In many movies, downtown Los Angeles is a stand-in for New York City. Its nooks and crannies mimic that most urban of American cities, and Ramon Garcia's condo on Seventh and Spring streets is no exception. His seventh-floor window overlooks a courtyard in the Bartlett, a 1911 bank designed by the architects who planned City Hall, and his 550-square-foot residence is smaller than a racquetball court.
But one detail would be unthinkable in New York. If he sold it, Garcia estimates he'd get $105,000 — half what he paid in 2005. While 30 percent to 60 percent of the Inland Empire's homes have "underwater mortgages," making that region a national symbol of the nation's housing crisis, rarely reported is that downtown L.A. is just as "underwater" as Riverside: Its residents owe far more than their homes are worth.
"It kind of sucks, because I don't know if it will ever be worth what I paid for it," Garcia says.
According to Zillow Real Estate Research, 31 percent of American homes are underwater, about like the city of L.A. (Other data peg the percentage lower.) But in 90014, Garcia's ZIP code, an astonishing 78 percent of condos and lofts are underwater. Nearly four out of every five residents in the area roughly bounded by Sixth Street, Ninth Street, San Pedro Street and Grand Avenue own places worth far less than the loan they signed.
In the United States, ZIP code 90014 is in the top 1 percent of underwater mortgages.
And it's bad all over downtown.
ZIP codes that extend from downtown north and south into other areas are underwater, by 66 percent (90017: part of the Financial District and part of Pico-Union), 64 percent (90021: part of Industrial District, Warehouse District and part of Skid Row), 51 percent (90012: City Hall, Civic Center, Chinatown), 44 percent (90013: site of Downtown Art Walk, part of Skid Row), and 36 percent (90015: South Park, L.A. Live, Fashion District).
You see devastating numbers above 50 percent in San Bernardino. But it declared bankruptcy. Downtown was a flagship for "smart growth," a preview of the new, hyper-urban Los Angeles.
What happened?
Ramon Garcia moved downtown in 1999. He and a friend rented a large loft on Spring Street for $700 a month. There was no air conditioning or heating and their friends were afraid to visit.
"It was like a ghost town," he says. "No restaurants, no coffee shops, very few businesses."
The area around Fifth and Main streets was a notorious open-air drug market. Downtown booster Brady Westwater today points to shops there that were fronts for illegal operations. "This place sold crack 24 hours a day," he says. Now it's a nice Italian restaurant, Portofino. "Every business was owned by drug dealers. People were helpless."
The citywide crime rate began to plummet as the crack epidemic subsided and the economy turned. Downtown's renaissance was allowed by the Adaptive Reuse Ordinance of 1999, passed the same year Staples Center opened. The law let developers more cheaply and easily convert abandoned hulks into retail space on the ground and residential above — in part by cutting the number of parking spaces developers were required to construct.
Over the next nine years, more than 7,000 housing units went up, surpassing the 4,000 built in L.A.'s lightly inhabited downtown during the previous 30 years.
The often publicly subsidized downtown renewal, as well as troubled subway construction projects of the era, generated tremendous controversy.
Critics bitterly accused city fathers of directing vast civic resources to downtown while generations-old pipes and roads in the Valley, South L.A. and the Eastside crumbled. In 2002, furious residents of the San Fernando Valley tried to secede from L.A.
Downtown activity rose to a feverish pace as the housing bubble grew nationally. Developers borrowed heavily, and the mostly young buyers did the same.
Without warning, Ramon Garcia's landlord doubled his rent.
"My parents are immigrants from Central Mexico. They came here in the early '70s, did the American dream," Garcia says, meaning they bought their own home. "At that time, I felt like I needed to do my American dream, too."
The Cal State Northridge English professor, then 37, started pricing lofts. They were expensive in 2005, and Ralphs hadn't even opened.
"The cost per square foot ... was like for a fully developed community," says Nathan Wittasek of consulting firm Exponent.
"A lot of my friends are professors, and none of us could afford anything," Garcia says. "It was this existential crisis, because we weren't gonna be able to do what our parents did."
But bank loan officers "wanted to give me all this money," Garcia recalls. "I was like, 'Did you even look at my salary?' "
The prices were suspiciously high. But loan officers were pushing buyers to take a risk, and dangling low interest loans to sweeten the pot. Buyers were dying to jump in.
What could possibly go wrong?
Kevin Scott, a fiscal adviser to local governments, and a longtime downtown dweller who lived in a huge Industrial District loft not far from the 1939 Coca Cola Building, recalls how he decided to eyeball the condos being constructed inside the long-empty 1100 Wilshire Building skyscraper next to the 110 freeway. It was the height of the downtown L.A. bubble.
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The worst part in the article is this agent claiming that she has 88 places for sale. I am a broker and there are only 85 places listed now. I wish we could stop bad agents for saying whatever they want and misleading the public. So called journalists should verify their sources before publishing.
Typical blah, blah, blah anti-development L.A. Weekly article. Full of propaganda, weakly researched and commented on by the same 20 antidevelopment posters. I love Downtown and am so happy I bought here. My property is more than holding its own in the same neighborhood that this reporter is referencing. Lazy, lazy journalism, at best.
Too many down payments, and the ability to generate revenue from those down payments, have been lost forever because buyers did not understand market fundamentals. New construction sold by a developer is always overpriced on a per square foot basis. It's what developers do. Downtown buyers could have bought 1930's to 1960's construction from a resident buyer in many westside areas during the bubble and paid less, than buying a downtown loft newly renovated by a developer. The buyer's wrong choice is the root of the problem.
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Although these may be very personal stories of people who bought at the wrong time, the evidence and my experience just does not fit this story as the current state of things. I agree with the other comment--it's more 2009.
What I see is rising rents, and very high demand for workforce and market rate housing. I also see extreme demand for units above 1000 square feet, presumably for couples or families--of which we have a serious dearth in downtown. The minute a unit goes on the market, the price is driving up by the demand, so for an appraiser to say it's not "reality" is just silly, phobic thinking. The prices already bottomed out, if people are willing to pay and pay the difference in cash enough times, what does that say about values?
For some reason it seems people love to be snarky about downtown--it sucks, it's gentrifying, it's gross...whatever the negative spin. Look, it was a wasteland for decades, and it was built up in warp speed so let's give it a little credit. And the facts are, we had under 20,000 units and it's more than doubled in the past decade. When stores like Target, Ross, and Walmart want to develop--not to mention tons of high-end, small chain restaurants and bars, what does that say about the growth? And something this article doesn't consider...we have a growing volume of self owned and operated businesses moving in, along with creative and start up companies. Many rent creative office space, many work from home. These are the folks that don't listen to the negative hype, and are partly responsible for the success of downtown.
There are still issues, but change is difficult and long to establish. Face it, we are on track for a permanent urban marketcenter. Get used to it!
This is relevant as many homeowners think that values will come back soon. If this helps anyone who is still paying an underwater motgage, then it is good. It is refreshing to see an honest valuation article come from a liberal learning news source. Politics is keeping more articles like this from being published. There is a major valuation problem in many areas of SoCal, and people should not be swayed by national news. WHO Cares about your local political issues, this is about home values. Those with those underwater motgages need to walk of their payment is more than comparable rent. I don't care if they squat, short sell or whatever, but be informed about reality and where values will be 5 to 20 years now. (Not much higher) If more people quit paying, we could actually hit the bottom, as we are not there yet in most of SoCal.
Yawn. This article would have been relevant in 2009.
This article fails to note that many of the above $700,000 properties are being sold in South Park, which is home to the higher priced condos in the downtown area. Furthermore, the article also fails to note that because of the developer bankruptcies several formerly expensive buildings in the marginal part of downtown are now available for sub- $200,000 (see the Santee Village Lofts and the Little Tokyo Lofts).
The market crash ruined the equity of many people who purchased at the height of the market. It also created opportunities for people to purchase formerly expensive properties at bargain prices. I’m not sure if this article adds anything new to the on-going discussion about the gentrification of downtown. Maybe, you should focus on Skid Row clean up or the redevelopment of transient hotels
Yawn. This article would have been relevant in 2009.
This article fails to note that many of the above $700,000 properties are being sold in South Park, which is home to the higher priced condos in the downtown area. Furthermore, the article also fails to note that because of the developer bankruptcies several formerly expensive buildings in the marginal part of downtown are now available for sub- $200,000 (see the Santee Village Lofts and the Little Tokyo Lofts).
The market crash ruined the equity of many people who purchased at the height of the market. It also created opportunities for people to purchase formerly expensive properties at bargain prices. I’m not sure if this article adds anything new to the on-going discussion about the gentrification of downtown. Maybe, you should focus on Skid Row clean up or the redevelopment of transient hotels
"Power tends to corrupt and absolute power corrupts absolutely" Lord Acton
When you're the City Council you can build any piece of dreck anywhere you want and declare that you have revitalized the neighborhood. As we ar learning, the only thing that was revitalized was the developer's pocketbook. No wonder Garcetti raised $2.2 Million -- he's given away about $1.5 Billion in CRA funds. $2.2 M is only 0.00146 of $1.5 Billion. The developers can do better than that!
On the other hand, look what Garcetti has brought the developers:
Veto of AB 2531 because his hubris made Hollywoodians so mad;
Abolition of the CRA due again to his hubris which galvanized people to oppose the CRA;
Three lawsuits against the Hollywood Community Plan;
400% increase in the flight of people out of Hollywood and a terrible real estate bubble in central Hollywood;
Destruction of the infrastructure which lowers everyone's property values
Before Garcetti Hollywood was still improving, but with Garcetti, its reverting to a slum.
Lord Acton should have added that with power comes incompetence. The powerful push others aside under the delusion that they masters of the universe -- until we have financial melt down.
Garcetti has the King Midas touch in reverse.
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