The Government Manipulation of Downtown Los Angeles

At roughly the time of the final years of the original production of the television classic, Dragnet , a series about Los Angeles detectives, the downtown area of Los Angeles was in the process of being abandoned from a combination of the then-white flight from city cores (parents in fear of busing) and the construction of L.A.'s infamous clogged highways, which were built at the instigation of tire companies who captured the political leaders of that time.

In other words, the government provided a one-two whammy that resulted in the destruction of downtown L.A as a place to live and shop. It stayed pretty much destroyed for decades. Except for a few office buildings that housed the offices of lawyers, accountants and stockbrokers, who fled downtown after work, the core was pretty much non-existent. Indeed, it was a pretty hard place to find a drink.

In recent years, the powerful draw of an urban core, along with the big dollars of Denver billionaire developer, Phil Anschutz, has resulted in a major revival of downtown L.A.. Anschutz first built Staples Center (Home of the Lakers, Clippers and Kings), and then he built L.A.'s supposed answer to Times Square, L.A. Live,

Developer after developer then rediscovered downtown, and with the discovery came condo project, after condo project, after loft project, after restaurant, after night club, after whiskey bar. It has become the place to live and play for the West Coast urban hip. But, a good chunk of the money that fueled the revitalization was not saved money. People weren't actually saving to support the gigantic building that was going on. The money to build was largely Federal Reserve printed money.

When Bernanke first stopped printing money in the summer of 2008, it signaled the end of this phase of government manipulation of downtown Los Angeles. The developers, that aggressively bought parking lots and turned some of them into locations for majestic condominiums and loft residences, have now been forced to stop their current projects. The money to continue simply doesn't exist. What money is available seems to be sucked up by the ever growing debt issues by the U.S. Treasury. If it wasn't for this crowding out by the Treasury, one wonders how many stalled projects could continue. Right now, though, the list of stalled projects is stunning.

The weekly downtown L.A. newspaper, Los Angeles Downtown News, annually puts out a status report of the projects going on in downtown. Here are the snippets from this years report (Keep in mind that this is a report on an area that is roughly only 10 blocks by 10 blocks):

Plans to turn the building housing the Crazy Gideon’s electronics store into 31 adaptive reuse and 44 new live-work units have been put on hold for at least three years, said Gideon Kotzer, the owner of the edifice at 814-828 E. Traction Ave. He said he would wait until the economy improves to continue with the plans...

Plans to build a residential-hotel project on a 900-space Jewelry District parking lot remain on hold, said Oskar Brecher, director of development for the New York-based Moinian Group. The project has not been entitled yet and will continue to operate as a parking lot until the market improves, Brecher said...

Plans for a ground-up, residential high-rise at 1133 S. Hope St. in South Park have been put on hold due to the economy, said Richard Wittstock, vice president of Vancouver-based Amacon Group. He said the developer will continue with the project but no restart date has been set. ..

Construction has slowed on a space expected to house the Italian restaurant Primo Cucina because of financing issues, said Tripp DuBois of developer the Kor Group. Plans had called for the establishment to open last year, but the current target date for the debut is this summer...

Construction on the adaptive reuse project at 940 E. Second St. in the Arts District recently paused due to issues with a lender, said developer Mark Borman. The development is approximately 92% complete...

A proposed mixed use-project at Olympic Boulevard and Grand Avenue remains on hold as Olympic on Grand, LLC, a partnership of investors that includes developer the Titan Organization, continues to search for financing, said Gary Warfel, a partner in the development group. The project, which most recently called for a 60-story structure and a 49-story tower, will likely be altered once financing becomes available...

Construction is 95% complete on the second phase of Astani Enterprises’ Concerto development: a 30-story tower at Ninth and Figueroa streets. Developer Sonny Astani expects the building, which had been targeted for a 2009 completion, to get its certificate of occupancy by June. The delay is attributed to the fact that Astani’s lender was seized by the FDIC in the fall...

There remains no timeline for developer Astani Enterprises’ proposal to build a 14-story residential structure, a two-floor commercial building and a 53-story residential tower on a property that runs along Eighth Street between Grand Avenue and Olive Street. Company owner Sonny Astani said the project is on hold until the economy significantly improves. The site is currently a parking lot...

An approximately $135 million, 31-story tower proposed by developer Laeroc 2002 Coast Parking LLC is at least three to five years away from breaking ground, said company principal Kim Benjamin. The developer is waiting out the frozen credit markets before pursuing a construction loan, he said...

Plans for a 432,000-square-foot building are still on hold while developer Venice Investments continues to look for financing, said Rita Simbulan, a company representative...

Developer Human Technologies LLC, a joint venture between two Korean investment firms, is still trying to secure a construction loan for a fully entitled 43-story tower, said a spokeswoman. It would be designed by prominent architect Daniel Libeskind...

Developer David Houk of the Houk Development Company said he is working on securing a new investor for the proposed $1.3 billion mega-project. The potential investor, Gabriel Hertzberg of the LLC Triangle International Oil Company, said he plans this year to fund a construction loan for hundreds of millions of dollars and purchase the site. Still, construction would take at least three years...

Developer Barry Shy has delayed plans to build a five-story parking garage at 601 S. Spring St. The structure, previously expected to break ground by March, will not begin construction for approximately six months, he said, and the process will take a year...

Plans for two 34-story condominium towers at 624 W. 12th St. and 1200 S. Figueroa St. remain on hold due to the economy, said Rhonda Slavik, a representative of developer South Group. There is still no timeline for when the project will resume...

Developer Meruelo Maddux Properties is waiting for a bankruptcy court judge to consider a request to sell units at its 35-story South Park tower, project spokesman Michael Bustamante said. The prominent Downtown landowner is attempting to climb out of nearly $453 million in debt...

There has been no movement on the 125,000-square-foot project at 2121 E. Seventh Place in the Arts District. According to the most recent information available, the 19-townhouse complex was foreclosed on last year and placed under the ownership of Phoenix Realty Group, the project’s original equity partner. Residences in the Killefer Flammang-designed project range from 750-1,200 square feet and remain unoccupied...

The 12-story, 80-unit building at Seventh Street and Grand Avenue has been renovated but remains unopened and under the care of a bankruptcy court-appointed trustee. Lender Bank of America is expected to foreclose on the property in the second half of the year, said trustee Amy Goldman of Lewis Brisbois Bisgaard & Smith LLP. Developer the West Millennium Group has been out of the project since defaulting on a $35 million loan from Bank of America and filing for Chapter 7 bankruptcy last March. There is no timeline for when the building at 530 W. Seventh St., originally constructed as condominiums, might open. In the meantime, the property continues to house the Italian restaurant and market Bottega Louie on its ground floor...

A six-story apartment project by Avalon Bay, on the southwest corner of Los Angeles and Second streets, continues to be on hold due to the economy, said Phil Silver, a project representative...

Plans to transform the former home of the Herald Examiner newspaper at 11th Street and Broadway remain on hold indefinitely, said Marty Cepkauskas, director of real estate for property owner the Hearst Corp....

The future of a proposed $1 billion mixed-use complex which was planned to provide the retail complement to L.A. Live is uncertain. New York-based developer the Moinian Group purchased the South Park site, currently a fenced-off parking lot between 11th, 12th, Flower and Figueroa streets, from L.A. Live developer the Anschutz Entertainment Group in 2006. Moinian subsequently defaulted on its $55 million loan from Wachovia bank (now Wells Fargo), prompting the bank to initiate foreclosure proceedings in November...

The long-stalled, $1 billion project from developer IDS Real Estate Group remains on hold. Plans for the first phase of the development, proposed for a site one block north of L.A. Live, call for a 33-story condominium tower on 1.83 acres. The second phase would bring a 42-story, 388-unit condominium tower, and a third phase would create a 480-room hotel with 88 residential units. The final phase would be a 42-story office tower...

Bank of America recently took ownership of the four condominium buildings at the 780,000-square-foot Fashion District mega-complex. The remaining three rental buildings were sold to a state pension fund four years ago. Original developer MJW Investments backed out of the condo portion of the project in 2008, leaving the buildings (and a $67.5 million loan from Bank of America) in the hands of its secondary lender, the Connecticut-based Patriot Group. The Patriot Group subsidiary Santee Village Partners LLC filed for Chapter 11 bankruptcy protection last April, according to court documents, but never followed through with a reorganization plan. Bank of America subsequently took over. One of the four for-sale buildings never opened and remains empty. Altogether, Santee Village houses 445 residences and 66,000square feet of retail space...

In January, officials revealed that a lot south of the REDCAT theater, originally planned to hold retail for developer Related Cos.’ Grand Avenue project, could instead become the site for a museum housing artwork from Eli Broad’s collection. Meanwhile, most of the rest of the $3 billion, Frank Gehry-designed overhaul of Bunker Hill remains stalled. Related has been unable to obtain the $700 million in construction financing needed for the originally planned 1.3 million-square-foot first phase of the project formally known as The Grand. There is no current timeline for those plans, which include a 48-story Mandarin Oriental Hotel & Residences with 295 hotel rooms and 266 condominiums, a 19-story tower with 126 market-rate apartments and 98 affordable residences, and a 250,000-square-foot retail pavilion...

To be sure, some projects continue and downtown L.A. on a very long term basis (I said very long term) has the potential to be a world class center, but it is truly remarkable to see in real time the distortions caused by Fed money printing, and what happens when the money printing stops. Stable building and growth only comes from real savings, not Federal Reserve roller coaster money printing. Further, with the Federal government sucking more and more of the real savings for its borrowing needs, i.e., to support wars, and bureaucratic agencies, who knows when this phase of government manipulation of L.A. will stop? I say, balance the government's budget, stop the government's borrowing and let the funds from real savings become available for developers, like those in downtown L.A., who are attempting to create real wealth throughout America.