March 24, 2015

SunCal Purchases L.A. Development Site for $130 Million

By John Gittelsohn
Bloomberg

Aerial view of a downtown Los Angeles site that SunCal purchased for $130 million. Source: SunCal via Bloomberg

(Bloomberg) — SunCal, a developer of master-planned communities, bought a downtown Los Angeles site the size of 11 football fields for $130 million as the aging industrial area transforms into an artsy neighborhood.

“This is the largest L.A. development opportunity around,” said Bradford McCarthy, a CBRE Group Inc. senior vice president who represented the seller of the 14.6-acre (5.9-hectare) property in a transaction that closed Tuesday. “For just land, $130 million is a lot to pay. And it’s a lot of acreage.”

Development is surging in downtown Los Angeles as the U.S. economy recovers and urban real estate in Southern California remains a bargain compared with land in Manhattan, San Francisco or Hong Kong. Investors have poured more than $17.3 billion into central Los Angeles since 1999, including 29 buildings under construction and 40 more in the pipeline, according to a 2014 year-end report by the Downtown Center Business Improvement District.

SunCal’s plans for the site, purchased with financing from Michael Dell’s family office, MSD Capital, are still being formed for a mixed-use project expected to take years to complete, according to Jeff Sofferman, a senior vice president for the Irvine, California-based developer. A combination of office, live-work and retail space is being considered for the property, he said.

“It’s rare to have the opportunity to be able to plan a site situated squarely amidst the arts and award-winning restaurants,” SunCal President Stephan Elieff said in an e-mailed statement. “It provides great access to the other dynamic neighborhoods in the downtown Los Angeles market as well as regional transportation infrastructure.”

Arts District

The site is in the Arts District, a longtime industrial neighborhood where developers aspire to create a Los Angeles counterpart to Manhattan’s Meatpacking District or San Francisco’s South of Market. It has attracted condominium and apartment developments backed by Goldman Sachs Group Inc. and Blackstone Group LP, as well as gourmet restaurants such as Bestia. The property is currently home to a pair of warehouses used mostly by food distributors.

“The Arts District has been the subject of great attention from developers around the country, and we don’t see that changing any time soon,” Carol Schatz, president of the Downtown Center Business Improvement District, said in a telephone interview.

SunCal, which barely survived a partnership with Lehman Brothers Holdings Inc. after the investment bank’s 2008 collapse, is developing 20 master-planned communities, mostly in suburban areas of California, New York, Texas, Nevada, Virginia and Georgia. In December, the company and a partner bought a former General Motors assembly plant in Sleepy Hollow, New York, for $39.5 million. SunCal plans to build 1,177 residences and a hotel on the land, about 30 miles (48 kilometers) north of New York City.

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