Retailers Not Sold on Grand Avenue

They have the world-class architect. They have the cutting-edge design. They have the financing. But Eli Broad and the other backers of the Grand Avenue project still face formidable hurdles in creating an upscale 24-hour vibe in downtown Los Angeles.

Building Frank Gehry’s glass-curtained towers is just the beginning. The developers must lure back the kind of high-end retailers who began abandoning downtown Los Angeles 50 years ago.

Although Grand Avenue’s developers say they are close to locking in a bookstore chain and a boutique hotel, they quietly dropped plans to build an art-house movie theater in the complex because they could not find one willing to take a chance on downtown.

Throughout downtown, developers are finding it is a lot easier to lure well-heeled condo buyers to the urban core than businesses. In what some see as an ominous sign, some of the historic bank buildings converted into lofts have filled their upper floors with new residents but have failed to find retail tenants for the street-level spaces.

Over the last year, downtown business groups have aggressively tried to persuade popular stores in places like Pasadena and Hollywood to open branches in the city center.

Despite tours and demographic presentations, many well-known chains, including In-N-Out Burger, Trader Joe’s and Barnes & Noble, have so far said no to the area.

“The chains aren’t interested yet,” said Warren Cooley, project director of the Historic Downtown Retail Project, a city-funded endeavor to attract businesses downtown. “There’s not enough population and critical mass. There are still challenges. The homeless issue on the street is a concern when real estate investigators from big chains look. That’s sometimes something that concerns them.”

Rick Caruso, the developer behind the Grove and several other highly successful shopping centers in Southern California, said he is taking a wait-and-see approach to downtown.

“We’ve looked at downtown a lot, and I have not been able to answer the primary question of who is my customer on evenings and weekends,” he said.

So far, Caruso added, downtown’s abundant daily office workers and growing number of residents still make up too small an audience to lure fashion boutiques and home furnishing stores. Landlords may be able to attract some retailers by offering reduced rent and other incentives, he said, “but good retailers are going to arrive well after their customer has settled in.”

The struggling high-end retail base downtown is often obscured in the booming residential real estate market.

More than 6,600 new residential units have been completed downtown since 1999, bring in about 10,000 new residents.

Gehry’s plan for a block of city-owned land just east of Walt Disney Concert Hall, publicly unveiled Monday, is designed to build on that residential surge, bringing more residents and services to the area, as well as visitors.

His designs call for building a dramatic glass-curtained 47-story tower, a 24-story tower and retail pavilions with shops, outdoor dining and rooftop bars on the block bounded by 1st, 2nd, and Olive streets and Grand Avenue. The project is to include 400 condo units, 100 affordable housing units, a boutique hotel, health club and spa.

Broad and other backers argue that their project is in many ways the tipping point for downtown Los Angeles. They said the project would connect fledging residential districts while creating a central hub around nearby cultural institutions, including Disney Hall, the Music Center and the Museum of Contemporary Art.

The Gehry buildings are to be the first phase of a $1.8-billion master plan that calls for eight new towers in the Bunker Hill area.

But the plan depends heavily on downtown’s revitalization continuing unabated. Critics point out that the Grand Avenue business model would seem dubious if the downtown real estate market were to soften or if crime and the city center’s homeless problems were to worsen.

The vast majority of the tower space at Grand Avenue is set aside for residences: 2,600 units through all three phases.

Downtown developer Dan Rosenfeld said that although long-term prospects for residential development are strong, the current construction boom would probably lead to oversupply and a sales slump at some point. Still, he said, he expects the housing and retail markets to flourish over time.

Bill Witte of Related Cos., Grand Avenue’s developer, said Monday that he understands the Grand Avenue project faces challenges but believes it ultimately will succeed.

The developers said they hope to be able to announce some of the project’s key retail tenants, including the boutique hotel and several restaurants, within three or four months.

Witte called preliminary interest in the project “remarkable” but also struck a cautious tone.

“This is not easy,” he said. “When you are pioneering, it is never easy.”

Boosters of the downtown renaissance, however, were less restrained, noting that 6,000 residential units are under construction and 5,700 more have received building permits or are being vetted for permits, according to the Downtown Center Business Improvement District.

“This is the last great urban frontier in this country,” said Carol Schatz, president and chief executive of that organization and of the Central City Assn. of Los Angeles, a business advocacy group. “I don’t think many people, including those working downtown, ever saw this as a place where people would live.”

Schatz said downtown boosters made a conscious decision to concentrate on bringing residents downtown, with the hope that retailers would follow.

“You can’t sustain retail with just a 9-to-5 office population,” she said. “It just won’t happen.”

A key test for Grand Avenue’s viability is expected next year a few miles south, near Staples Center. That neighborhood, known as South Park, has seen the city’s biggest boom in condo construction, and many observers of downtown development predict the neighborhood services will follow.

The long-awaited arrival of a Ralphs grocery store next year, Schatz said, is expected to be “a second coming. They were here in 1898 and left in 1955, and the fact that we can support a full-scale brand market in the core of downtown Los Angeles has significance above and beyond the market itself.”