April 3, 2009 - Korean Air - Thomas Properties Group, Los Angeles CA

South Korean firm unveils plans to put its stamp on L.A. skyline

Conglomerate Korean Air proposes building a pair of high-rises to replace the aging Wilshire Grand hotel. The project would cost $1 billion.

South Korean firm unveils plans to put its stamp on L.A. skyline

Conglomerate Korean Air proposes building a pair of high-rises to replace the aging Wilshire Grand hotel. The project would cost $1 billion.

The Wilshire Grand hotel was originally a Hotel Statler and later a Hilton. Korean Air bought the hotel in 1989.

An artist's sketch shows a street-level view of the 40- and 60-story towers proposed for the property now occupied by the Wilshire Grand hotel in downtown Los Angeles. Owner and developer Korean Air unveiled plans to build a $1-billion complex that will include a hotel, offices and retail space.

The aging Wilshire Grand hotel and adjoining offices in downtown Los Angeles would be demolished and replaced with a $1-billion hotel, office and retail complex under a plan by one of South Korea's largest business conglomerates.

The proposal is unexpected at a time when builders are backing away from big projects, and when the market for office space and condominiums has softened considerably because of the recession.

At 1.8 million square feet, the project is also a testament to the rising clout of L.A.'s Korean community, the largest outside of Seoul.

"This will be an icon of the Korean community for Los Angeles," said Yang Ho Cho, the chairman of Korean Air, which is developing the project.

Korean Air is the flagship company for Hanjin Group, which has $20 billion in annual revenue from its interests in land, sea and air transportation as well as construction, heavy industry, finance and information services.

Hanjin's involvement raises the project to a new level, marking the first time that a South Korean developer has engaged in an endeavor of this magnitude. The move is particularly significant because the company is what South Koreans call a chaebol, one of the family-owned conglomerates that dominate the nation's economy.

"This is on a bigger scale and it shows the growing clout" of Korean and Korean American investors, said Kyeyoung Park, associate professor of anthropology at UCLA's Center for Korean Studies.

Plans for the project, announced Thursday, call for replacing the 1950s-era Wilshire Grand -- located at Figueroa Street and Wilshire Boulevard -- with a luxurious 40-story hotel with as many as 700 rooms and topped by several floors of condominiums.

Next door would be an even taller building, a sleek 60-story tower with 1.1 million square feet of rentable office space. At ground level would be shops, a landscaped park and a public plaza.

It would be the first major high-rise office building constructed in L.A. since 1992.

The airline has hired Thomas Properties Group, one of the city's best-known developers, to oversee the project.

"It's amazing that anybody has the capacity to engage in new construction right now," said City Councilwoman Jan Perry, who is familiar with the proposal and supports it so far. "I'm looking forward to engaging in the process to move it forward."

But for those familiar with Korean Air, the latest project is not surprising and is in keeping with its roots as a chaebol.

A high-end hotel fits well with the conglomerate's operations in Los Angeles: It makes parts for airplanes, flies the planes here as the busiest Asian carrier at Los Angeles International Airport, runs travel agencies that book the tickets and operates a catering business that serves the food on the planes.

It already owns several hotels in South Korea, including the Hyatt Regency next to the Incheon airport, and drives guests there in its own buses.

The daughter of the chairman of the chaebol runs its hotel division.

Korean Air eked out an operating profit of just $18 million in the fourth quarter of last year but is believed to be in a strong enough financial position to back the hotel project.

Money began flowing from South Korea to Los Angeles in the 1970s but really picked up in the late 1990s, as South Koreans built shopping malls and other projects in Koreatown, helping fuel the growth of Korean banks.

The Wilshire Grand project -- on prime downtown land and outside of Koreatown -- kicks it up a notch, said UCLA's Park.

Thomas Properties Chairman Jim Thomas, who has helped build downtown landmarks including the US Bank Tower, is currently working on a proposed $800-million, mixed-use project in Universal City that would house the new studio and West Coast headquarters of NBC Universal.

Before work can begin on Wilshire Grand, the project must win approval from the city of Los Angeles, a lengthy process. But Thomas said in an interview that if all went according to plan, construction could begin by 2011 and be complete by 2014.

The project is being proposed at a gloomy time for the commercial real estate market, when few buildings are being sold -- much less built. But Thomas said he believes that will turn around by the time the project is ready to go.

"Construction costs are going down," Thomas said. "This is the best time to get started."

Los Angeles architect David Martin, a principal at AC Martin Partners, is designing the project. Martin designed the Figueroa-at-Wilshire high-rise across the street from the Wilshire Grand in 1990 and more recently worked with Thomas building the environmentally friendly California Environmental Protection Agency headquarters in Sacramento.

His modernist design calls for the towers to be situated on the site at a north-south angle to take advantage of sunlight, and may include a photovoltaic skin to create solar power. Some windows would open to an exterior clad in glass and perhaps terra cotta.

The new hotel, located across the street from a subway station, would have fewer rooms than the 896-room Wilshire Grand but would be more luxurious, Thomas said. It would also have meeting and banquet facilities supported by parking for 1,700 cars.

The Wilshire Grand, built in 1952, was originally a Hotel Statler and later a Hilton. Once one of the city's best hotels, it is now a mid-market inn catering to conventioneers and tour groups from overseas. The property is a few blocks north of Staples Center and has office wings that are 15 stories high.

Korean Air bought the hotel in 1989.

Hanjin's connection to Los Angeles runs deep. The chairman, his brother, his sister and his three children all graduated from USC. The chairman, known as Y.H. to his American friends, is on the USC board of trustees.

At LAX, Korean Air is the busiest Asian carrier, with six departures a day, all of them operated on jumbo jets such as the Boeing 747 and 777 wide-body aircraft.

Next year, the airline expects to be the first Asian carrier to operate the Airbus A380, the world's largest passenger jet, at LAX.

Despite a global downturn in air travel, Korean Air is one of the few foreign carriers that have been adding flights, particularly at LAX, as it has expanded its marketing to Chinese and American passengers flying to Asia.

In an interview with The Times this week, Cho, the Korean Air chairman, said the airline had anticipated the economic downturn and began building up its cash reserves more than a year ago.

"We expected some problems and we prepared by accumulating cash," Cho said, adding that the airline also began expanding to emerging markets in Eastern Europe and Africa.

While the number of South Korean travelers fell 20% last year, overall passenger traffic increased, he said.

Dressing It Up Before Tearing It Down

James A. Thomas is overseeing the redevelopment of the Wilshire Grand in downtown Los Angeles.

Across the country, hotel projects have stalled because of a lack of funding. But the owner of one Los Angeles hotel is not only spending millions on improvements — it is also getting ready to replace the hotel with a new one.

The Wilshire Grand is in the midst of a $20 million makeover that involves upgrades to all 900 guest rooms. But while the renovation will help keep the building fresh, it still won’t provide the spaciousness and sheen that some travelers expect.

“There is just so much you can do with a 50-year-old structure,” said Penny Pfaelzer, a spokeswoman for Korean Air, the hotel’s owner. Even with upgrades, she said, the rooms are “dated.”

So Korean Air hopes to tear down the hotel a year or two after the renovation is finished.

Then, a pair of high-rise buildings — one containing offices, the other a new hotel with 700 rooms — will be constructed in its place.

James A. Thomas, whose company, the Thomas Properties Group, was hired by Korean Air to oversee the redevelopment, said “the decision has been made to scrape the site.” His client, he said, “decided that it doesn’t make sense to keep putting money into the property if they’re not able to come up with the kind of quality hotel they want.”

The rebuilding project is expected to cost around $1 billion, according to Mr. Thomas, and it will proceed despite the tight credit market. Korean Air “has the wherewithal to build the hotel off its balance sheet,” he said.

The airline, a part of the Hanjin Group, a conglomerate based in South Korea, had more than $8 billion in revenue in 2008, according to Ms. Pfaelzer.

Korean Air has strong ties to Los Angeles, which has the largest Korean population of any city outside Korea, according to Eui-Young Yu, the founder and director of the Center for Korean American and Korean Studies at California State University, Los Angeles. That generates a lot of trans-Pacific traffic.

The company’s chairman, Y. H. Cho, is a graduate of the University of Southern California, as are his three children, Ms. Pfaelzer said. One of them, Heather Cho, runs the company’s hotel division.

Korean Air bought the Wilshire Grand about 20 years ago — when it was known as the Hilton Hotel and Towers — and has watched as downtown Los Angeles burgeoned around it. The Walt Disney Concert Hall, which opened in 2003, and the Staples Center arena, which opened in ’99, are both in easy walking distance of the hotel. L.A. Live, a vast entertainment complex, is under construction next to the Staples Center.

The Wilshire Grand advertises itself as having the best location of any hotel in the city. But if that’s true, the hotel hasn’t lived up to its potential. On a recent night, rooms were available as little as $79.

Even so, occupancy has been around 50 or 60 percent, according to Marc Loge, the hotel’s director of public relations.

And the Wilshire Grand is about to face new competition. L.A. Live, which is expected to open next year, will contain two separate hotels — a Ritz-Carlton, with 123 rooms, and a J. W. Marriott, with more than 800 rooms — in a single, 54-story tower designed by Gensler, the international architecture firm. The hotels will operate as distinct entities despite sharing a building.

The new neighbors “are raising the bar” for the Wilshire Grand, Ms. Pfaelzer said. But they may also bring it new business.

According to Carol Martinez, an executive of LA Inc., the city’s convention and visitors bureau, some of the largest conventions “didn’t want to come to Los Angeles because we didn’t have enough hotel rooms to accommodate them.” The addition of nearly 1,000 rooms at L.A. Live will change that, she said. A result could be more convention business for the Wilshire Grand.

But the existing Wilshire Grand would have a hard time satisfying some conventiongoers, Ms. Pfaelzer said. Among other things, she said, its cramped public spaces are incompatible with “the pedestrian and cafe lifestyle Southern Californians enjoy.”

It may take up to two years to win approval for the project from government agencies, according to Mr. Thomas, and for that reason, the company decided not to halt the renovations that were under way.

But it did decide to speed things up. Instead of renovating floor by floor, as originally planned, it is tackling three floors at a time, Mr. Loge said. That will allow the hotel to complete the renovation this fall, about a year ahead of schedule.

Low occupancy during the economic downturn has made it easier to renovate large swaths of the building at once, Mr. Loge added.

Once it was decided that the hotel would be demolished, some items were dropped from the original renovation plan. The rooms will receive new carpet, window treatments, wallpaper, flat-panel televisions, mattresses and upholstery, Mr. Loge said. But, he said, “the bathrooms will no longer be completely refurbished and expanded.” He said that decision, along with other changes, reduced the cost of the renovation to about $20 million from about $60 million.

Meanwhile, Mr. Thomas, the real estate developer, is focused on maximizing the use of the Wilshire Grand site — nearly three acres at the corner of Wilshire Boulevard and Figueroa Street, on the southwestern corner of downtown Los Angeles.

The site is particularly valuable to Korean Air, he said, because “the name Wilshire Boulevard is recognized around the world.” As a result, he said, the airline “is very anxious to have the hotel front on Wilshire, because they anticipate an international business.”

The new hotel is as yet unnamed; the company is talking to all the major brands — known as “flags” — before deciding which of them will operate it, Mr. Thomas said.

In the meantime, executives of the Wilshire Grand are focused on running their hotel. “When employees know that a hotel is going to eventually close, that can be an issue,” Ms. Pfaelzer said, noting that some employees may seek other employment, while morale among those who remain could suffer. She said the company has offered Wilshire Grand employees “preferential hiring when the new hotel becomes operational.”

“And we’re hopeful that many will return,” she added.

But that will take time.

“Before we could have the hotel up and running, we’re talking about four to five years,” said Mr. Thomas, who was figuring on at least two years for various approvals from the city and at least two years for construction.

“Hopefully by then,” he said, “the economy will have turned around.”

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