a 'dream-like vision' of 'a blanket of sparkling white lights suspended in seemingly weightless motion, a translucent glowing passage-way beckoning to all who approach.' They look more like what my dad used to do to the outside of the house during the 'great light wars' around the holidays. Really nothing special. Still, the hotel has ample and flexible meeting rooms that will serve as excellent junket space when the studio business comes flooding back to Sunset Blvd...

The most important element of this development remains its link with smart growth principles and TOD, and in my opinion, these factors have not been promoted nearly enough in the course of opening the doors to the general public. The project is LEED certified which means it uses less energy and produces less pollution, a must for ALL new developments. The entrance to the hotel is built around the Metro Red line stop and anyone who remembers what it looked like before would likely agree that it has definitely been improved. Now we just have to get moving on that Subway to the Sea...

While the project fails in some areas, it succeeds in its presence alone by bringing interest to the area and renewed hope that one day developers will be swinging their hammers again in the shift towards high density, urban infill, mixed-use projects that will support a sustainable live/work/play environment in Hollywood and beyond.

The W will serve as a sort of litmus test for the movement towards anti-sprawl development that makes necessary amenities readily available (where's the Trader Joe's?) and public transportation a convenient and affordable option in Los Angeles. Only time will tell, but the journey of a thousand miles begins with the first step, and the W has at least lead us out of the gates in this larger urban experiment. Now, it's a matter of truly and wholly meeting the needs of the community, rather than hedging bets on conceptual fantasy that misses the mark in practicality.

The Here & Now of It in 2010

It is hard to believe that another year is upon us, and given the beating we've all taken in the last three years, it is with cautious and hopeful optimism that we tread lightly into 2010.

That said, it is with my own tentative enthusiasm that I'm hopeful for the future of Real Estate, the general economy, and our fragile psyches as we endeavor into a new decade with a quiet resolve that could have never come about without the painful lessons learned and a humility earned from a new and unprecedented history now authored:

The summer of 2007 marked the beginning of the first felt effects of the credit crisis as home sales began to rapidly decline. Despite the hand writing on the wall, we kept our chins up, hoping that the slump was just a momentary hiccup in the endless skyward ascent to personal and collective abundance. The news of the collapse of Lehman Brothers and the fundamental restructuring of Wall Street in October of 2008 made it apparent that the economic state of the country was in far worse shape than anyone would have cared to admit.

As we began to navigate the murky waters of the economic crisis, there was much anticipation that a growing wave of distressed properties would soon hit the marketplace. Though there has undoubtedly been a steady stream of defaulted residential loans, displaced homeowners, and REO properties coming to market until recently, the anticipated downfall in the commercial arena has not been as astronomical as expected. This can be attributed mostly to legislative action that has dissuaded lenders from taking any steps towards mitigating troubled assets that remain on their books.

Today, residential foreclosures have slowed significantly in pace, mainly due to the the banks withholding in excess of 14 million units from the market while investors, bargain hunters, and first time home owners clamor over one another to win a chance at owning the few REO, or bank owned properties, that are actively being brought to market.

Traditional home sales continue to prove a challenge because of ever declining values of many properties in the area from depreciation that the foreclosure fallout has created and the discrepancy between today's value and what homeowners are willing and able to sell their properties for. The bottom line is that you better have a lot of equity in the property if you want to escape unscathed, still in the black. Anyone else is just going to have to sit tight for a while or negotiate a short sale with the bank.

Short sales really do seem to be the best bet for homeowners who are facing the ugly truth of their resetting ARM loans and the banks are beefing up their loss mitigation departments to handle the onslaught of requests from home owners looking to sell. As I'm finding in my own business, the banks want to negotiate a short sale with the seller, as this is a less costly option than foreclosure.

The reality is, no one has a crystal ball to accurately predict exactly how this crisis will play out, but industry experts are making a few presumptions about the broader picture of real estate and capital markets:

The housing market will ultimately be affected by the distressed asset recycling process, which will consist of slow rolling waves over time, as opposed to an avalanche of property and debt hitting the market at once. These 'waves' will be created by several factors including:

• Interest Reserve Burn Off:

Interest reserve provisions were typically an element of loans that were relying on value-added strategies to increase net operating income over time. As the real estate market has deteriorated over the last three years, these proforma increases have been unobtainable, creating interest reserve burn-offs without cash flow levels to service the debt.

• Expiration of Interest-only Periods:

Many loans had interest-only periods which were usually not for the entire duration of the loan. As amortization kicks in, the additional cost will push total debt service payments to a level that exceeds net income.

• Conversion of Floating-rate Provisions to Fixed-rate:

Loans which are floating over LIBOR could very well be paying debt service at a rate below 2 percent. At such a low debt service rate, properties with negative equity may actually still be cash flowing. That stated, when the rate is reset to a market rate around 6 percent, the net income will not be able to service the debt.

• Mortgage Maturity:

Properties with 2006/7 vintage debt are most heavily weighed down by excess leverage. Most of these loans will mature in 2011 and 2012, creating a distressed atmosphere over the next two to three years.

Further motivation to bring distressed assets to market now relies on the prediction by many economists that unemployment rates will not immediately rebound once attrition of debt begins to reach steady levels in the marketplace. This after effect may even continue beyond the point where job creation begins to pick up again. The Fed will also eventually have to remove itself as a crutch in the market by terminating purchases of mortgage backed securities, which will motivate the banks to deal with the the reality of their bottom lines.

These trends, though painful, are actually positive for the marketplace. The sooner this natural correction can occur, the sooner a steady rebound will follow by creating opportunity for buyers and the return to a stabilized and healthy market.

Our job now as consumers, homeowners, and investors is to create a healthy future through realistic assumptions, sound judgment, and a healthy attitude towards 'want' vs. 'need.' This is still the land of opportunity where dreams can and do come true and we should all aim for our greatest vision for our lives. Let's just make sure we do it this time with a little more humility, gratitude, and critical analysis.

Wishing you abundance, joy, and many successes in 2010!

Bree