April 29, 2008

Downtown Must Sell As-Is: “Revitalization” Stalled

There are literally thousands of lofts downtown, but the heart of the much-hyped revitalization has long been the Grand Avenue project—a Gehry-designed mammoth venture near Disney Concert Hall. But today the LAT’s reports that the development has hit a snag and won’t even break ground for a few years at best.

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…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.

The Times goes on to say that this is a sign of the “cooling off” of the downtown market, an opinion that some of the readers of the L.A. Land blog seem to agree with.

And it’s true that prices are falling dramatically downtown. Virtually every day I get updated listings of price cuts, like these three:

• A 750 square-foot place in the Little Tokyo Lofts that has dropped from $420,000 to $409,990 (but still above its 2006 selling price of $365,000)
• A 2/2 short-sale with 1,193 square feet in an older building (not a fancy revamped loft, this one) for $589,000, down from $699,000 in January. The sellers paid $675,000 in April 2007.
• A 670-square foot 1/1 that has been on the market for 212 days and slid from $514,900 to its current $369,900. Ouch.

The problem is, of course, that it’s silly to buy downtown right now with the constant continuing declines. While there are parts of LA where I think it is safe to buy today and expect future gains, downtown isn’t one of them—yet. But I do disagree with the idea that downtown is dying, and Grand Avenue will never happen. The developer is simply saying that construction loans are hard to come by right now. That’s truth—not a cop out. I think by next year, healthy developers, large and small, will be able to get the loans they need to move forward. The lending market may be tight and in disarray, but it’s not as if it hasn’t weathered tough times before.