Hopes Grow With World Trade Towers : For Long Beach, Doubts, Snags Called Transitory

LONG BEACH â€”  If, as Guy Tozzoli says, there are six stages in the development of a world trade center, Long Beach should savor the enthusiasm of the first.

“There will be all kinds of problems,� predicts Tozzoli, who opened New York City’s World Trade Center in 1970 and is president of the fast-growing, 53-nation World Trade Centers Assn.

Tozzoli had plenty of problems even in Manhattan, the nation’s center of international trade and finance. Construction was late, tenants backed out of leases and profits were non-existent for five years, two beyond the projection, he said.

“There are six stages in all great projects. First there is enthusiasm, then doubt, then panic. Phase four is the search for the guilty. Phase five is punishment of the innocent. And phase six is giving credit to those who didn’t have anything to do with it,� the gravel-voiced Tozzoli said with a laugh. Tozzoli survived to see profits from his $1.1-billion Manhattan twin towers reach $137 million last year.

‘Great Place’ for Center

“Nearly all of these trade centers are financially successful. And Long Beach is a great place for a trade center. But nobody builds a half-million-square-foot project without problems,� he said.

Tozzoli was referring to the 27-story first tower of the massive, four-phase, $550-million Greater Los Angeles World Trade Center in Long Beach, for which ground was broken last month.

His comments are notable because such perspective has not been stated publicly before--not during the enthusiastic first stage of the trade center project.

The trade center, a joint venture by home-grown IDM Corp. and Japanese construction giant Kajima Corp., has been hailed by local leaders as the most important commercial building in the city’s history.

It will house 15,000 workers, dominate the downtown skyline and anchor Long Beach’s emergence as an international city, IDM owner Michael J. Choppin said.

To hear him tell it, the success of the 2.2-million-square-foot center, which would be the world’s second largest trade center behind New York’s, is almost inevitable.

Market-Driven Development

It is the right project in the right place at the right time--a market-driven, office-and-hotel development near the West Coast’s two dominant ports that can ride the rising tide of Pacific Rim trade to completion, perhaps by 1996, Choppin said.

And, as an IDM-Kajima joint venture, it combines local knowledge with the assets and contacts of one of Japan’s largest construction firms, said Choppin, Long Beach’s largest real estate developer.

At the trade center’s ground-breaking last summer, attended by 5,000 guests, U. S. Sen. Alan Cranston (D-Calif.) called it “one of the most important commercial centers in our nation . . . a focal point for our future.�

But since then--even as those who know office buildings, ports and international trade were saying the center will be an immediate success--a few doubts have set in.

In late November, officials at the Port of Long Beach, which spent $30 million to buy and clear 12.7 prime acres for a trade center, grew anxious. One top officer hinted at action to prod IDM-Kajima if construction had not begun by the new year.

Meanwhile, managing partner IDM grappled with easement and building permit problems that kept bulldozers off the site until December, and its attempts to firm up months-old pre-lease tenant commitments languished until construction began three weeks ago.

Lofty Expectations

And, in interviews, leasing agents who have worked for years to try to fill other new Long Beach office buildings--none as large as the trade center’s first tower--said the center might have trouble living up to lofty expectations.

Trade center rental rates, topping at $2.90 a square foot per month, are 20% above the high for Long Beach and about that of prime buildings in downtown Los Angeles and Newport Beach, agents noted. The downtown Long Beach vacancy rate has inched downward from 21% last year, but agents say they still must cut extraordinary deals to lure large tenants.

Also, one of the region’s top land-use scholars has questioned the basic premise for construction of a trade center: that the strong growth of the ports of Long Beach and Los Angeles has fueled a demand for a major business complex nearby.

Ports that handle mostly imports are basically shipping stations without the support activities of a port of origin, and there is no need in this electronic age for most trade-related companies to be nearby, said George Lefcoe, a professor at USC and an organizer of international conferences on urban planning.

“In order to build a world trade center of any size someone here needs to answer the question, ‘How can Southern California dramatically increase regional exports?’ � Lefcoe said.

Shipping lines and freight forwarders are drawn to ports but don’t often look for pricy quarters in buildings like the ultra-modern, granite-and-glass trade center, he said.

Lefcoe said he thinks the Long Beach complex may become a strong suburban office center, but it should not expect to be the basin’s center of international trade or finance.

‘Regional Office Center’

“I think as a real estate project, the (trade center) is no better or no worse than any other regional office center. There is no reason to be in Long Beach rather than in Carson,� Lefcoe said.

One need only look to downtown Los Angeles’ own 13-story world trade center that failed in the 1970s to see that Southern California traditionally has not beaten a path to one central location for trade activities, he said.

Choppin said, however, that many trade-related companies, especially shippers, are already moving to Long Beach because of the ports’ explosive growth and renting space in new office buildings. James McJunkin, executive director of the Port of Long Beach, backs Choppin up, noting that Japan’s six largest shipping companies have all moved their U. S. headquarters here since 1980.

“Almost every major port in the world has a major business center adjacent to it,� Choppin said. “This hasn’t occurred in Los Angeles because of just the way it grew. The people in international trade are scattered from Thousand Oaks to Irvine. . . . But with the phenomenal growth of these two ports, Long Beach is emerging as the focal point for international trade.�

But in Long Beach, an attorney for real estate developers said, the trade center is hardly a sure thing.

‘Some Element of Risk’

“Any project of this magnitude involves some element of risk. And certainly it does here in Long Beach, where we don’t have a history, as does downtown Los Angeles, of projects of this magnitude,� attorney Charles Greenberg said.

“We all think this Pacific Rim orientation will work, but it’s obviously a chancy kind of thing to roll the dice on. . . . It could be the key to the success of all the downtown office buildings. But if it fails, it will just add to the office glut.�

Such statements border on heresy among city civic and business leaders who see the trade center as a symbol of their future success. They say it, more than any previous project, will establish Long Beach as a major player in international trade.

That has long been the city’s dream. It dubbed itself “The International City� two decades ago, but only with the recent construction of several major office, hotel and commercial projects--and the emergence of the Port of Long Beach as a world-class facility--has it begun to live up to the name.

Also, the trade center takes on added significance in the minds of some local leaders, who see it as a demonstration that Long Beach, the suburban stepsister, can succeed in one area where Los Angeles did not. (Port of Los Angeles officials say the trade center is much needed and will be a regional asset.)

International Focus

“It is the most significant project in the downtown area without a doubt,� Long Beach Mayor Ernie Kell said in an interview. “It’s going to give us not only a local focus but a state focus and an international focus.�

At the foot of the Long Beach Freeway and visible from downtown Los Angeles on a clear day, the trade center will be second only to Douglas Aircraft Co. in the number of workers employed in the city.

Alone, the center’s $147-million first tower and an adjacent 400-room business hotel, both set for completion in 1988, will be the largest non-industrial project in the city’s history. Its office towers of 26 to 35 stories will be four of the city’s five city’s tallest buildings.

Its towers will add more than 2 million square feet of office space--about doubling existing footage in the financial district--but Kell won’t even discuss the possibility that the current office glut might limit the center’s success.

“It’s going to be one of the most successful projects downtown. . . . an instant success,� Kell said. “I don’t care what anybody says. The place where people want to invest today is Long Beach. Very few cities have six miles of beachfront where office buildings overlook the water.�

Many others, especially those aware of the stiff competition by national companies to build on the best downtown redevelopment sites, tend to agree.

Center to Be ‘Like a Magnet’

“I wish I had stock in the World Trade Center myself,� said George Fox, who directs leasing in West Coast port areas for Coldwell Banker, the nation’s largest commercial leasing firm.

“It will be like a magnet. It will draw people down to what I think is the greatest city in Southern California (for growth). Long Beach is exploding.� Fox said.

State Controller-elect Gray Davis, who as an assemblyman chaired hearings on Pacific Rim trade, said a continuing shift in trade and last year’s elimination of a state unitary tax on international companies, are two reasons why the trade center will prosper.

“Most of America’s trade will be with Pacific Rim nations, and I think the financial capital of the nation will be in Southern California for the next 50 years,� Davis said.

Two-thirds of West Coast trade, which now exceeds the East Coast’s, comes through the two San Pedro Bay ports, and the value of the combined ports’ cargo exceeded any other in the nation last year, he noted. The ports’ cargo has doubled since 1975, and port studies say it will at least double again by 2020.

“The (defunct) Los Angeles World Trade Center was a good idea whose time had not yet come,� Davis said. “But the Long Beach World Trade Center will come on line after a welcome mat has been put out for foreign investment.�

Ace in the Hole

Newport Beach businessman Stanley Cohen, who is building a hotel and office project near the trade center on Ocean Boulevard, said that if development in Long Beach remains a gamble, both he and Choppin have an important ace in the hole with their Japanese partners.

Cohen is building his $130-million project with the American subsidiaries of Taisei, another large Japanese construction firm, and Marubeni, one of Japan’s largest trading companies.

The Japanese companies not only assured financing, Cohen said, but will also help with marketing. “They now have a vested interest in making this city what it wants to be,� Cohen said.

Yasuo Sento, a top Taisei officer in the United States, said he expects Japanese companies to establish offices in Long Beach. “In Japan, Kajima and Taisei are competing every day. So, in Japan, the press also writes about these projects. And that will help our marketing effort,� he said.

Japanese banks and companies “feel a sense of security and trust when they know Kajima is involved in a project,� said Michael F. Ross of Los Angeles, a former Fulbright Scholar in Japan and an architect for the trade center. “And once a few companies start turning a profit, the Japanese tend to invest on a large scale.�

Even without the trade center, Long Beach is luring shipping-related companies like never before, port director McJunkin said.

‘Accelerating Trend’

Not only have the largest Japanese shippers moved headquarters from San Francisco to Long Beach, another 30 to 40 major freight forwarding and exporting companies have moved here from San Francisco or Los Angeles, he said.

“It’s an accelerating trend,� McJunkin said. “Look at the tenant lists of any office building on Ocean Boulevard and you’ll see it. Five years ago none of them were here.�

Construction this year of an adjacent 250,000-square-foot federal building will also bring trade-related government activities to the trade center block, McJunkin said. IDM, in fact, is negotiating to bring a U.S. Customs regional office and a federal office for economic development to the center, port officials say.

And Long Beach expects to draw the government consulates, banks and trading companies that often locate near a port, especially one with a world trade center and an important government building, McJunkin said.

An early 1980s port survey identified about 2,100 companies in the region as trade-related, and a subsequent poll of 264 found 11% were interested in moving to a trade center, said Leland Hill, planning director for the Long Beach port.

Truck-to-Rail Station

“A whole bunch of new players� are also moving to Long Beach and are potential trade center tenants because of the opening last fall of a $62-million truck-to-rail container transfer station near the ports, Harbor Commissioner James Gray said.

Several other factors also virtually assure the success of his project, Choppin said.

The ports of Long Beach and Los Angeles are at the “bull’s-eye� of Southern California, within 60 miles of everything, between Los Angeles and Orange County and the region’s two busiest airports, he said.

“There is no other city that has a deep-water port, an airport and the amount of freeway service that we have,� Choppin said. Advantages also include a variety of housing--from million-dollar estates to suburban tract homes--and relatively cheap labor, he said.

But the ports are the big draw, he said, and “people in trade are starting to realize that there’s no reason to do business in downtown Los Angeles,� he said.

IDM officers point to their early leasing efforts as an indication of what is to come. While tenant interest lagged in the six months before construction began, five of the first tower’s 27 floors were leased before a shovel was turned--a rare accomplishment, IDM spokeswoman Connie Smith said.

Intense Negotiations

Letters of intent have been in hand for 51% of the building since April, and with construction the intensity of negotiations has dramatically increased, Smith said. Phone calls from prospective tenants were up 50% in December and interviews with prospective tenants were up 30%, she said.

“The day we put the spade in the ground, the color of everything changed,� Smith said. Leases are signed or in final negotiation for 16 1/2 floors, she said.

A company that rents office space and services to international business people has leased two floors, the Ernst & Whinney accounting firm has leased a floor and the Peat, Marwick, Mitchell accounting firm another floor, Smith said. And the Chamber of Commerce and the World Trade Center Assn. will share one floor, she said.

Signing for another 4 1/2 floors is also close with five companies she would not name but described as a financial institution, a trucking company, a cargo handling firm, an energy company and another accounting firm.

Negotiations with two tenants, who together would lease seven floors, are also near completion, said Smith, who would only say the companies are involved in international trade.

Retail Area Spoken For

All shops and restaurants in the 70,000-square-foot retail area on the first two floors are spoken for. “There are two or three for each of those spots,� Choppin said.

Tenants are not balking at top-dollar leases “because we are substantially under Los Angeles� when that area’s higher costs for parking and labor and an extra office rental tax are included, he said.

The project’s mammoth dimensions, however, have made some Long Beach-area leasing agents question the likelihood of its success.

“I’m not a pessimist. I just know the real world down there,� said Torrance-based agent Ted Lawson. “There is a lot of competition. And you’ve got to ask, ‘Why is it necessary for all of these new tenants to be down there?’ It’s been a hard deal in Long Beach.�

Lawson, who works for Fox at Coldwell Banker, said he and his boss probably have different perspectives on the Long Beach market because Fox works closely with the ports while Lawson spends his days leasing buildings.

For three years, Lawson and two associates handled leasing for the distinctive aqua-colored towers of Arco Center, the downtown’s largest office building at 437,000 square feet and the only one approaching the lease rates of the trade center.

Built in 1982, it is across Ocean Boulevard from the trade center site and about 80% full. In one case, though, a large tenant got nearly three years’ free rent on a 10-year lease, Lawson said. Lawson is now leasing the nearby, 18-month-old Catalina Landing office buildings, which are only 50% full and recently cut top rates 10% to attract tenants, he said.

‘Entirely Different’

IDM’s Smith said the neighboring office buildings “are nice developments with ocean views, but the World Trade Center is entirely different.�

The World Trade Center affiliation is what will sell the project, because “people want to be in an environment with others with a common interest,� she said.

The Long Beach trade center will offer several unusual trade-related services to tenants, including an electronic marketing “bulletin board� tied to other World Trade Centers Assn. members worldwide, Smith said.

Tozzoli, of the New York trade center, said 75% of his tower space is occupied by trade-related companies. With 68 Japanese companies, the New York center has “the largest Japanese business community in the world outside of Japan,� he said.

Like New York’s, the Long Beach center is big enough to benefit from its own success, Choppin said.

“As time goes on, it will feed on itself. And the more that occurs, the more it will accelerate,� he said.

And if it doesn’t, provisions of IDM-Kajima’s 66-year lease of port land allow for construction delays because of a downturn in the market.

The lease also allows IDM-Kajima to defer base rent payments of $3.6 million a year until trade center offices are 75% occupied and the hotel has 65% occupancy. The port will also receive payments amounting to 20% of the money made from leasing the center.

And Choppin, who sees the trade center as a “low-risk venture,� said those profits will be substantial.

“We’re responding to the circumstances rather than creating them,� he said. “We are not inventing the wheel, we’re getting on the bandwagon.�