Pitching L.A. to N.Y. Pinstripes
Trying to persuade L.A. institutions like Dutton’s bookstore or Trader Joe’s market to move into downtown Los Angeles is one thing.
But the success of downtown’s future may rest with the investment bankers, real estate developers and others gathered earlier this week in a Manhattan hotel ballroom.
Los Angeles business and political leaders were here to pitch downtown’s story, complete with upbeat videos of luxury lofts and renderings of glittering buildings under development.
The group watched patiently, and while most were intrigued, even enthusiastic, in the end not everyone was sold.
They agreed that downtown has made tremendous strides in recent years but said several key factors make them wonder whether it’s a sure investment yet. They still question whether the city can improve the area’s homeless situation and raised concerns that many of downtown’s streets still seem dead despite the boom in lofts and condos.
“It seems to have a lot of issues,” said Thomas Hardadt, a principal at Craven Corp., a property management company that has been hesitant about putting more money into the area.
Selling people like Hardadt is considered crucial. So far, much of the investment in downtown has come from local firms that have seen the rebirth of the city’s core firsthand.
Over the last six years, a downtown long known for shutting down after 5 p.m. has seen a surge in development, mostly residential, in rehabilitating historic structures in the old banking district as well as new condos, especially around Staples Center.
In the last year or so, several national firms have made investments in downtown, including notably, Lennar Corp., which is developing two residential towers near Staples Center with KB Homes, and New York developer the Related Cos., which is building a $1.8-billion property near the Walt Disney Concert Hall.
Other outside investors are moving into downtown Los Angeles slowly.
The Moinian Group, one of Manhattan’s biggest landholders, recently purchased an office building at 808 S. Olive, said associate Oskar Brecher.
He said the key for downtown is that it follow the general pattern of other revitalized urban cores like San Diego and Portland, Ore., where an influx of residents was followed with the establishment of bustling street retail and nightlife.
Still, others said they hadn’t been entirely convinced.
Hardadt, of Craven, said his firm has been “holding back, to see what will take hold.”
During lease negotiations with tenants for their building, he said, he finds that tenants -- frightened about homelessness and crime in the area -- want employees to have escorts from the building to an off-site parking lot. And he and his business associates used to stay in downtown when they came to Los Angeles, but they found that after a long day’s work, they came back to their hotel to find “it’s like a ghost town.”
These days, they stay in West Hollywood.
But Hardadt said they have noticed a recent change downtown as new properties open up. “We’re optimistic, but guardedly optimistic,” he said.
The Standard Hotel, with its thriving rooftop bar, has become a place where he is proud to take clients. He was intrigued by the news, delivered by speakers at the breakfast, that restaurants in the area such as the Palm and Daily Grill are doing exceedingly well.
As guests listened, downtown Los Angeles was introduced by speaker after speaker as “the center of it all.”
The area’s biggest new projects, L.A. Live and the Grand Avenue development, were praised by billionaire Eli Broad, one of the speakers, as part of a “tipping point” that would transform the long-moribund zone into a vibrant, “24/7 area.”
The breakfast marks the third trip to New York sponsored by the Downtown Business Improvement District, and President Carol Schatz said that the previous two had attracted about $80 million in investment. While those trips -- in 2002 and 2004 -- were about what was going to occur, she said, this one told the story of what was happening in a much more real sense.
“We wanted to bring that message to the financial capital of the world,” Schatz said, “so that those who haven’t will look at downtown as an investment.”
The event had all the components of a “rah-rah” session, albeit one with PowerPoint.
Broad, the chairman of the Grand Avenue Committee and a force behind the downtown’s Walt Disney Concert Hall and the Museum of Contemporary Art, called Los Angeles -- along with New York, London and Paris -- one of the world’s “great cultural cities.”
Tim Leiweke, president and chief executive officer of AEG, labeled his company’s L.A. Live project near Staples Center “the next great American icon.”
But there was also a sense that Los Angeles is holding its breath, hoping that a number of factors, most important the rising costs of land and construction, won’t stall the progress made so far.
Gregory Vilkin, the president of Forest City West, which is working on a number of projects downtown, walked the guests through the housing numbers: 18,364 residential units so far in the city’s central core, with 22,361 more in development, under construction, or in the pipeline. Many of the projects under construction already have contracted buyers, he said. But only 138 residential units closed escrow last year -- making much of the speculation based in part at least, on sparse numbers.
“We know there’s a market, but it hasn’t fully matured yet,” he said.
Rising costs across the country, he said, have made building new projects more difficult, because they provide a slimmer profit margin than usual for developers. The answer could be raising rates on the condos, which sell for about $600 a square foot. “Our only challenge,” Vilkin said, “is, do we price ourselves to where people can’t afford it.”
Some people at the breakfast said that they are waiting to see whether the “24/7,” pedestrian-friendly streets that Broad promised will materialize.
They are most excited about two downtown projects. One is the $2.8-billion L.A. Live, a tourist-oriented “sports entertainment” hub featuring a 55-story convention center and hotel, 7,100-seat theater, broadcast facilities and nearly a dozen restaurants and clubs near Staples Center. The other is the $1.8-billion Grand Avenue development, which include towers being designed by architect Frank Gehry.
Meanwhile, Los Angeles city and county officials have been grappling recently with how to deal with the area’s significant homeless problem -- a factor that was cited by several potential New York investors as a possible barrier to the region’s ultimate success.
The city has set aside $50 million to build housing for homeless and low-income residents, and the county recently allocated $100 million to establish five centers across the county for temporary shelter and social services for transients.
But it’s unclear whether those efforts will have a lasting effect.
“The key issue is, would you be willing to walk through [the area] at night?” asked Daniel H. Lisser, a managing director at Johnson Capital, who also attended the breakfast.
Still, some skeptics left the meeting impressed. Hardadt said he felt the pitch “definitely stirred up interest with me and my colleague who was there.”
