Friday, March 13, 2009

Redevelopment of downtown L.A. put on ice

Urban redevelopment is rarely a pretty picture. That's because real estate cycles tend to interrupt the dreams of those builders and developers with the vision to reinterpret a downtown area. Although San Diego now has an enviable, walkable downtown, it certainly didn't get there overnight -- it took at least two (and perhaps three) redevelopment cycles to get it where is is today, and Long Beach has been trying to decide what works and what doesn't since I lived there and attended high school.

So it comes as no surprise to me that the redevelopment of downtown Los Angeles -- which could easily fit many downtown areas into one of its submarkets -- is not going to occur in just one cycle. It will be a long, drawn-out process, but perhaps that's a good thing, because five years from now homebuyers are going to be wondering how expensive it's going to be to rip out all of those granite countertops and stainless steel appliances in favor of the next big trend. From a Wall Street Journal story:

The largest private landowner in downtown Los Angeles said it may have to file for bankruptcy protection, the latest sign of how the credit crunch has frozen a multibillion-dollar revitalization of the city's downtown...

It is the latest shoe to drop for Los Angeles's downtown district, which has been the focus of a decade-long renewal project designed to convert old warehouses and office buildings into lofts, high-rise residential towers and an entertainment and retail district.

Major pieces already are in place, such as the Staples Center sports complex at the south end and the Frank Gehry-designed Walt Disney Concert Hall at the north end. The first phase of L.A. Live, an entertainment complex, opened in December. And developers have added thousands of new condominiums and rental apartments.

But some plans have stalled, threatening the goal of building out the surrounding area. The Related Cos., a national developer, missed a city deadline to break ground on a $3 billion condo and retail corridor. The first phase of the project, once slated to be completed this year, probably won't be finished before 2012 because the developer hasn't been able to secure financing. Related says the project is on hold temporarily...

And, as in other cities, the condo market has been hurt by slow sales. Condo prices in downtown Los Angeles fell to less than $400 per square foot in the fourth quarter of 2008, down $100 from the previous year, according to CB Richard Ellis...

Unlike in Miami or San Diego, the downtown area doesn't have a large supply overhang. Real-estate brokerage Marcus & Millichap forecasts that 39 new condo and 394 rental units will be added to the downtown market this year.

But while the district's troubles may reflect economic headwinds that have battered real estate nationally, some experts say downtown has also suffered from too many high-priced developments. "The price points that were projected aren't sustainable," said Raphael Bostic, a real-estate professor at the University of Southern California. "The prices you have to charge now make the returns relatively unattractive."

1 comment:

Christopher Hain said...

All true.

But as someone who works actively on selling and (hopefully soon) redeveloping downtown, I feel obliged to point out a few things:

1) Despite the recession, the downtown economy is growing not contracting. This is evidenced by the tremendous number of new stores and restaurants still opening in this environment.

2) The reason for this is that the number of people living downtown has doubled in recent years, and the businesses to serve all these new people has not yet caught up. So there is an ongoing expansion of the service and retail sectors in downtown.

3) This expansion will continue in coming years. Even if projects under construction are converted to rental that still brings yet more people living downtown.

4) The continued expansion of the downtown retail economy is only making downtown more attractive as a place to live for buyers or renters.

The result is that while the price adjustments of downtown residential has been necessary, look for downtown to be one the soonest areas in L.A. to begin to recover. And with it, redevelopment (of all types) will start to make sense again much sooner than one might think.