Building a $100-million apartment complex on the tattered fringe of downtown Los Angeles seems like a risky bet. Demand for market-rate housing in the area has been notoriously shallow for years.
But apartment builder Geoff Palmer--who is known as a cautious and methodical developer--is not the gambling type. In fact, as property values and rents rise across Los Angeles, his 658-unit Medici apartment complex--the largest under construction in Los Angeles County--is looking more like a winner with every passing day, said real estate and housing observers.
"He will have no trouble filling it up at all," apartment investment advisor Dean Zander said. "His timing is perfect."
There are about 8,300 apartments and condominiums--most of them located in high-rise towers--within the belt of freeways that encircle downtown. More than a third of the apartments are rent-subsidized units earmarked for elderly and low-income residents. Some developers, including Tom Gilmore, have targeted artists and urban pioneers to populate trendy loft-style units carved out of historical buildings and warehouses.
But Palmer is targeting the middle market of downtown professionals with a low-rise, suburban-style complex complete with swimming pools, a one-acre park and shops. Monthly rents at the privately financed Medici--which is located at the intersection of the Harbor Freeway and 7th Street--are expected to start at about $900 when the first phase opens in June.
For the Record
Los Angeles Times Tuesday February 8, 2000 Home Edition Business Part C Page 3 Financial Desk 3 inches; 81 words Type of Material: Correction
CRA buyout--In a Feb. 1 story about the apartment market in downtown Los Angeles, The Times incorrectly stated that the Los Angeles Community Redevelopment Agency in 1991 paid more than $3 million to buy out 32 condominium owners in the Premier Towers project on Spring Street. The CRA had agreed to the deal, but the Los Angeles City Council never authorized the expenditure. In May 1998, however, the CRA was authorized by the City Council to proceed with the buyout and has purchased all but two of the remaining units, according to Donald Spivack, deputy administrator at the CRA.
"People think there needs to be broader types of housing downtown," said Donald Spivack, deputy administrator at the Community Redevelopment Agency. "If [the Medici] is successful you will see more people wanting to do projects like this."
Palmer, president of privately owned G.H. Palmer & Associates, has plunged into a market that has scared off most residential developers and burned many investors:
* Grand Central Square, which includes 121 apartments above the historical Grand Central Market, received a government bailout in 1997 after falling behind on payments on $44 million in publicly backed debt.
* The builder of the 192-unit Renaissance Tower apartments in the South Park area went bankrupt in the early 1990s while the high-rise was under construction. In 1998, the building was sold for $18 million--45% of its original cost.
* In 1991, the city's redevelopment agency paid more than $3 million to buy out 32 condominium owners in Premier Towers after the owners watched their investment in the Spring Street project vanish as the area continued to deteriorate.
Despite rising expectations and a low apartment vacancy rate, downtown continues to be shunned by most developers in favor of less risky and more lucrative suburban locales.
Legacy Partners, for example, is building about 1,500 units across Los Angeles County, including Pasadena, Santa Monica, Marina del Rey and Westwood, where monthly rents will exceed $4,000. But Legacy has no plans to come downtown.
"There are other parts of the metropolitan area that we are more attracted to," said Dennis Cavallari, senior vice president of Foster City-based Legacy Partners.
"I think downtown is going to be a better sub-market for somebody like Geoff Palmer, whose intentions are to develop and hold it for 20 years," Cavallari said. "Our horizon is not quite that long."
Despite the size and significance of his project, Palmer, 49, has kept a relatively low profile in the downtown real estate and business community. In contrast, loft developer Gilmore has generated plenty of publicity and is a common figure at downtown events.
"Tom is more gregarious and outgoing than Geoff," said former real estate attorney Martin Stolzoff, who has known Palmer for more than 20 years. Palmer is "very conservative and very thorough. He checks everything out completely. He doesn't play games and is risk averse."
Palmer's company owns and operates about 5,000 apartment units across Los Angeles and Ventura counties. Palmer has a knack for entering new markets "where others might be scared to tread because there's not a track record," said Zander, who works for Phoenix-based real estate brokerage firm Hendricks & Partners.
In the late 1980s, Palmer built the 198-unit Skyline Terrace complex in Chinatown, on downtown's northern fringe. But, for the most part, the firm has focused on suburban projects in the Santa Clarita Valley, where the developer has feuded for years with residents and city officials over growth and development fees.
In 1992, Palmer's reputation suffered a blow when his firm agreed to pay $30,000 in fines for allegedly laundering campaign contributions in 1987 to a Los Angeles city councilwoman and a group that opposed cityhood for Santa Clarita. An investigation by the state Fair Political Practices Commission found that the firm had violated the California Political Reform Act. Palmer never commented publicly on the fine.