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COMMERCIAL REAL ESTATE QUARTERLY

After the bust, prime parcels at cut-rate prices

A look at high-profile Los Angeles-area properties whose developers saw their high hopes come crashing down with the real estate market.

April 18, 2010|By Roger Vincent
  • A parcel near Pershing Square in downtown Los Angeles that was intended for a 76-story condominium tower and a 14-story five-star hotel is now used as a parking lot. The project is on hold amid a glut of condos and struggling hotels.
A parcel near Pershing Square in downtown Los Angeles that was intended… (Allen J. Schaben / Los Angeles…)

Scattered around town are some surprisingly valuable vacant lots disguised by weeds or broken blacktop or the remains of an unwanted building -- and many have quietly come to market, thanks to the real estate collapse.

Billions of dollars were lost by developers who bought land to build high-profile projects but weren't able to get their plans off the ground, even after spending lavishly on architectural designs and other measures to get their buildings approved by local officials. As the real estate cycle plays out, the pained exit of ambitious builders has created an unusual abundance of opportunities to buy expensive eyesores.


FOR THE RECORD:
Prime real estate: An article in Sunday's Business section about prime pieces of property for sale in the Los Angeles area said Taylor Grant was the receiver for a large parcel for sale at Playa Vista that contains the hangar where aviator Howard Hughes built the Spruce Goose airplane. Bill Hoffman, president of San Diego-based Trigild, is the receiver for the site that contains the historic Hughes properties. —

"There are a mess of these around town," real estate appraiser Steven Norris said. "Dirty corners entitled for high-rises and they're just parking cars on them."

A common theme in the failed ventures is that the developers bought their sites at astronomical prices near the top of the market, paying so much that they had to plan buildings they could sell or rent at the highest prices the market has ever borne if they hoped to reap a profit.

In the commercial real estate boom of the late 1980s and early '90s, developers thought office buildings were the way to go. This time, the consensus was that the most money could be made by creating lavish high-design apartments or condominiums that would appeal to the ultra-rich.

These units were intended for buyers so wealthy that their main challenge wasn't coming up with millions of dollars to spend but rather to find a dwelling that suited their refined tastes, developers said. It turned out that the target market of international jet-setters, movie stars and corporate barons wasn't as deep as many had hoped.

So the fact that many of these parcels come with hard-won government approvals for platinum-level developments doesn't necessarily add to their value, said Norris of Norris Realty Advisors.

He estimates that such commercial properties are worth about 40% to 60% of what they were at their peak in late 2007 and early 2008. But with today's tight credit market and tougher lending standards, few deals are being done.

"The fact is," Norris said, "so far nobody has displayed the wherewithal to acquire these."

Prime parcels at cut-rate prices: B6

Historic downtown site

One of the most ambitious projects proposed during the last real estate boom was a $1-billion high-rise condominium complex intended to tower over downtown Los Angeles.

At 76 stories, the taller of two planned towers would dramatically alter the skyline and rival the US Bank skyscraper, the tallest building in the West. The project, named Park Fifth, also calls for a 14-story five-star hotel overlooking Pershing Square park, fronting on 5th Street.

But with downtown's condo market overbuilt and the hotel industry in the dumps, there is little need for the project.

Developer David Houk hasn't given up on building Park Fifth, but one of his financial partners had less patience and put the site on the market last year. Africa Israel Investments Ltd., a publicly traded development company based in Israel, tried to find a buyer for the 100,000-square-foot property but didn't receive an acceptable offer, real estate brokers said. The company didn't respond to requests for information about its current plans for the property.

Houk has demonstrated almost supernatural persistence for a developer, having started acquiring the land at the northeast corner of 5th and Olive streets in the 1970s. The site cater-corner to the historic Biltmore Hotel is used for parking now but was one of the most important locations in the city for nearly 100 years. The largest auditorium in Los Angeles, Hazard's Pavilion, was built there in the 1880s. The wood-frame structure hosted operas, balls, political meetings and sporting events.

In 1906, it was demolished to make way for a new auditorium with an art-nouveau interior that took over as the city's main entertainment venue. From 1920 to 1964, it was the home of the Los Angeles Philharmonic Orchestra. The Philharmonic Auditorium Building was demolished in 1985 to make way for an office development that never panned out.

Sour Candy in Beverly Hills

It just doesn't get any better than this if you're a real estate developer: eight acres in Beverly Hills at the junction of Wilshire and Santa Monica boulevards.

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