L.A.'s Downtown Condo Bust

The L.A. Times reports:

Downtown Los Angeles has seen a much-heralded revival in the last few years, with thousands of people moving in and a flock of new restaurants and upscale stores opening to serve them. Attractions such as Staples Center and the Nokia Theatre are helping support premium eateries and a lively club scene.

But there are signs that downtown's residential boom is slowing, if not stalling out altogether.

Prices of condominiums, which dominate the downtown market, have fallen more sharply here than in Los Angeles and Orange counties overall, according to DataQuick Information Systems. More than one-third of the residential projects approved by city officials have been sidelined.

Downtown's defenders say the area simply is suffering from the same housing slump that has slowed sales to a crawl and depressed prices across the country.

But some real estate analysts believe downtown's housing troubles run deeper. They say developers and planners miscalculated its appeal as a residential community, leading them to build far too many projects for the demand.

As a result, the housing market downtown could fall more sharply and take longer to recover than it might in established residential areas.

"There was great hype," said Fred Sands, a veteran real estate broker who sold his namesake firm and now invests in commercial properties. "There was sort of a mania that fed on itself. People said downtown was the future, and young people bought into it. Some of those buildings should not have been built."

Downtown developers counter that argument, saying there are too many people working downtown and not enough places for them to live. Traffic gets worse every year, they point out, which will drive up demand for housing closer to where people work.

"I think it is absolutely inevitable more and more people will live in downtown-type locations," saidJames A. Osterling, a developer and the former chief financial officer of Shea Homes. "I don't think [the real estate slump] is going to kill off downtown."

Home sales data, however, suggest that the downtown market is faring worse than the region overall.

The median sales price for homes sold downtown, almost all of which are condos, fell to $497,360 for the fourth quarter of last year, 16% below the peak reached in early 2007, according to DataQuick.

Imagine that.