Long Race for Grand Ave. Developer
When Related Cos., the developer picked last week to embark on the $1.2-billion Grand Avenue project in downtown Los Angeles, was erecting New York’s Time Warner Center, troubles piled up as fast a mound of dirt at a construction site.
First came the stock market crash, which cooled expansion plans for a lot of potential tenants. Then came the 9/11 terrorist attacks, which pulled workers away to help clean up ground zero. Finally, a fire broke out in one part of the Time Warner complex, delaying the completion of a major arts facility.
Still, Related continued to plug along, seemingly undeterred by the problems.
“They’re scrappers,” said Robert Feller, chief executive of GMAC Commercial Holding Corp., the primary lender for Time Warner Center. “They just keep at it and don’t let difficulties get in the way.”
That’s a good thing, because the Grand Avenue project promises its own share of headaches, with a committee of heavy hitters -- led by billionaire Eli Broad and real estate mogul Jim Thomas -- determined to see the blocks around Walt Disney Concert Hall transformed into a space as dazzling as the Champs-Elysees in Paris.
Billion-dollar-plus developments are the real estate industry’s equivalent of the Tour de France -- punishing, high-profile contests in which only a few are fit to compete and only one can win.
In the race to create the much-ballyhooed Grand Avenue project, Related has, in essence, been fitted with a yellow jersey. But whether it will be the company that actually breaks across the finish line remains to be seen.
Although its victory was impressive -- Related beat out seven other major firms to get to this point -- the New York-based company has won just the first stage so far, securing exclusive negotiating rights to be the developer of the project.
From here, Related must work with architects and designers to come up with a blueprint for offices, stores, housing units and a hotel on four downtown parcels owned by the city and county. In all, 3.2 million square feet of new construction is anticipated. Beyond that, Related also will help develop an urban park connecting City Hall with Bunker Hill.
Project backers hope to break ground within two years. But first, final plans must pass muster with Broad and Thomas’ group, as well as city and county officials. If Related falters, the job may be turned over to the other finalist, Forest City Enterprises.
“While we expect to reach a development agreement with Related, we have another equally qualified developer in Forest City to whom we can return if needed,” Thomas said.
Still, the betting among many in the real estate community is that Related will prove triumphant when the final contract is let in six months.
The company’s chairman, Steve Ross, “not only proposes beautiful buildings,” said developer Donald Trump, who has competed against Related in New York, “he gets them done -- like me.”
Ross is a tax lawyer who worked as a Wall Street investment banker in the late 1960s after moving to New York from Michigan. He founded Related in 1972 and specialized in building low-income housing.
In the 1970s and ‘80s, he also became known for building rental apartments and suburban offices in and around New York. The company overexpanded in the 1980s, as did many other real estate firms, and experienced substantial losses in New England and California.
By the 1990s Related had rebounded and was building and acquiring luxury apartment buildings in Manhattan. Ross broke the company into three divisions focused on development, property management and financial services.
The privately held company doesn’t disclose its financial results. It says it has developed more than 30,000 units of multifamily housing nationally, including more than 5,000 in California, as well as 3.5 million square feet of office and retail space across the United States.
The Nitty-Gritty
Among the qualities that has distinguished Related through the years is Ross’ propensity to track the nitty-gritty details, right down to the selection of art and lighting schemes in his buildings.
“We’re involved in every aspect of our projects,” said Kenneth A. Himmel, Related’s president of urban development. “That’s very important to us.”
Ross and Himmel first visited the Grand Avenue site more than a year ago at the behest of Los Angeles real estate broker John Cushman, who gave them a tour of Bunker Hill. The men studied the central city for a day and a half.
“You can feel what’s going on downtown,” Ross said, “just looking at all the renovation taking place and knowing that the whole trend of the country is toward an urban 24/7 environment. You know there is great potential.”
Said Himmel, “There are few moments when you have a chance to make a decision to change the lives of so many people who live and work in an area. It became pretty obvious to us there was tremendous amount of support to do the right thing.”
The proximity of the Dorothy Chandler Pavilion and Disney Hall suggested a strategy that has worked for Related in other cities, where it has built retail and residential properties in areas already attracting plenty of visitors -- but ones who attended a specific event and then turned around and drove away.
Related’s goal is to get them to stick around for a while, or even reside there.
Time Warner Center, for instance, feeds off traffic from nearby Lincoln Center. And Related built City Place in West Palm Beach, Fla., four years ago. The $600-million residential, retail and hotel complex is close to the Raymond F. Kravis Center for the Performing Arts.
City Place has been “a spark plug” for West Palm Beach, said Mayor Lois J. Frankel. The European-style project “has really spurred all kinds of development. We have one of the hottest, most vibrant downtowns in the state.”
‘Incredible Intensity’
The same could hardly be said of Los Angeles, even though it has what Himmel calls “an incredible intensity” of arts and sports attractions.
“The city is very fragmented when you talk about retail and restaurants,” he said. “This is the most important opportunity in a single concentrated destination to bring that together with a focus on residential as well. It will all happen right here.”
In the end, Related was picked not only because of its vision but also because of its Rolodex. Its team includes real estate broker Cushman, chairman of Cushman & Wakefield, who is extremely well-connected in local business and political circles. Also on board is architect David Childs of Skidmore, Owings & Merrill, who designed Time Warner Center and is the lead architect of Freedom Tower, the replacement for the World Trade Center in New York.
Ross tends to pick architects with a practical bent, “not somebody out on the fringe who is going to design something unbuildable,” said New York real estate broker Michael Colacino, who represented Time Warner in its negotiations with Related. “I would put him at the forefront of developers who are sensitive to design.”
For all that, the race for Grand Avenue was incredibly close, as the list of would-be developers was winnowed in May to Related and Cleveland-based Forest City.
“It was a tie, really,” Broad said.
What swung the deal to Related, he said, was that it offered a substantially better financial package in the way of lease payments for public land on which the project will be built and the size of the subsidies it requested to provide housing for low- and moderate-income residents at the site.
Even so, Broad figures that Related stands to profit handsomely, if everything goes according to plan.
“I think it’s a great business opportunity for them,” Broad said.
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The Related story
Grand Avenue project team:
* MacFarlane Partners, a minority-owned financial advisor to the California Public Employees’ Retirement System, which invests billions of dollars in real estate.
* Urban redevelopment consultant Biederman Redevelopment Ventures Corp.
* Architects and landscape designers Skidmore, Owings & Merrill; Morphosis; Elkus/ Manfredi Architects Ltd.; Gustafson Guthrie Nichol Ltd.; Levin & Associates Architects; and Suisman Urban Design.
* Real estate broker John Cushman, chairman of Cushman & Wakefield.
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Other Related Cos. developments:
* Time Warner Center, a $1.7-billion mixed-use project in New York that includes stores, offices, condominiums, a hotel and a performing arts center.
* City Place, a $600-million residential, retail and hotel complex in West Palm Beach, Fla.
* The Paramount, a $90-million, 43-story luxury apartment building in San Francisco.
* A $31-million retail and apartment complex at 2nd Street and Central Avenue in Los Angeles’ Little Tokyo district that will be finished next year.
Source: Times research
Los Angeles Times
