Grand Avenue snags on loans
The developer of the Grand Avenue project in downtown Los Angeles said Monday that completion of the $3-billion redevelopment effort will be delayed until 2012 because of difficulty in obtaining construction loans amid the real estate downturn.
The Frank Gehry-designed high-rise project is seen as a linchpin in downtown’s revitalization, and the delay is the latest sign that the loft and condo craze in the city center is cooling off.
Grand Avenue was originally supposed to begin construction last fall, but that date has been pushed back several times.
The project’s first phase -- which includes a shopping center, a hotel and two residential towers -- was once slated to be completed in 2009, but officials at Related Co. now say 2012 is a more likely target.
Bill Witte, head of Related California, said he now believes that construction will begin in the first quarter of 2009 and emphasized that the project is not in any jeopardy. A fund controlled by Dubai’s royal family has invested $100 million, and Related is close to naming another major equity partner (an earlier partner, the California Public Employees’ Retirement System, pulled out, saying it was over-invested in the downtown real estate market).
But even with the equity, Related has yet to secure a construction loan.
“Nothing else has changed,” Witte said, adding that finalizing a construction loan is “not likely in this climate until the beginning of next year.”
Grand Avenue is one of several mega-developments around the nation that are in trouble because of the credit crunch. In Seattle, developers recently shelved plans for a $7-billion development downtown, citing the poor economy. Huge projects in Las Vegas, Phoenix and New York have also been scaled back or delayed, including part of the Gehry-designed Atlantic Yards in Brooklyn and a $14-billion development of the area around Penn Station.
“All major projects -- no matter where you are in the U.S. -- have this same problem,” said Jack Kyser, senior vice president and chief economist for the Los Angeles County Economic Development Corp. “People are very cautious about lending money, no matter how good the business plan may look.”
The delay has caught the attention of city leaders, some of whom say they are watching Grand Avenue’s fate closely.
“There’s a lot riding on it for downtown,” said Councilwoman Jan Perry, who represents the area.
“It’s a concern. I know they are looking for more equity. That doesn’t surprise me. It’s something that a lot of developers are experiencing. It’s not the only project. But it’s a massive one.”
Until recently, downtown L.A. was in the midst of a thriving housing market, with old office buildings and warehouses being converted into luxury lofts and the skyline being transformed with sleek residential high-rises.
But though such development is still occurring, the pace has clearly slowed. More than a third of the approximately 110 residential projects proposed for downtown -- including the 50-story Zen tower at 3rd and Hill streets, the Mill Street Lofts in the industrial district, the multitower Metropolis off the 110 Freeway and the conversion of the former Herald-Examiner building -- have been delayed or put on hold amid the rocky real estate market. Park Fifth, which would rise above Pershing Square and be the tallest residential complex west of Chicago, has seen delays as well. But developers say it’s moving forward.
Officials have especially focused on the Grand Avenue project, in part because it is backed by philanthropist Eli Broad and a blue-ribbon committee of community leaders. They see the development as bringing high-end retailers and an upscale night life to downtown, using Grand Avenue’s cluster of cultural attractions -- the Walt Disney Concert Hall, the Museum of Contemporary Art and the Music Center -- as a focal point.
The pushing back of Grand Avenue’s start date, Kyser said, “is a bit of a disappointment. We have to keep our fingers crossed.”
It’s not just the declining economy that has caused delays. Another factor is slower-than-expected approval of design plans.
Armed with a $100-million infusion of equity from a fund controlled by Dubai’s royal family as well as a refined design plan, officials said that they expected demolition of a parking lot on the site to begin this month.
Instead, Related officials plan to go before the joint city-county board overseeing the project and seek approval for the delay.
Related’s agreement with the city and county requires it to seek approval from the board for any delays, and Witte said he expected to present the delay at the officials’ June meeting.
The postponement, Witte said, will allow Related to finalize thousands of pages of construction documents before work begins. Because nearly 70% of building costs for the project will be for concrete and steel, completion of those documents may allow the developer to avoid overruns later.
In addition, he said, Related is “very far down the road” in talks with another capital firm that might join the project as an equity partner. He declined to name the firm but said that its investment would be on a par with that of Istithmar, the Dubai fund.
Witte said that the schedule for the civic park included in the Grand Avenue plan -- and whose preliminary designs were unveiled last week -- will move forward independently. Officials are considering two plans. One is a base plan for which $56 million has been set aside; the other is an enhanced version showing what would be possible with additional funding. Under the current schedule, Witte said, the park would be completed in mid-2011.
Despite the Grand Avenue delays, another large-scale downtown development, L.A. Live, is continuing apace. The $2.5-billion project will eventually include a 123-room Ritz-Carlton hotel, luxury condos, a dozen restaurants and clubs, a Grammy museum and an 878-room Marriott hotel. The Nokia Theatre is already open, and it recently announced that a number of high-profile events had moved from other parts of city to the venue.
Kyser said L.A. Live’s initial success shows that downtown can attract one kind of audience.
Grand Avenue’s survival might hinge on whether it can attract another.
“You have two poles now in downtown,” he said. “The pole around the Convention Center, Staples and L.A. Live, which will bring a lot of people into the downtown area. Then the other pole, up around the Music Center campus, in what I call our cultural mile. . . . Each will have different types of retail.”