Concerto Hits Headwinds
Another tsunami of financial malaise welled through Downtown Los Angeles with the news that Sonny Astani has filed Chapter 11 and everything having to do with his mega-project Concerto is up in the air. (Read excellent coverage in Curbed LA.)
For a high-rise of this stature, the project is seriously underwater. This bold, three-tower complex was conceived at the top of the market and was delivered this spring in the worst real estate climate in decades.
Corus Bank, the lender for the Concerto project, was heavily exposed to condominium developments in some of the country’s worst-hit housing markets and was shut down by federal regulators two weeks ago. Not a single unit at Concerto has sold.
That Downtown LA’s marquee, residential development is in disarray is important because of the project’s size -- 77 loft units (sold at auction August 29), a semi-completed 271-unit glass Tower, and an as-yet-unbuilt third tower (currently a deep hole on the site).
Many questions remain unanswered, including the fate of the 77 Concerto Loft units, which, after a month-long marketing blitz, were “sold” to buyers at low prices at the August 29 sale event.
More Housing Units Come to Market
And the projects keep coming online. Here are more than 200 new units that will hit the Downtown market in the next six months:
- 655 Hope – To open mid-October. 80 units, from 600 – 1,268 sq ft, priced $349,000 - $920,000. 17 story adaptive reuse project.
- Barn Lofts – this adaptive-reuse project in the Arts District will be finished by the end of the year with 38 two-bedroom, two-bath townhouses.
- El Dorado – a 12-story building at 416 S Spring Street will open in the first quarter of 2010 with 65 units starting in the low $400,000s.
- Hewitt First – Final construction details are being completed on the 33 units at 130 Hewitt Street in the Arts District.
With Concerto’s 348 units, more than two hundred new units, and existing inventory at EVO South, Rowan Lofts, Barker Block and a handful of other projects, there are 800 - 1,000 units that need to be absorbed just to keep pace with current development.
And there is plenty of housing competition from the superabundance of rental buildings on the market.
Prospects for the Downtown Market
How will the current scenario impact the Downtown residential housing market? The failure of a project of Concerto’s size is stunning and bewildering. Like AIG, we thought Concerto was too big to face such an uncertain future.
Sale of Downtown units depends on pricing. The developers who acknowledge the current sorry state of affairs and price their units well will quickly shed inventory and at least cut their losses and move onto other projects.
Buyers are looking for value and quality – and the projects that offer the best combination of these two will be the winner in sales (EVO South succeeds in this area.)
Price point is also critical. Units that need to be financed with jumbo loans (over $729,500 in Los Angeles) face major hurdles. Units that can be financed with conforming loans ($417,000 or less) face the best prospects.
Pent-up buyer demand should keep the Downtown Los Angeles market slogging along with stable, low prices that were unthinkable just a few years ago.
First-time buyers are out in force, as evidenced by number of buyers who lined up for their shot at a discounted Concerto unit. This perennial wave of buyers seeking to put their rent days behind will provide the steam to keep Downtown Los Angeles afloat through these turbulent tides.