Dubai Royal Family Is New Grand Avenue Plan Investor for
Downtown Los Angeles Project
CalPERS, MacFarlane Partners Replaced in $3 Billion Project
by Anna Scott
Staff Writer
The Related Cos., the developer of the $3 billion Grand Avenue plan, has changed its financial partners, a top company official told Los Angeles Downtown News. While one major investor and its high-profile manager are no longer participating, the royal family of Dubai is on board.
Although a groundbreaking ceremony was recently delayed, Related of California President Bill Witte said the project is still on line to open its first phase in 2011.
Related will seek approvals from city, county and redevelopment officials over the next six weeks for the new investor in its proposed Bunker Hill mega-development. The company secured the new partnership with Istithmar, a sovereign fund controlled by the royal family of Dubai, after its key equity partner, California Public Employees’ Retirement System, pulled out.
CalPERS had invested in the Grand Avenue plan through its San Francisco-based advisor, management investment firm MacFarlane Partners. Last June, MacFarlane joined the Convention Center hotel project being developed by Anschutz Entertainment Group as part of the L.A. Live project.
“We have been working to replace them, even though there was no formal decision made, since early to mid-last year,” Witte said of CalPERS. “We reached agreement with our new equity partner in December.”
After taking several months to finalize the numbers, the new agreement is “completely signed and committed,” he said.
Related expects to receive approvals on its newly cemented partnership from the Community Redevelopment Agency board, the County Board of Supervisors and Grand Avenue Authority by the end of March. As part of the original agreement, Related was required to get new approvals if the major investment partner changed before the end of construction.
Once Istithmar is approved, Related can move forward with demolishing a multi-level parking lot on the project site, across from Walt Disney Concert Hall. That was previously expected to happen this month.
On Monday, Feb. 25, the Grand Avenue Authority is expected to approve design-development drawings from architect Frank Gehry, a key step in shoring up a construction loan.
“Once they approve it, we’re starting work on the final construction documents,” said Witte, “from which the numbers that go into the construction loan will be derived.”
Related is tentatively scheduled to go before the CRA board on March 6, the L.A. County Board of Supervisors on March 11 and the Grand Avenue Authority on March 17 for approval of Istithmar.
Plowing Through
The 3.6 million-square-foot project, officially known as The Grand, is expected to eventually bring 2,600 housing units, 449,000 square feet of retail, a hotel, a grocery store and a health club to Downtown.
The approximately $1 billion, 1.3 million-square-foot first phase of the project, slated for completion in 2011, will include a 48-story Mandarin Oriental Hotel & Residences with 295 rooms and 266 for-sale units, a 19-story residential tower with 126 market-rate apartments and 98 affordable units, a 250,000-square-foot retail pavilion and a 16-acre civic park.
In December, Related began lead paint abatement on the soon-to-be demolished parking garage at Grand Avenue and First Street, where the towers will rise. Construction on the $50 million park is expected to begin in the fall, with an opening slated for 2010. The hotel and retail pavilion are scheduled to debut in early 2011, and the residential towers are expected to open that summer.
Related last month delayed the project’s groundbreaking ceremony for the third time, pushing it from March to an unspecified date this summer. Witte has maintained that the construction schedule remains unaffected.
He said last week that the groundbreaking delays were not connected to the shuffling of investment partners. He stressed that despite missing an initial start date last October, as well as delayed plans from Gehry and legal challenges from the operator of the Westin Bonaventure Hotel (since settled), site work began late last year as planned.
“We knew we couldn’t get financing with the lawsuit outstanding,” said Witte. “But we didn’t slow down at all.… Had we not been able to make a deal on our equity late last year, it would’ve caused a delay, but we did.”
The Road Ahead
Other recent Istithmar investments include the acquisition of the upscale Barneys New York retail chain last year and an interest in two New York hotels developed by Related.
“They’re a huge fund that has invested in real estate all over the U.S.,” said Witte. He added, “They’re just investors. They don’t have any control” over the direction of The Grand.
Related’s previous partner, CalPERS, had invested entirely through MacFarlane Partners, which has had a hand in several Downtown projects including complexes Hikari and Block 8 in Little Tokyo (both from Related), and Forest City’s Met Lofts in South Park. The firm made a splash last summer when it joined AEG in the $900 million Convention Center hotel.
“With the focus during the last quarter of 2007 on the L.A. Live investment, the firm determined for the moment another major investment in Downtown Los Angeles such as Grand Avenue would not be prudent,” said company chairman and CEO Victor MacFarlane in an email last week, while traveling.
With Istithmar committed, Related’s biggest financial hurdle — partnering to provide the more than $300 million in equity that the developer pays upfront to obtain its estimated $600 million-plus construction loan — is now cleared, Witte said.
“In this climate, you can get a construction loan if you have enough equity,” said Witte. “The bigger challenge is getting the equity, because you’re taking the bigger risk.”
Bob Safai, a lending expert and principal at real estate brokerage Madison Partners, agrees that securing equity is a challenge in the market reeling from the subprime mortgage crisis. Banks today often require loan seekers to put down about twice as much upfront as was required just a year ago, up to nearly half the total loan amount, he said.
Even with equity in place, obtaining a loan in the current environment is no easy feat, said Safai.
“There’s much more stringent requirements on getting a loan done,” said Safai. “In this climate, when you’re dealing with local banks, often times you have to give a recourse loan, which means you personally guarantee the loan; you’re not just risking your equity.”
Witte concedes that the climate is tough.
“We are of course in a credit crunch, but we have our equity partner committed so we’re going forward,” he said. “I’d be lying if I said this is an easy time.”
He expects Related’s track record — which includes the Time Warner Center in New York, the planned $3 billion Snowmass Village Resort in Colorado and multiple West Cost projects — to go a long way in moving Grand Avenue forward.
“These are very tough, very large projects in uncertain times, but the people who keep moving are the people like AEG and Related,” he said. “We were here before Grand Avenue, and we’ll be here after Grand Avenue.”
Contact Anna Scott at
[email protected]
www.downtownnews.com
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