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The credit squeeze squashed another big city project today. The start of a $3 billion development to revitalize downtown Los Angeles has been pushed back. Even with a big developer behind it and star architect Frank Gehry’s name on it, getting the money together just wasn’t going to happen.
Marketplace’s Lisa Napoli looks at what it means when commercial real estate developers can’t develop real estate — and not just in Los Angeles.
Lisa Napoli: It’s not just the Related Company’s Grand Avenue project here in LA that’s been stalled because of the credit crunch. It joins a long list of big-deal commercial projects being scaled back or put on hold: Seattle, Phoenix, Vegas, midtown Manhattan, the Navy Yard in Brooklyn.
Many of these developments were conceived when cash was flowing and interest rates were lower.
Commercial real estate expert Bob Bach of Grubb and Ellis says an abundance of money fueled big dreams:
Bob Bach: The very tallest skyscrapers are announced or started right at the peak of the cycle.
Now with credit so tight, developers just can’t get the cash they need to follow through.
Real estate economist Delores Conway of the University of Southern California says problems at banks are forcing even the most seasoned commercial real estate types to come back to earth.
Delores Conway: What might have been affordable for construction costs or to buy a commercial property a year ago is much less affordable today because the loans really carry higher premiums.
At this time last year, close to $80 billion worth of commercial real estate deals had been done. So far this year: $9 billion.
Mike Swarovski is with the commercial lender Capital Source.
Mike Swarovski: Relative to where we saw the markets a year ago, they’re still very, very locked up.
So what happens to all those projects on hold? Faced with stricter lending requirements and pricier loans, developers are basically forced to scramble, get creative and hit up a number of lenders or just sit back and ride out the downturn.
In Los Angeles, I’m Lisa Napoli for Marketplace.
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