Artificial intelligence-based fashion firm Finesse has nearly quadrupled its office footprint in Downtown L.A. after inking a sublease for more than 23,000 square feet at The Bloc.
The company, which closed on a $40 million Series A round of funding last July, made the move from the Fashion District to the Financial District and is set to stay through January 2028.
Finesse, which uses AI and customer votes to determine what and how much product to manufacture, was represented by Found Real Estate co-founders and principals Matt McLaughlin and Doug Fillmore. Edtech firm InStride, which holds the master lease, was represented by Savills in the deal.
McLaughlin said the deal offers a “glimmer of hope” in what has been a challenging period for Downtown’s office market.
“Right now, the vacancy rate is a little over 30 percent in Downtown. The Bloc is a perfect example of if you have a really strong mixed-use property, with safety and it’s heavily amenitized, you can attract fast-growing tenants,” McLaughlin said.
The Bloc counts restaurants and fast-casual lunch spots as part of its mix, in addition to a Macy’s, UCLA Health and Alamo Drafthouse Cinema.
The property, located at 700 South Flower Street, underwent extensive renovations about a decade ago beginning with the Ratkovich Company and Blue Vista Capital Management acquiring what was then an indoor center known as Macy’s Plaza. The $180 million project created an open-air, mixed-use property that also includes the Sheraton Grand Los Angeles, a connection to the 7th Street Metro station and more than 730,000 square feet of office space.
Landlords with workspace worthy of wooing employees from their homes will come out winners, Fillmore said.
“Landlords in general need to do a better job of adding amenities to their campus and create a pulse and buzz to spark that creativity to get employees wanting to get back into the office,” he explained. “One of the reasons Downtown has historically struggled compared to other areas of L.A. is there’s a lot of stale high-rise buildings and younger demographics don’t want to go into that kind of space anymore.”
The market’s largest office deal so far this year says about as much.
The Southern California Gas Company, the long-time namesake tenant of the Gas Company Tower at 555 West Fifth Street, leased nearly 200,000 square feet of space at CIM Group’s City National 2Cal last month for its new headquarters. With the relocation, SoCalGas will move about a block away to an office tower that shares an outdoor courtyard and performance space with the Omni Los Angeles Hotel and multiple lunch spots at the Cal Marketplace.
Downtown outlook
Although Fillmore and McLaughlin view the Finesse sublease as a bright spot for Downtown, they’re realistic about a recovery. They estimate it’ll be a five- to seven-year bounce back, with more distress and foreclosures likely.
Although the Downtown office market is overall challenged, the neighborhoods comprising the central business district — Bunker Hill, South Park and the Financial District — fared better during the second quarter than their eastern counterparts with an overall vacancy of about 32 percent, according to CBRE research.
Downtown East — consisting of the Arts District, Fashion District, Historic Core and Little Tokyo — had a second-quarter overall vacancy of 52 percent, according to CBRE.
“In the near term, it’s going to continue to struggle,” McLaughlin said. “Commercial real estate is incredibly slow moving and inelastic.”
Many of the companies Found Real Estate works with mirror the tech backing their products. In other words, they’re fast-paced, armed with venture capital and require turnkey worksites for quick move-in. With many landlords struggling to cover debt obligations amid rising expenses and insurance costs, capital to update space just isn’t there in some cases.
That makes it a harder case to retain tenants, especially with a wave of leases coming to term.
“If we take a step back and look at the past several years, 2018 and 2019 were on fire. Now, a lot of these leases are three to five years, so all these leases that were signed then are starting to roll off the books,” Fillmore said. “There are a lot of question marks.”
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