The Dichotomy of Creative Office Development

Michael McCormick is the president and CEO of McCormick Construction.

LOS ANGELES—There is no doubt that creative office is dominating the office market, but creative office is becoming a dichotomy. It is both adaptive reuse redevelopment and sparkling new construction all in one. McCormick Construction is well versed in both the new and the reimagined versions of the newly beloved office design. In an effort to compare and contrast the two, we sat down with the company’s president and CEO, Michael McCormick . Here, he talks about the differences in budgets, logistics and development of adaptive resuse and new development in creative office. GlobeSt.com: Creative office is clearly dominating the office market. As a contractor, are you seeing a trend toward adaptive reuse or new construction creative office projects, and why do you think the trend leans one way more than another? Michael McCormick: Overall, the changing workforce demographics in addition to the tech companies and content providers looking to draw from a young, creative talent pool are the drivers of this trend. Adaptive reuse is extremely popular with this tenant type, both for the vintage architectural charm of older buildings and the potential to be more cost effective. For this reason, spaces that are primed for this type of conversion are becoming harder to find. While there still is a lot of underutilized existing product out there, the assets with the better bones and centralized locations are the ones that are getting converted first. As the inventory of convertible, historic buildings begins to decrease, we’re seeing an increased demand for ground-up construction of creative office space. However, a great creative office space can be accomplished through either building method because creative office is really about creating a flexible work environment. The intent is not to have employees stuck in a cubicle. If you feel like you want to work outside in the sunshine or in the shade under a tree, you can. These spaces are created for organic collaboration. It’s all about the work style today. You can construct a concrete frame building with a point supported double glass curtain wall or have exposed duct work and beams. All of those elements make a building interesting. One will simply look newer than the other, but they’ll both be creative spaces. GlobeSt.com: What are the major construction differences between adaptive reuse and ground-up construction? McCormick: With ground-up construction, the true benefit is that you have full control over your space planning. You can customize your floor plate sizes and circulation. Energy efficiency can be a part of the design from the very beginning, and state-of-the-art technology systems can be incorporated early when you’re working from scratch. Customization on an adaptive-reuse project may be constrained, but the trade-offs can outweigh this challenge. With an existing building, your construction timeline is much shorter, which means you can get that space on the market much quicker. In a market like Los Angeles, that’s important. Often, entitlements are grandfathered in with existing buildings, which further shorten your timeline. With buildings that were constructed in the early 20th century, you get the character from the structural and architectural elements that just can’t be replicated with new construction methods. However, not all vintage buildings are created equal. When looking at one of these assets, extensive due diligence is incredibly important. That way you can know before you get into the deal what exactly needs to be upgraded, the cost, and how long that may take, which will impact the construction process and how quickly you can get this asset on the market. GlobeSt.com: Is adaptive reuse really less expensive than ground up construction? How do the budgets factor in? McCormick: When you talk about cost, adaptive reuse can be less expensive when compared with ground-up construction, but it really depends on the condition of the building systems. Do they need to be upgraded or completely changed out? How much seismic work needs to be done—not just to bring the building up to code—but ensuring it’s in a good structural condition to where it can support additional equipment that the user may need to install? Again, this is where due diligence comes in. If you’re able to take the time and truly assess the building before you close, you’ll be able to know if you’re getting into an inexpensive conversion or one that’s a little pricier. From a developer’s perspective, the primary benefit to adaptive reuse is speed to market, which translates into rental revenue sooner. The demand from tenants for space in this market is high so the benefits that come with converting an existing building, such as faster construction, faster entitlements and faster building department approvals, are critical. And if an asset has already had certain seismic upgrades completed, you’ll see even greater cost savings. There’s potential for major cost savings with adaptive reuse, if you can find the right building. I imagine that ground-up development allows for more tailored design. GlobeSt.com: What are some of the major design differences in ground-up versus adaptive reuse projects? McCormick: The major design difference is really the look of the building. The vintage structural and architectural systems are interesting and are very popular. I personally love them, especially the open bow-truss ceilings and old concrete frames. A look that’s also popular but difficult to replicate is the old board formed concrete walls and columns found in early 20th-century buildings. Now we use large pieces of plywood to accomplish the smooth look, but in the 1920s, they stacked lumber and poured concrete against it to shape the walls. Architects are trying to recreate this look now in new construction, but they use it strategically within the design because labor costs are higher to accomplish this look. We worked with Gensler to create this look into some of the Element LA project site work, a 300,000-gross-square-foot adaptive reuse, creative campus in West Los Angeles, developed by Hudson Pacific Properties and now occupied by Riot Games. Two creative office projects McCormick is currently constructing are new construction. These buildings have a new, sleek look. The exterior of the 110,000-square-foot, five-story Nickelodeon Animation Studio in Burbank will be enclosed by a high performance window wall system, framed by architectural white cement. The project will also have a design-build media mesh system to display animation on the southeast elevations of the building. Similarly, the Santa Monica Gateway , a 200,000-square-foot Class-A creative office campus, will feature a glass-and-metal panel exterior. GlobeSt.com: When we think of creative office adaptive reuse, we instantly think of industrial conversions. Are there other product types that are becoming popular for creative office conversion? McCormick: Industrial conversions are the most popular. When you talk about adaptive-reuse product in Los Angeles, you’re looking at early 20th-century buildings in downtown where much of the inventory is located. This will take you through the various areas—from the Fashion and Toy districts, where you’ll find the factory spaces to the Arts District with its expansive manufacturing facilities and the Old Bank District where the historic office towers are located. Tom Gilmore was really the pioneer that started to take those old bank buildings and restore them for apartment lofts as well as office. The old theaters on Broadway are now being considered for conversions. Density has been increasing here in Downtown L.A.  We’ve reached a critical mass now of people permanently residing in downtown. Supermarkets have moved in, and the Broadway trolley is slated to make a comeback. There’s a movement well underway to recapture downtown. This activity has definitely driven the market for adaptive reuse. We’re also seeing an interest in converting buildings that were constructed in the 1950s and 1960s. They might not have the “sexy” or classic bits of architecture from the 1920s people like, but they’re great assets. They are available, and in many cases are well located. As long as there is a demand for space, you’ll see developers continuing to visit many different kinds of buildings to fill that demand. GlobeSt.com: Overall, have you seen an increase in requests for creative office projects? What about traditional office projects—how do the two compare? Do you see your volume continuing to increase this year? McCormick: The majority of recent requests have been for creative office space; however, there are certain clients that still request a more “traditional” office if they feel that it’s more conducive to their particular operation. Industrial buildings, which utilize tilt up construction, are a great example of this trend. We’ve recently completed two in the Los Angeles area, Howard 3000 for an entertainment client and Galena Business Park, in which both clients were looking for “traditional” space, but were still focused on incorporating the latest technology and providing open, flexible and collaborative spaces. Adaptive-reuse projects are still going through the pipeline, but we will begin seeing fewer and fewer as the inventory dwindles as a result of developers aggressively buying buildings suitable for conversion. Accordingly, we are seeing more of a renewed interest in ground-up.