John Wathen is the CEO of Wilshire Construction

Originally posted by KELSI MAREE BORLAND discussing the how multifamily demand is changing the office product offering.

LOS ANGELES—Office-to-multifamily conversions are one answer to the high demand for multifamily, according to Joe Wathen of Wilshire Construction in this EXCLUSIVE interview.

Developer Jamison has hired Wilshire Construction as the contractor for two multifamily developments: a 226-unit ground-up development at 3060 Olympic Blvd. and a 12-story 216-unit office-to-multifamily conversion project at 3350 Wilshire. While the two projects are very different, they both show the demand to develop multifamily in any available space. Joe Wathen, CEO of Wilshire Construction agrees that there is a strong appetite for multifamily projects, whether ground-up construction or conversion projects. To find out about these projects and the differences managing a ground-up and redevelopment, we sat down with Wathen for an exclusive interview. What is your vision for these two projects with Jamison?

Joe Wathen: Wilshire Construction LP was established for the purpose of providing a level of service and value that was superior to anything the client had previously experienced. Our vision with these and every Jamison project is the same – to provide that superior service. If our role on a project can significantly enhance the end value of that project beyond a client’s expectation and that client now wants to work with us again and again, then we have succeeded. How is the construction process different for a ground-up mid-rise development and a mid-rise redevelopment?

Wathen: When dealing with ground-up new construction, you have the freedom to design each component as a part of an overall coordinated assembly. The structure supports the architect’s vision. The interior design compliments that structure and the mechanical and electrical systems are all interwoven into a coordinated, complete package. This is far more challenging on redevelopment projects built under LA’s Adaptive Re-use Ordinance (ARO). There are cost savings involved since many of the existing components are already there such as the structure, skin and some building systems. But often the condition of those components or their suitability for the final re-use is not completely identified until well into the construction schedule. Much of the work done on an ARO project requires a very customized construction process unique to that particular building Are you seeing an increase in demand for office-to-multifamily conversions in Los Angeles?

Wathen: I would not say the market is demanding office-to-multifamily conversions as much as the market is simply demanding multifamily.  There is a significant volume of office space that is generating rental income far below what can be achieved with multifamily and building owners are responding with ARO conversions where they make sense. There is a significant volume of office space that is generating rental income below expected rates for multifamily and that difference is not expected to change significantly in the immediate future. If conversion is not cost-prohibitive, then the payback period is usually short enough to warrant the switch. What are the challenges of converting office to multifamily?

Wathen: Many of the office properties being considered for conversion were designed, appropriately so, for an office. Floor to ceiling heights are higher than in new construction. Windows are either full curtain wall or strip windows with acoustic properties below what we would normally install in a residential product. To replace all these windows would be cost-prohibitive. Fortunately, this is not required by the ARO, so we look at other means to treat the acoustics of each space. Usually some work will need to be done to the exterior glazing, adding operable windows for example, but the full scope will vary from building to building depending on what was originally installed as well as its current condition. The mechanical systems used to heat or cool an office building are entirely different from what is needed to accommodate a residential building. The extent of removal of existing systems and the most cost-effective addition of replacement systems is always one of the challenges. Is the construction cost significantly reduced for a redevelopment project? How do these two compare?

Wathen: In a word, yes. They would have to be in order for an ARO project to be more attractive than new construction. That being said, the extent of the difference will vary greatly from project to project depending on the condition of many of the items we talked about previously. The scope of upgrades to the exterior skin, the extent of removal and replacement required for mechanical, electrical, plumbing and fire sprinkler systems and the scope of structural improvements the city may require all play a role in the cost comparison of ARO to new construction. If one or more of those components becomes unusually expensive it is not likely the ARO project will now be more expensive than new construction, but it may extend the payback period beyond what is acceptable for the investors.

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