May 7, 2008

Grand megaproject suffers another setback due to credit crunch

No change in commitment, only timing, Related California president Bill Witte says

Los Angeles

The developer of a US$3 billion condo and retail complex seen as a linchpin in the effort to revive the city’s long-neglected downtown has delayed construction because of trouble securing loans, a company spokeswoman said Tuesday.

Work on the 3.6 million-square-foot, Frank Gehry-designed development known as The Grand was pushed back from June to next February, said Barbara Casey, a spokeswoman for the California division of Related Cos.

“There is no change in commitment, only timing,” Related California president Bill Witte said in a statement.

Because of the delay, the project’s 1.3 million square-foot first phase, which includes a hotel and condo tower, restaurants and shops, will be completed in 2012 instead of 2011, Casey said.

The company blamed the real estate downturn for the loan difficulties.

Increasingly selective lenders are demanding to see complete construction drawings and pricing details before they extend financing, Casey said.

The company had anticipated that loans would be offered based on partially completed documents when it announced the June start date, she said. Construction drawings are expected to be completed by fall,

Raphael Bostic, who directs the University of Southern California real estate development program, said many developers are having similar problems with skeptical lenders.

“In a hot market there’s not a lot of question over whether a layout is going to retain its value,” he said. “In more volatile times, there can be some doubt.”

The Grand, along with the $2.5 billion complex of hotels, condo buildings and entertainment venues known as L.A. Live about a mile to the south, are major components of downtown’s ongoing revival.

Construction on The Grand was originally expected to begin in December 2007 but has been delayed.

Earlier this year, the California Public Employees Retirement System relinquished its 45 percent equity stake in the project. The $100 million stake was transferred to the Istithmar Group, a fund controlled by the royal family of Dubai.

Bostic said Related’s difficulty obtaining loans was not likely to doom the project.

“This is a really long-term exercise and everybody knew there were going to be some bumps along the way,” he said.

Associated Press

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