LA is a city with an identity crisis, mainly because it has more identities than “Sybil.” The “city” part of LA is the downtown area that reached its glory days in the 20s and 30s, hit a decline in the post war years, laid fallow for about 50 years and began its renaissance starting in the late 90s. For what’s supposed to be the economic hub of the city, people can go their whole lives without setting foot in downtown (and truthfully, they’re missing out, but that’s a topic for another day).
Downtown has had a huge residential population boom, going from approximately 14,000 denizens to more than 50,000 over the past 15 years. The tipping point was the introduction of a name brand supermarket that allowed people who always thought it would be cool to live downtown, but were wary of the inconvenience of not being able to get the emergency carton of milk for their Sunday morning coffee, to feel more comfortable. As more units came on line (either through new construction, or the redevelopment of iconic buildings) restaurants, stores, clubs and even a Soul Cycle followed. Suddenly, downtown was a viable place to live. It may also be a victim of its own success.
The LA Times recently reported that developers and landlords may have over developed as newer higher end properties are offering concessions to woo tenants (http://lat.ms/2avN7Ns). On the flip side, owners of older, historic and converted buildings are still enjoying robust demand. And in the midst of these dual markets, comes a new player: The Mega Mixed-Use Development.
Mainly financed by Chinese investors, the newest developments dwarf even Donald Trump’s definition of ‘yuge’: one example being Greenland USA’s Metropolis. Purchasing the land alone for $150 million dollars, the total project cost is estimated to be in the neighborhood of $800 million. The result will be a “city within a city” that will include a hotel, retail space, and 1,500 condo units spread across three towers (representing 3% of downtown’s current population… in one development alone). Three other large projects in different stages of development are slated to add another 1,800 residential units. But here’s one hitch: the developers believe that the buyers of these condos will be Chinese investors. Which means the fate of many of these units will depend on the continued robust growth of the Chinese economy… Which has, alarmingly, been showing signs of slowing down.
Not to be outdone, Brooklyn, which to some is an even hipper borough than Manhattan, seems to be facing a similar housing unit surplus (as reported in the New York Times). Though in this case, the wound appears be self-inflicted by local builders and financiers. One main difference between the markets is there doesn’t seem to be a safety valve for demand of housing in Manhattan, so the pressure will eventually push people out to Kings County — though it may take a few years for absorption to staunch the glut. LA, however, doesn’t have the same pressure when it comes to DTLA, and downtown’s luxury units serve more often than not as second homes and pieds-à-terre for those who don’t want to drive all the way back to Bel Air after a concert or Clipper’s game.
LA has played this foreign investor game before, and a large piece of LA’s real estate market downturn in the early 90s was a result of the faltering Japanese economy. True, the rapid decline in market prices back then was aided by much higher interest rates, but the same fundamental dynamics were in place — foreign investor irrational exuberance.
As housing prices throughout LA, especially in the higher end, are beginning to plateau (or, more politely, stabilize), I’m tempted to cast a wary eye at downtown. But I understand the vibrancy of the different neighborhoods, and understand that Los Angeles has a way of surprising those with even the greatest of expectations; this is, after all, the city of dreams.
(A version of this post appeared in The Huffington Post)