Quote:
Originally Posted by UrbanJungle
What I find so funny about this whole discussion is the attitude of willing skyscrapers into being. The error of Pesto's logic is that projects (especially high-rise) are not attracting funding is because they do not make economic sense. When it costs more to construct and finance a building than it is either worth or for what it can be sold, you lose money. In our "free market" system (such as that term is loosely in effect these days), people don't build buildings for the sake of creating a pretty skyline. They do it to MAKE MONEY. (or ego, which takes money, but that's another story.)
Just as AEG wants to build a stadium, its not just 'cuz they love football and are sorry LA doesn't have a team. They want to MAKE MONEY. AEG built a 52 story hotel and condo tower. Not necessarily to make tons of money, but as the major "community benefit" exacted by the City of LA in order to get their LA Live complex approved. So today the hotels are kicking ass, but they've sold only 32 out of 221 or so multi-million-dollar condos. That's a huge drag on the project, and they're losing tons of money. So we've got a great 52 story building which looks awesome on our skyline, but that's a financial mess. Only reason it hasn't gone back to the banks is AEG's sponsorship and financing the shortfalls.
What about LA's other new highrises?
- Concerto - went back to the bank and the developer lost $60+ million of his own equity, not to mention what Uncle Sam via the FDIC incurs as a loss from the loan principal. To be reborn as the 'Apex" is will emerge as either a rental or stay condo.
- Watermarke - while successful as a rental today, the project was sold out of bankruptcy for less than the cost to build - with both the developer (Meruelo-Maddux) losing its equity and the construction lender (Canyon Funds) losing some of their loan principal (and this despite the building selling for $550,000 a UNIT!!!)
- 717 Olympic - while 95% leased today, this project was originally supposed to rent for over $4 a foot. They've been doing deals around $2.65 a foot factoring in concessions on average, but the developer lost their equity when they sold their interest. Not considered a financial success.
- Evo - still trying to sell the last of its units, almost three years after opening the weekend Lehman Bros collapsed and we had a near financial melt-down. Developer lost equity and mezz lender has been running the show, trying to minimize the loss of their principal. Construction lender (Corus) did get paid off in full - so that's something.
- Elleven / Luma - both built and sold during the finance bubble, so the developers made off with a bundle (far more than their losses on Evo).
Did I miss any DTLA high-rises in my rundown?
So let's see - out of seven (7) high-rises built during the bubble, only TWO (2) made money (and even then, all of their current condo owners are underwater, so it's a net loss all around). Not a very compelling story on DTLA's "great" skyline. And folks wonder why high-rises in LA are not "attracting funding"?!? There's your track record, folks.
As for Pesto's comment about not approving projects "not good for the long term," all I can say is, "have you looked at an aerial photo of downtown lately?" We have blocks and blocks of surface parking lots and underutilized land in great locations. There is no shortage of development opportunity. I say we need to support projects that bring new jobs, provide more housing, provide retail services, and link the pockets of development throughout downtown into one cohesive whole. And that's saying a lot, and that requires a lot of new development. I think we should be focusing on that, and not whining about some project that will be 12 or 16 stories vs. 40.
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The "error" here seems to be in your reading of my comments: I clearly state that the demand for development DT these days does not include highrises. That's obvious to most. But there are a few areas of DT that are specifically designated for "highrise", "super-graphics" and "entertainment" uses, and this is the largest parcel in one of them. The city should think hard before letting it disappear into a "Costa Mesa appropriate" big box shopping mall.
"Linking" what? The 110 and Francisco? This parcel is effectively cut-off from anything. Sort of tucked away and inaccesible might be more accurate. Even under the best scenario, this is all a bit too reminiscent of Macy's DT to get me excited as a "wonder project". In fact, Macy's really is in position to link areas; but it fails at this. At best it will be OK, and I think even that is not a sure bet. I wouldn't approve without at least 10 more stories or a strong story about who is occupying and what commitments they have. Maybe if they agree to 10 stories of afforable housing.
And I agree completely that AEG and other developers are looking for their own profits and do not care about the city generally, so thanks for reminding us. It is very clearly the city's role to look at projects with the long-term interest of the city in mind rather than the short-term benefit of any single group.
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