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Don't let those new restaurants popping up fool you - downtown's recent growth surge has hit a wall. As I point out in the February issue of Los Angeles magazine, the 54-story high-rise that will house two convention center hotels - part of the L.A. Live complex - could be the last high-profile project we see for a while. Other areas of L.A. are being hit, of course, but downtown is particularly susceptible because so many projects had been planned.
“The business just looked too easy,” says Dan Rosenfeld, a principal with development firm Urban Partners LLC and a longtime champion of the area. “The perception was that housing prices could only move in one direction—up—and that all you had to do was get a building permit, put a project on autopilot, and it would make money.” The amateurs who jumped into the business, Rosenfeld says, “are going to find out that real estate is a two-way street, and it’s going the other way now.”
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Before the Los Angeles City Council passed the adaptive reuse ordinance in 1999, which streamlined the process of converting unused office buildings into lofts, downtown had 11,626 housing units. Today the number is 25,221, with another 22,180 slated to go up. But of that 22,180, only a fraction—4,362—are actually under construction. The rest are in development limbo, either stuck in the city’s lengthy entitlement process or lacking the money to get under way. “We knew when the boom was ongoing that some of the projects would not go forward,” says Carol Schatz, president and chief executive of the Central City Association and one of downtown’s chief advocates. “I think that’s reality. Stuff goes forward, stuff doesn’t.”
It's not only would-be projects that aren't going forward - it's also completed units that were supposed to be condos and now have to be converted to rentals. Making such a switch becomes a real problem for developers because they often can't generate enough cash to pare down the debt. All of which means we'll be seeing a bunch of defaults and probably foreclosures on downtown properties.
Downtown’s problem is that the dots are not connecting. Urban makeovers take time and are fueled by incrementalism, not girth. Tim Leiweke can’t wave a wand and make it happen. Nor can Eli Broad, or the thousands of recent arrivals in search of city living not available anywhere else in L.A. Another thing about makeovers: They require strong economies, and we’re years away from seeing one of those again. At the risk of offending the folks who want so badly to see a downtown renaissance, I can’t help stating the obvious: Lower those expectations.
Mark Lacter created the LA Biz Observed blog in 2006. He posted
until the day before his death on Nov. 13, 2013.