Citing the ongoing housing slowdown, KB Home has withdrawn from a joint venture to build a 54-story hotel and condominium tower that is a central component of the L.A. Live project in downtown Los Angeles adjoining Staples Center.
AEG, L.A. Live's developer and owner of Staples Center, has bought out KB Home's stake in the project and will develop it entirely on its own, the companies said Friday. Terms of the transaction weren't disclosed. However, the cost of the 2-million-square-foot project reportedly is at least $750 million.
Even with KB's withdrawal, the hotel-condo project is still a go, AEG said. Construction is well underway, with completion still slated for 2010.
"Our commitment to the development of L.A. Live has never been stronger or more focused," said Timothy Lieweke, president and chief executive of AEG, owned by billionaire Philip Anschutz.
It had taken two decades for the city to land a major convention hotel. Together with the 27-acre L.A. Live, the complex has raised hopes for reestablishing the city's center as a top tourist and convention magnet.
"At this stage, it's best for AEG to just move ahead. They have ambitious plans for the whole L.A. Live project, so they have to go for it," said Jack Kyser, chief economist with the Los Angeles County Economic Development Corp.
Westwood-based KB Home, the fifth-biggest builder by revenue, said it was withdrawing from the L.A. Live project to focus on its core business of producing single- and multifamily homes.
"KB has not been immune to the changing dynamics in the housing market," spokeswoman Caroline Shaw said. "We really think this project will be a great project and we are very supportive, but building high-rise towers is not part of our corporate business model."
KB Home also is tackling a stock option scandal that prompted longtime Chief Executive Bruce Karatz to resign last month and delayed the filing of financial reports, which triggered notices of default on some of its corporate debt. The company also said it would have to restate more than two years' worth of results.
Citing potential liquidity concerns, Moody's Investors Service on Friday said it would reassess KB Home's ratings for possible downgrade. The review affects about $2.4 billion of debt.
KB Home entered the high-rise condo business early last year with the creation of its KB Urban division. In June, KB teamed with AEG to develop AEG's site and build two top-flight hotels topped with luxury condos.
The project includes a 124-room Ritz-Carlton, which would be the first five-star hotel downtown. Also included is a planned 876-room JW Marriott Los Angeles.