Even as the overall economy was headed down last year, businesses in Koreatown were bracing for something different. They expected their boom to get even bigger.

After all, the U.S. government last year waived visa requirements for South Korean tourists, which was supposed to boost the number of visitors from 200,000 a year to 300,000.

And before that, the South Korean government had loosened restrictions on foreign investment, and that started a stream of money flowing from Seoul to Los Angeles.

But the boom has been a dud. The stronger dollar and persisting fears of the swine flu are throttling tourism. In fact, the number of visitors is down, not up. And the economic downturn, worse than expected, has pinched the flow of South Korean money to Los Angeles.

Koreatown is the largest Korean community outside of Korea and any visitor there can see the effect. Restaurants that serve Korean barbecue are advertising half-off lunch specials and all-you-can eat buffets, while businesses that cater to tourists are reporting falling revenue.

But the most dramatic sign of a slowdown in the 7-square-mile area west of downtown is an epidemic of shuttered storefronts.

“It’s a fact that many stores have not been able to wade through the recession and have closed their doors,” said Myoung Won-Sik, chairman of the Korean American Chamber of Commerce of Los Angeles. “Losses are mounting and many are simply closing their doors for business because there are no buyers for their stores.”

One broker said vacancy rates for Koreatown commercial real estate increased by as much as 12 percent from the same time last year, and asking rents have dropped by 10 percent to as much as 25 percent.

“You can pick any center and you will see that the businesses that were marginal have now been replaced with for-lease signs,” said Mark Hong, who has specialized in the area for 20 years as a broker for CB Richard Ellis. “And it’s not just coffee shops. It’s a broad range of business from restaurants to service-oriented business such as travel agencies and hair salons.”

Braced for boom

Koreatown appeared to be going through a renaissance of sorts just two years ago, when more than $1 billion was being spent to redevelop the area, including the $165 million Solair Wilshire mixed-use development that includes 186 condos and 40,000 square feet of retail space.

South Koreans began pouring money into Koreatown when their government lifted an overseas real estate investment cap in 2006. Before then, South Koreans could invest only up to $300,000 each on foreign residential property. Now, they can spend up to $1 million which was expected to result in $4 billion worldwide spent in 2007 alone on overseas condos and homes.

Meanwhile, an increasingly affluent immigrant population began establishing itself in Koreatown, which had been suffering from the after-effects of the 1992 riots.

When Koreatown’s redevelopment kicked into high gear at the beginning of this decade, there was pent-up demand for more residences, and retail complexes filled with movie theaters, clothing and grocery stores, and restaurants.

But the recession has slowed that demand greatly as consumer spending has declined. For some business owners, that means cutting prices to attract customers.

Many Koreatown restaurants are advertising lunch specials with discounts of 50 percent to 60 percent off menu prices. Korean barbecue restaurants are offering all-you-can-eat buffets. Many initially were priced at about $17 per person, but are now as low as $10.

“Most Korean restaurants have cut prices down since the beginning of this year,” said Kevin Kwon, owner of Gui-Mok Korean BBQ on Western Avenue. “And we could not help following this fad. Sales declined about 25 percent compared to last year.”

Travel drop

While the recession has hit everyone, including other ethnic enclaves in Los Angeles, the difference is that many Koreatown business owners expected a dramatic increase in the number of South Koreans visiting the area.

That’s because the federal government in November added South Korea to its list of places whose nationals are allowed to visit the United States without a visa.

At the time, analysts estimated the change would bring an additional 100,000 visitors a year to the L.A. area.

However, because of the downturn, persistent fears of swine flu and even North Korea’s increased aggressive stance people are afraid that another war might break out have put a damper on the number of South Koreans traveling to Los Angeles.

Instead of the expected 50 percent increase in tourists from South Korea, there was a 17 percent decrease, at least in the first five months of the year, according to the federal government’s Office of Travel and Tourism Industries.

That same office provided statistics that imply L.A.’s share of South Korean tourists would have totaled more than 50,000 through May. That means the pace is well below the 300,000 expected for the full year.

Korean Air reported similar numbers. In March, April and May, the number of passengers on the Seoul-Los Angeles route of the airline dropped 13 percent from the previous year. However, the numbers have rebounded since and were up a half-percent in June compared with the same month in 2008.

A smaller airline, Asiana, reported numbers even lower.

Airline representatives said South Korean business people are taking fewer trips to Los Angeles, while tourists are deterred by the stronger dollar.

“We’re usually fully booked during the summer vacation season from June to August, but there are still a lot of unreserved seats that are available,” said Myoung Ig Song, general manager of passenger marketing at Korean Air. “The exchange rate had a lot to do with it, but it was really the fall in business trips from the economic slowdown.”

In the summer months, many South Korean high school and college students traditionally travel to the L.A. area for English-language courses. In previous years, plane tickets for July and August had to be reserved months in advance to ensure a seat. But that has changed.

“Parents in the high-income brackets didn’t make their kids give up studying abroad this year, but middle-income parents did cancel plans, or moved to cheaper places like Canada,” said Byoung Min Jeong, a private banker at the Seoul headquarters of Wooribank.

The decline in travelers means that businesses catering to South Korean tourists are taking a hit.

“Travel agencies expected business to pick up about 10 percent after the visa program kicked in,” said David Hwang, owner of Korea Tour, a travel agency in Koreatown. “But the new flu, on top of the financial crisis and the sharp fall in the won, has actually shaved more than 10 percent off business.”

Meanwhile, Koreatown hotel operators are seeing a decline in reservations.

“Reservations started to go down noticeably from last winter,” said one hospitality industry professional. “There have been a lot of group cancellations with the new strain of the flu.”

Although Americans have stopped worrying about swine flu, it’s still an issue for South Korean travelers due to extensive media reports.

“Some Koreans think twice before even getting within an earshot of someone who recently returned from the states,” Hwang said. “I don’t see things improving anytime before worries about the flu dissipate.”

Grace Lee, manager at Korea Tour, said her real concern is that there is no way to know when that would be.

“It is the bigger problem,” she said.