When Michael Rosenfeld made the deal for the site of the Century Plaza condo back in 2008, he knew it was one that would define his legacy.
“This is a rare opportunity to buy a jewel in my hometown,” he told the Los Angeles Times after closing on the acquisition of the landmarked Century Plaza Hotel for $366.5 million, with backing from New York-based D.E. Shaw. Rosenfeld cited the area’s bustling office and residential market as part of the property’s appeal.
A dozen years on, that legacy has turned into one of the great odysseys of Los Angeles real estate development. Rosenfeld, head of Woodridge Capital Partners, faced years of delays amid local opposition to the original plan to demolish the hotel, and struggled at first to find financing in a post-recession economy.
Since marketing began on Century Plaza’s North Tower in March 2019, the project has done an impressive $300 million in pre-sales, according to the developer, up from $200 million in October. But the scale of the $1.8 billion, 331-unit project, a messy legal battle and the fact that it’s the city’s biggest bet on vertical living in a Covid-19 environment where density is a tough selling point, mean it make take many years before the success of the project can be judged.
While the pandemic may not have interrupted construction at the site on Avenue of the Stars — crews were hard at work during a recent visit by The Real Deal, at Woodridge’s invitation — its long-term effect could have a profound impact on the city’s residential market. Woodridge said it’s targeting wealthy empty-nesters. But older buyers are also more vulnerable to the pandemic, and may be more reluctant to bet on density.
“Covid’s not helping,” said Mike Leipart, a veteran new-development agent with the Agency. “But it’s a long race, and whatever happens on one mile of a marathon is not going to be make-or-break.”
The Century Plaza project includes two towers, the renovation of a landmark hotel, and 100,000 square feet of retail and restaurant space.
Rosenfeld first received city approvals for the development in 2013. The opening of the two towers — totalling 268 units — has been pushed back twice, and is now set for mid-2021, while the opening of the 394-key Fairmont hotel — which includes another 63 condo units — was pushed from this spring to the fall. Woodridge says such delays are not unusual for projects this big.
Century Plaza’s director of sales, Mary Ann Osborn, said “construction has not stopped at all” during the pandemic, with the work considered essential under state guidelines. Osborn said she has not seen a slowdown in sales either, though she wouldn’t provide any details.
“We have continued our sales virtually, with people who had already been to the sales gallery and were yet to submit offers,” Osborn said in an interview with TRD in May. Woodridge has also reopened its sales office after that was shut because of Covid-19.
Though Woodridge still has $1.5 billion in unsold condos — representatives declined to say how many units have been sold — Leipart, who was lead sales agent at Greenland’s the Metropolis condo project downtown until January 2019, said that projects like these generally pick up sales momentum as construction wraps up.
“The closer you get to being able to move in, the more it speeds up and once it’s open it speeds up even more because you can move right in,” he said, noting that unlike in New York and Miami, pre-sales have never been particularly popular in the Los Angeles market.
“If you sold $300 million pre-sale of any other project in this town, that’s a huge success,” he added. “Most other entire buildings aren’t $300 million. It’s a very ambitious project.”
But some industry pros remain skeptical given the sheer amount of units at Century Plaza, the potentially lingering effects on the pandemic and Woodridge’s $2,500-a-foot asking prices on its units.
“It’s going to take a lot of time to sell out,” said Stephen Shapiro, a principal at Westside Estate Agency. He said the litmus test was Related Companies’ The Century tower nearby. “That took a long time to sell out, and units sold for a lower price than they were asking,” he said. Shapiro noted that with a vanishing pool of international buyers, the focus on empty-nesters is a logical one, but fraught with inconveniences “like an enormous capital gains tax.” And, he added, “it’s a whole educational process to get somebody to move to a condo from a house.”
Shapiro said L.A. County condo sales were down 70 percent year-over-year, according to MLS data he reviewed. Industry analysts maintain that selling out luxury condo towers is a multi-year endeavor, even without the backdrop of a pandemic.
A trustee’s broken trust
L.A.’s unproven luxury condo market isn’t the only obstacle Woodridge faces.
In May, Century Plaza found itself dragged into a legal dispute with one of the project’s co-guarantors. Glorya Kaufman, the widow of KB Home founder Donald Bruce Kaufman and a USC trustee, claimed to have no recollection of entering into the guaranty agreements and sought to have them voided.
Kaufman’s suit includes the allegation that Rosenfeld, along with Harvey Bookstein, an accountant, repeatedly misled her into making “very risky” real estate investments over the course of a decade — including the purchase of “an entire floor in the North Tower condominium” for more than $24 million.
Woodridge denies these claims and has filed its own breach of contract action in response. The developer’s complaint notes that Kaufman — who is also embroiled in a legal battle at the bankrupt Beverly House mansion in Beverly Hills — entered into guaranty agreements for a construction loan, a mezzanine loan, and a preferred equity investment “initially in 2016 and on numerous occasions thereafter,” before a change of heart last November.
Kaufman’s attorney declined to comment.
One in 900
Like many large developments that kicked off in the mid-2010s, Woodridge tapped the EB-5 investor visa program for funds. Through a regional center known as CMB Export, 900 foreign investors contributed a total of $450 million to the Century Plaza project. They staked that money alongside a $446 million senior loan from JPMorgan Chase and $120 million in mezzanine financing from Tom Barrack’s Colony Capital.
EB-5 has turned out to be a raw deal for tens of thousands of Chinese investors who now face an application backlog of 10 years or more.
In a 2018 lawsuit, Chinese national Kewu Zhan sued the regional center, alleging that it hid the true extent of the backlog. (The severity of the backlog problem was not yet evident in 2016 when he made the investment.)
“It now appears that plaintiff Zhan [who is in his 60s and does not speak English] will die in China of old age while waiting for his investment to be returned to him, if ever,” Zhan’s lawyer wrote. The developer is not accused of any wrongdoing. The lawsuit was dismissed last February. Zhan’s lawyer said that the case was sent to arbitration, but his client could not afford the legal fees involved.
According to EB-5 documents included in the suit, the EB-5 financing is set to mature next September. Colony Capital’s mezzanine financing, which carries a cash coupon of 10 percent, has a maximum maturity date of July 2022 if extensions are exercised, according to company disclosures.
The commercial component is also a big part of the Century Plaza development. No lease deals have been closed for the retail space, though sources close to the project said some high-end boutiques and a pilates studio have expressed interest.
Century Plaza isn’t the only major L.A. condo construction that has faced challenges in the development process. Two in DTLA, Greenland’s Metropolis and Oceanwide Holdings’ Oceanwide Plaza, have also seen significant delays and disputes.
Unlike those projects, which were heavily dependent on both foreign capital and foreign buyers — both of which have dried up — Century Plaza has benefited from the backing of a local partner. Los Angeles-based Oaktree Capital Management entered the development partnership in 2011, replacing New York hedge fund D.E. Shaw, with whom Woodridge had initially acquired the site.
A source familiar with the development estimated 70 percent of potential buyers were “local,” with East Coast and international buyers making up the rest, though no supporting documentation was provided.
“Your primary buyer for these units is older, they’re an empty-nester. They’re tired of taking care of their house in Bel Air or Beverly Hills,” said Leipart. He called the location “an absolute A+,” and called the Westfield mall a “great amenity.”
One of the project’s main draws, a very nice mall — and amenities such as banquet meeting rooms and a state-of-the-art fitness center — may not be as alluring in the age of Covid-19. Neither may be the idea of vertical, elevator-dependent living.
“But we don’t know that yet,” Leipart cautioned. “We don’t know how consumer behavior is going to change, because it’s just too soon.”
As was the case prior to the pandemic, the biggest question around Century Plaza is still the same: Is the Century City market deep enough to absorb more than 300 units at ultra-luxury pricing?
At Metropolis, Greenland had sold 361 of the 826 units or 44 percent as of December. Oceanwide did not return calls for comment on pre-sales at its under-construction three-tower 504-unit condo complex and 184-key luxury hotel.
One factor that speaks in favor of a strong finish for Century Plaza is the relative lack of competition in its niche.
It’s “the only game in town for downsizers out of Beverly Hills and Bel Air,” Leipart said. “And I think they’re going to do quite well.”
Osborn also noted that buyers have been coming from Related’s project next door, where she had previously been the sales director. That luxury tower was built a decade ago, and Osborn said Century Plaza buyers like the area but now they want something “new.” She did not specify how many buyers had come from Related’s project, but emphasized that Woodridge’s bet could be the last of its kind in the area.
“There are very high barriers to entry in Century City,” she said. “And a project like this could never be built again.”
Matthew Blake contributed reporting.