New downtown has shaky pillars

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Times Staff Writer

The downtown Los Angeles skyline is still dotted with construction cranes, but not as many as developers once promised.

More than a third of the approximately 110 residential projects proposed for downtown -- including the 50-story Zen tower on 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.

Yet downtown boosters and urban planners are focusing most of their angst on two mega-projects: the Frank Gehry-designed Grand Avenue complex on Bunker Hill and Park Fifth, which would be the tallest residential complex west of Chicago.


Both projects have pushed back their start dates in recent months as developers sought capital and construction loans in an increasingly difficult market and negotiated the various government approvals needed to begin construction.

Grand Avenue officials announced Friday that one of the project’s original investors -- the California Public Employees’ Retirement System -- was pulling out and that Istithmar, a fund controlled by the royal family of Dubai, was investing about $75 million in the $3-billion development on Bunker Hill.

The foreign investment, officials said, is designed to help jump-start the project by providing the capital needed for Grand Avenue to obtain a massive construction loan. Such loans have been harder to get amid the current real estate slump.

The fate of both projects is increasingly being seen as a tipping point for the future of downtown.

Though the area has seen an influx of loft dwellers over the last decade -- the population has doubled to 34,000 -- many urban planners see it as a work still very much in progress.

Even the most ardent of downtown supporters agree that the area has not yet reached a critical mass -- in part because most of downtown’s rejuvenation is occurring in pockets rather than across the entire zone.


New downtown dwellers still complain about a lack of shopping and that for every newly vibrant street, there are others that still seem dead. The high-end retailers that downtown boosters would love to have in the city center have kicked the tires but still not agreed to put stores there.

Grand Avenue and Park Fifth are seen as crucial because they would bring a new kind of retail -- upscale hotels, gourmet markets, fancy gyms and boutiques that are usually found in high-end malls -- to downtown.

The flagship projects also are going after a segment of the buying market that so far has resisted moving downtown in big numbers: wealthy condo buyers who would be attracted to the architectural significance of their buildings as well as the high-end amenities they offer. Such people would include empty nesters moving in from high-end suburbs as well as people seeking second homes.

“Imagine you are a hedge fund manager,” said Erika Nelson, vice president of marketing for Park Fifth. “Instead of building something in Pasadena or in the hills, you can have something to your tastes.”

Experts say the two developments also would be “destinations” that could draw people into the city center.

“They add to the imagery of downtown,” said Anastasia Loukaitou-Sideris, chairwoman of the Urban Planning Department at UCLA. “They put downtown on the map for the larger area.”


Officials at Park Fifth and Grand Avenue insist that the delays will be brief and that the developers are on track.

The $2-billion Grand Avenue plan calls for building shops, condo towers and a boutique hotel -- as well as a civic park -- on city and county land near the Walt Disney Concert Hall downtown.

The project, now being called “the Grand” by its developer, was originally set to begin construction last fall but was delayed -- and then delayed again. Groundbreaking now is projected for this summer.

Bill Witte, chief executive of Related California, the developer, said the delays in starting construction were more a result of the time it took to develop designs with Gehry and get approvals from government agencies for the development than of the credit crunch.

In addition, Witte said, a lawsuit by Peter Zen, owner of the Bonaventure hotel, sidelined the project’s start date by some months. Zen’s lawsuit, which was eventually settled, argued that Grand Avenue would violate a previous downtown redevelopment plan by adding too many housing units in the area. Neither party can discuss the terms of the deal.

Related turned to the Dubai fund after CalPERS’ financial advisor -- the investment firm MacFarlane Partners -- decided it had already spent enough on downtown projects, including another mega-project, L.A. Live.


Istithmar acquired Barneys New York last year and holds a significant financial stake in Time Warner. It also owns 73% of the Mandarin Oriental New York, the hotel at the Related-built Time Warner Center at Columbus Circle. (The Grand Avenue project also is expected to have a Mandarin Oriental hotel.)

The change in capital partners will have to be approved over the next month by the city’s Community Redevelopment Agency, Los Angeles County and the joint city-county board that oversees the project.

The joint board is set to vote on the project’s design development documents at a public meeting today.

The nature of the public-private partnership penalizes Related if it doesn’t make the 2011 deadline for opening the project. So far, city and county officials -- in part because of the Zen lawsuit -- have allowed Related to extend the deadlines that the project’s schedule of performance requires.

Concerns about the health of Grand Avenue were heightened last month when Gehry, speaking at the Music Center, was quoted in a downtown blog as saying he was skeptical of the project’s timeline and expected money to be a significant hurdle to its completion. Related officials insist that quote was inaccurate; Gehry did not respond to requests for an interview.

Park Fifth would rise across from Pershing Square with two towers -- including a 76-story building -- containing a five-star hotel as well as upscale shops and eateries. Its developers also encountered road bumps getting through the public environmental impact report and entitlement processes, and also have had to add a new investor to cover the additional capital required in the current financial market to get the project off the ground.


Despite the difficulties, Nelson said, they expect to open the first of the two high-rise towers in late 2010. And she said sales for the project were moving forward, with reservations on 300 of the approximately 750 units.

Nelson says she thinks the development can succeed where others have failed because it is distinctive. “We are super-high end. And we’re the tallest residential building west of Chicago -- which people have latched onto,” she said.

But some real estate experts are skeptical, saying the downturn in the economy -- and the falling real estate market -- is making investors skittish about huge new developments.

“The bottom line is, the real estate world is frozen right now,” said Homer Williams, a Portland developer who is involved in a number of projects in downtown L.A.’s South Park district. “Unless you have to move -- either you’ve been transferred, get married, divorced, something that compels you to do something -- you aren’t going to do anything.”

Moreover, Grand Avenue and Park Fifth face competition in the high-end tower market. Several large condo towers are slated for Century City and Beverly Hills, including a 45-story, wisp-thin tower designed by French architect Jean Nouvel.

Condos in that development are expected to start at $3 million. Architect Richard Meier is working on another ultra-high end condo tower complex on the site of a former Robinsons-May department store in Beverly Hills.


The question is whether downtown can persuade those buyers to take a chance on the fledgling neighborhood.

The area might get an answer in coming months with L.A. Live. It’s moving forward without the delays that Grand Avenue and Park Fifth have encountered. L.A. Live, which opened its first phase -- the Nokia Theater -- last fall, will eventually include a hotel-and-condo tower, the West Coast headquarters for ESPN, restaurants and a multiplex.

The condominiums, being marketed as the Ritz Carlton Residences at L.A. Live, are selling for at least a million dollars each -- and as much as $1,000 a square foot.

L.A. Live has been boosted by the activity and growing street life around Staples Center. Grand Avenue hopes the nearby cultural attractions of the Music Center and the Museum of Contemporary Art can similarly enhance that project.

“We remain very bullish about this,” said Witte, the project’s developer. “Especially when times are tough, it’s very important you have a story to tell.”