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Sunday, Feb 25, 2024

Another Delay For Grand Ave.?

The developer of the long-delayed Grand Avenue project in downtown Los Angeles is asking for another construction delay as part of a proposal to let billionaire Eli Broad erect an art museum on one of the project’s parcels.

Grand Avenue would be among the largest projects ever built downtown at $3 billion – more than the $2.5 billion L.A. Live complex. Grand Avenue would include a hotel, lots of retail space and living units, but its start has been delayed several times already, frustrating officials.

The developer, Related Cos. of New York, is seeking to extend its deadline to start construction until February 2013, said Bill Witte, president of the company’s California division.

If the current February 2011 deadline passes without an extension, the joint city-county authority overseeing the project could terminate its agreement with the developer, killing Related’s deal.

Representatives of Related and the Broad Art Foundation have been working on a deal that would let the billionaire philanthropist build a museum housing his large art collection on a city-owned parcel south of the Walt Disney Concert Hall. Broad would lease the property, now being used as a parking lot, from the city for $1 a year. The museum would take about 85,000 square feet that Related had earmarked as retail space as part of its plan.

Karen Denne, a spokeswoman for the foundation, said the Grand Avenue site is one of two sites being looked at by Broad. A site in Santa Monica is also in the running.

Witte maintained that Related’s extension request wasn’t part of a direct quid pro quo, but acknowledged that the discussions surrounding the museum were “kind of a trigger event to revisit the question of an extension.”

“All of this is being considered as part of the consideration of the museum,” he said. “One is connected to the other.”

No formal proposal has come before the city-county body, called the Grand Avenue Authority. It ultimately would have to sign off on any construction extension and the museum proposal, said Los Angeles Councilwoman Jan Perry, a member of the joint powers authority. The Grand Avenue project is in her council district.

Perry said a museum would be good for the project and for the city, but declined to say if she would vote to approve another extension for Related.

“I wouldn’t take a position at this point. I’d have to see where we are in terms of economic recovery and how likely it will be that this project will come to fruition,” she said.

Lengthy delays

The proposed museum would be built on land reserved for the second phase of the project, which originally was to consist of two residential towers and 110,000 square feet of retail space. The museum would still leave space on that parcel for the towers and the 25,000 square feet that would remain for retail.

Construction on the second phase was scheduled to start no later than six years after the project’s $1 billion first phase, which Related at one time hoped to start as early as 2007. Phase One would be across the street east of the Disney Hall and the Phase Two development. Phase One is to include a Mandarin Oriental Hotel, 390 luxury condos, 98 apartments and 250,000 square feet of retail space. It would take an estimated 45 months to build.

However, the entire project – like several other urban renewal megaprojects planned in cities across the country at the height of the real estate boom – has been stalled due to the real estate crash and lack of financing.

Since Grand Avenue was first approved by city and county officials in February 2007, the downtown condo market has collapsed and major downtown developers, including Meruelo Maddux Properties, have declared bankruptcy.

Related has secured about $300 million in equity financing so far, Witte said. Istithmar World, the investment vehicle of Dubai’s royal family, invested $100 million in early 2008. Six months later, three South Korean insurance companies injected $100 million.

However, even if the financing was complete, Witte said that Related would not immediately start construction.

“More than the financing, the real estate market in general is depressed,” Witte said. “The numbers wouldn’t work today. That’s true of any market-oriented project, not just one on the scale of Grand Avenue.”

However, one element of the project is moving forward: an $82 million civic park extending from the Los Angeles County Music Center to City Hall. It is still on track to start in July, Witte said. Related and the state government are paying for that.

Still, as a result of the delays on the building construction, Related began accruing $250,000 a month penalties in February 2009, which it can defer paying until construction begins.

Los Angeles County Supervisor Michael Antonovich, a longtime critic of the Grand Avenue project, opposes granting the company another extension and doesn’t see why the extension has to be related to the museum at all, said Paul Novak, his planning deputy.

“They’re saying that if we give up the land for this museum, then in exchange we want an extension,” Novak said. “We’ve given them four extensions, and now they’re asking for a fifth. This was a bad deal for the taxpayers three and a half years ago when this was approved, and we shouldn’t be making any further actions to make it even a worse deal.”

Nelson Rising, chairman of the Grand Avenue Committee, a citizen’s advisory group, said that Broad’s museum, if approved, would help make the Grand Avenue project more attractive to investors, retailers and residents.

“The Broad foundation would be committing about $200 million in order to fund that and build it. That’s an enormous addition,” Rising said. “I think it would increase the marketability of all the product types on Grand Avenue.”

Broad was chairman of the committee from 2003 until 2007 and stepped down as a member last year.

Market recovery

One big question yet to be resolved is when the downtown market could handle additional condo construction. Several thousand units were built downtown during the boom, and it’s unclear how many are still available.

Mark Silverman, an associate at downtown brokerage Major Properties, said it would be at least three years, if not longer, before the real estate market would be ready to absorb the Grand Avenue development.

“I think it’s going to be further out,” Silverman said. “It’s difficult to put a fine time line on it. There are multiple factors we have to deal with, including the high unemployment rate.”

But Rhonda Slavik, sales and marketing director for South Group, developer of the luxury Evo condo tower in downtown, is more optimistic. That tower has sold all but 68 of its 311 units since hitting the market in September 2008.

“Prices have rebounded in downtown L.A., in large part because of the lack of inventory. I think in the end of 2011 and in 2012 we’re going to see a renewed demand for housing in downtown Los Angeles,” she said. “A year and a half or two years from now will be the second wave, and I think the market will absolutely be ready for those homes then.”

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