Developer Palmer to Bring Suburbia to Downtown L.A.

Building a $100-million apartment complex on the tattered fringe of downtown Los Angeles seems like a risky bet. Demand for market-rate housing in the area has been notoriously shallow for years.

But apartment builder Geoff Palmer--who is known as a cautious and methodical developer--is not the gambling type. In fact, as property values and rents rise across Los Angeles, his 658-unit Medici apartment complex--the largest under construction in Los Angeles County--is looking more like a winner with every passing day, said real estate and housing observers.

“He will have no trouble filling it up at all,” apartment investment advisor Dean Zander said. “His timing is perfect.”

There are about 8,300 apartments and condominiums--most of them located in high-rise towers--within the belt of freeways that encircle downtown. More than a third of the apartments are rent-subsidized units earmarked for elderly and low-income residents. Some developers, including Tom Gilmore, have targeted artists and urban pioneers to populate trendy loft-style units carved out of historical buildings and warehouses.

But Palmer is targeting the middle market of downtown professionals with a low-rise, suburban-style complex complete with swimming pools, a one-acre park and shops. Monthly rents at the privately financed Medici--which is located at the intersection of the Harbor Freeway and 7th Street--are expected to start at about $900 when the first phase opens in June.

“People think there needs to be broader types of housing downtown,” said Donald Spivack, deputy administrator at the Community Redevelopment Agency. “If [the Medici] is successful you will see more people wanting to do projects like this.”

Palmer, president of privately owned G.H. Palmer & Associates, has plunged into a market that has scared off most residential developers and burned many investors:

* Grand Central Square, which includes 121 apartments above the historical Grand Central Market, received a government bailout in 1997 after falling behind on payments on $44 million in publicly backed debt.

* The builder of the 192-unit Renaissance Tower apartments in the South Park area went bankrupt in the early 1990s while the high-rise was under construction. In 1998, the building was sold for $18 million--45% of its original cost.

* In 1991, the city’s redevelopment agency paid more than $3 million to buy out 32 condominium owners in Premier Towers after the owners watched their investment in the Spring Street project vanish as the area continued to deteriorate.

Despite rising expectations and a low apartment vacancy rate, downtown continues to be shunned by most developers in favor of less risky and more lucrative suburban locales.

Legacy Partners, for example, is building about 1,500 units across Los Angeles County, including Pasadena, Santa Monica, Marina del Rey and Westwood, where monthly rents will exceed $4,000. But Legacy has no plans to come downtown.

“There are other parts of the metropolitan area that we are more attracted to,” said Dennis Cavallari, senior vice president of Foster City-based Legacy Partners.

“I think downtown is going to be a better sub-market for somebody like Geoff Palmer, whose intentions are to develop and hold it for 20 years,” Cavallari said. “Our horizon is not quite that long.”

Despite the size and significance of his project, Palmer, 49, has kept a relatively low profile in the downtown real estate and business community. In contrast, loft developer Gilmore has generated plenty of publicity and is a common figure at downtown events.

“Tom is more gregarious and outgoing than Geoff,” said former real estate attorney Martin Stolzoff, who has known Palmer for more than 20 years. Palmer is “very conservative and very thorough. He checks everything out completely. He doesn’t play games and is risk averse.”

Palmer’s company owns and operates about 5,000 apartment units across Los Angeles and Ventura counties. Palmer has a knack for entering new markets “where others might be scared to tread because there’s not a track record,” said Zander, who works for Phoenix-based real estate brokerage firm Hendricks & Partners.

In the late 1980s, Palmer built the 198-unit Skyline Terrace complex in Chinatown, on downtown’s northern fringe. But, for the most part, the firm has focused on suburban projects in the Santa Clarita Valley, where the developer has feuded for years with residents and city officials over growth and development fees.

In 1992, Palmer’s reputation suffered a blow when his firm agreed to pay $30,000 in fines for allegedly laundering campaign contributions in 1987 to a Los Angeles city councilwoman and a group that opposed cityhood for Santa Clarita. An investigation by the state Fair Political Practices Commission found that the firm had violated the California Political Reform Act. Palmer never commented publicly on the fine.

At a recent real estate event, Palmer said skyrocketing land prices in prime suburban areas such as Santa Clarita was one of the factors that led him downtown.

“We think there are more fertile opportunities downtown,” said Palmer during a panel discussion at the Real Estate 2000 outlook sponsored by Stolzoff’s Real Estate Conference Group.

Palmer declined requests by The Times for an interview.

In contrast to booming suburban areas, downtown land prices have appreciated at a slower pace. Palmer, who announced plans for the Medici project in 1998, moved quickly to buy the former home of Thomas Bros. Cadillac dealership, which was cleared away for an office project that never materialized. Palmer’s bargain hunting gives him a much better chance at making a profit, real estate brokers said.

City officials, eager to expand downtown housing, quickly reviewed and approved the project and made some important compromises. Instead of requiring Palmer to include low-rent, affordable housing units in the Medici, the city allowed Palmer to build the low-cost housing in other locations. Requiring Palmer to include low-rent apartments in the Medici would have it made financially unfeasible, said his lawyer, Ben Reznick.

“It’s one of the first of its kind because the other major residential projects were primarily backed with subsidies,” said John Sheppard, land use and planning deputy for City Councilwoman Rita Walters, who represents downtown. “This one is totally financed by the developer.”

Since Palmer announced his project, land values in the area have risen 20% and rents at least 15%, according to Zander.

If the Medici and other area residential projects are successful, they could form the foundation for a healthier, more diverse downtown, Santa Monica architect and housing expert Wade Killefer said.

“Once we get a real culture of residential life down there . . . it could be a pretty fun place to live,” he said.