Downtown L.A.’s $2.7 billion Grand Avenue urban renewal project won’t be affected by the financial troubles of its main backer in Dubai. That’s because the project is going nowhere fast. The real question is: Will it ever happen at all?
The problem is not just the funding – it’s also the precipitous decline in the downtown condo market.
“The project should be abandoned,” said Paul Novak, land planning deputy for Los Angeles County Supervisor Mike Antonovich, the project’s most outspoken critic. “We need to rethink what goes on that land and how the county and city can maximize their returns. But it’s not this deal. We should probably start from scratch and issue a new request for proposals.”
Last week, Dubai World announced it would suspend scheduled debt payments while it restructures half of its $59 billion debt. In 2008, Istithmar World, a subsidiary of Dubai World, invested $100 million in Grand Avenue, a mixed-use project planned near Walt Disney Concert Hall. Istithmar isn’t affected, as it’s reported to be on stable financial footing.
Bill Witte, president of the California division of Related Cos., the Grand Avenue developer, said there was no fixed date to start construction on the project’s first phase, which includes 390 luxury condos, 98 rental apartments and 250,000 square feet of retail space.
“We are in the middle of a deep real estate recession, so we are not about to start,” Witte told the Business Journal. “You couldn’t build a 40-unit condo project in this market. So why would anyone think we would be ready to start now?”
But Witte said Grand Avenue will be built. The land is paid for, all plans have been completed, permits are in hand and Related will begin construction of a park in the summer.
But Novak estimates that phase one will require close to $1 billion. Meanwhile, the developer has only about half that amount secured.
“Where you’re going to find half-a-billion dollars in this market is beyond me,” he said.
Since phase one of the project was approved by the Grand Avenue Authority in February 2008, the downtown condo market has continued to retract. Major downtown developers, including Meruelo Maddox Properties and Namco Capital, have declared bankruptcy. And in early 2010, the Ritz-Carlton Residences near the Staples Center, built by Anschutz Entertainment Group, will flood the market with 224 luxury units.
Brad Luster, president of downtown brokerage Major Properties, estimated that it would take seven years for the downtown market to absorb the condos in the Grand Avenue project.
“The present economics aren’t supporting new projects,” he said. “Right now there are four projects near LA Live that are in foreclosure or bankruptcy, and there’s a still a long way to go down.”
However, Gerry Hertzberg, policy director for County Supervisor Gloria Molina, chairwoman of the Grand Avenue Authority, said there is no intent to abandon or change the project’s plans.
