By  on April 29, 2009

LOS ANGELES — The recession has crashed the downtown party conceived for this car-obsessed city, short-circuiting a major push for retail.

A few years ago, visions of a bustling, around-the-clock downtown danced in the heads of developers and government officials. Now, despite pockets of progress, financial struggles have created obstacles to retail and residential projects crucial to making downtown a walkable, mixed-use destination and home instead of a stopover for commuters.

The $3 billion Grand Avenue Project developed by Related Cos. of New York has been touted as a cornerstone of the new downtown. The company’s Web site describes it as the heralding  of “a new era in Los Angeles.”

The new era, however, won’t arrive until at least three years behind schedule, in 2012. That’s when the first phase, including a hotel, 500 housing units and 285,000 square feet of retail space, is forecast to be finished.

There are other trouble spots.

Blaming tight credit, New York-based developer Moinian Group has put on hold an estimated $1 billion complex across from the Staples Center featuring luxury retail, restaurants and a pair of towers rising 33 floors and 45 floors. Other postponed projects include Houk Development Co.’s $1.3 billion residential and hotel development and IDS Real Estate Group’s more than $1 billion residential-retail venture, Metropolis.

The biggest downtown landlord, Meruelo Maddux Properties Inc., owner of 28 rental and 19 development projects in the area, filed for Chapter 11 in March, because of the challenging economic climate. A bankruptcy filing also sidelined the $165 million Chinatown Blossom Plaza apartment and retail complex. 

Retailing suffered another setback this year when Macy’s 123,000-square-foot store closed at the 7 + Fig shopping center, which is owned by Brookfield Properties Corp.

Citing independent retailers seeking “to go into downtown and take their shot,” City Councilwoman Jan Perry, who represents the area, said: “The renaissance will still move forward, but we may have to change our definition. It may have to take place on a block-by-block basis with people coming in with new ideas [and] smaller-scale projects.”

The desire for retail among downtown residents is strong. A study released this month by the Downtown Center Business Improvement District found that a majority of residents said they want a chain such as Target, a specialty store like Gap or Banana Republic and a multiline store such as Macy’s or Nordstrom. But in a period of store closings and retrenchment, the likelihood of expansion has dimmed.

“What it is going to take is for us in the real estate community to go to the retail tenants and ask them to take the plunge and risk with us” for the long term, said Hal Bastian, the BID’S senior vice president and director of economic development.

The BID study said the 65-block downtown area bordered by the 101 Freeway to the north, the Los Angeles River to the east, the 10 Freeway to the south and the 110 Freeway to the west, is drawing a larger population of upwardly mobile residents.

The survey said 39,537 people occupied 26,011 residential units downtown last year, compared with 28,878 people in 18,999 units two years before. Residents had a median household income of $96,200, and an average age of 37.

Merchants, however, have not been persuaded there is a critical mass of full-time downtown residents. “The national retailers do not accept those numbers; they don’t feel it is an unbiased survey,” said CB Richard Ellis senior vice president Mark Tarczynski, adding they rely on 2000 census figures estimating downtown’s population at 6,000.

In addition, potential locations often are oddly shaped, not big enough, lack parking or loading space. As retailers cut back, those hurdles become tougher to jump over. “These guys are looking at location opportunities where they can just plop their footprint down with no fuss,” Tarczynski said. “Doing an urban store is a very difficult proposition.”

But he predicted a downtown Target “will be here soon enough,” although a spokeswoman for the chain said the retailer has no immediate plans.

Mayor Antonio Villaraigosa has put his weight behind downtown’s expansion even as the city struggles with rising budget deficits. Within downtown, Villaraigosa has been active in securing convention center hotels and promoting the Grand Avenue Project, which is receiving $100 million in government redevelopment funds.

Bert Dezzutti, Southern California senior vice president of Brookfield, said an announcement would likely be made within six months about retailers entering the space. “We have folks that would take 30,000- to 40,000-square-foot chunks,” he said, adding that Brookfield is spending $3 million on improvements at the 7 + Fig center.

The chairman of Beverly Hills development company Astani Enterprises Inc., Sonny Astani, is familiar with the challenges of operating in the soft market. The first phase of his Concerto project, consists of two residential towers and a loft building that will begin to take in residents in June. But tenants will pay far less than Astani originally anticipated. A unit priced at $400,000 was expected to fetch $600,000, and a $575,000 unit had been pegged at $750,000 to $800,000, he said. 

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