Is Hollywood a Desirable Place to Invest in CRE Right Now?

Hollywood is synonymous with entertainment. We’re not talking just about movies and TV shows. The area boasts many amenities such as shopping malls, restaurants and movie theaters – which cater to locals and tourists alike. Retail and hospitality development has sprouted in response to the increasing amounts of tourists visiting Hollywood every year. In 2012, 19 million individuals visited Hollywood. Even business owners are increasingly becoming attracted to the Hollywood submarket.

A Hollywood Renaissance

In 2001, the Hollywood and Highland Center (comprising the Dolby Theatre and an upscale shopping mall, along with the existing TCL Chinese Theatre) opened. The W Hotel opened its doors in 2010. Why are developers investing in high-cost, high-profile projects? Millions of tourists from all over the world come to Hollywood to visit the theaters, Walk of Fame and the celebrity hand/foot prints that mark the city sidewalks, among other attractions. Developers realized that a more upscale shopping center would fill a previously unfilled niche along Hollywood and Highland. According to George Pino, CEO of Commercial Brokers International, these newer construction projects helped Hollywood get rid of its unsafe and dirty reputation. This is partly why more and more tourists have been visiting the area every year. The interest is not expressed only by visitors.

Businesses Moving Into Creative Office Spaces

Businesses (non-retail) have also shifted their interests towards the Hollywood submarket. But they are looking for traditional office space. Instead they seek out older buildings or former warehouses – where they can set up creative spaces that are close to numerous restaurants, bars, coffee shops and places that complement their lifestyle (gym/workout studios, malls, etc.). Stuart Beilinson, an agent with Commercial Brokers International, mentions that a lot of people in the creative industries are locating or relocating their workplaces to Hollywood since many of them live in nearby Silverlake, Echo Park or Los Feliz. The search does not end west of the 101. Older construction and market dynamics mean rates are cheaper in Hollywood east of the 101.

Hotel Development?

According to Collier’s International, the hotel market is significantly underserved in Hollywood. Investors have expressed interest in filling this market demand. Numerous other hotel projects are planned or under construction on Hollywood’s busiest streets in the near and distant future. For example, a Jack in the Box, located at 6409 W. Sunset Boulevard, was sold for $13.8 million to RD Olson, a developer known for investing in Marriott properties. This year, the restaurant chain opted to extend their lease for 5 more years, so any commercial developments will be postponed until at least 2019. The Millennium Hollywood is another project that is currently planned on Vine Street. It plans for two high-rise mixed use buildings to be used for residences, office space, retail and 200 luxury hotel rooms. However, the development may be postponed or cancelled as it was recently discovered that the site rests on an active earthquake fault line, according to the California Geological Survey. Despite the potential setback for the Millennium, one hotel that appears currently underway includes the Dream Hollywood Hotel (6417 Selma). Proposed hotels include The Vine Inn and Suites (1133 Vine), the Argyle Hotel (1800 Argyle) and an unnamed hotel at 1525 N. Cahuenga Boulevard.

With growing interest taking place in the Hollywood submarket in every asset class, it will be interesting to see how the neighborhood adapts and evolves. Hollywood’s situation may prove to be a difficult or impossible area on which to build, since state laws stipulate that is illegal to build on or close to a fault line. However, Millennium developers can move the site at least 50 feet away from a fault line and construction would be allowed to begin. It will be intriguing to see how commercial developers respond to the recent findings.

Image © Glen Scarborough - Creative Commons License