CALIFORNIA’S HOT SPOT

The state of California is reeling from a huge budget deficit anchored to seemingly insurmountable unfunded pension liabilities. And yet, there are signs of life again in one city after what has felt like a long, cold economic winter. The Downtown Los Angeles commercial real estate market is on fire!

Notwithstanding the dissolution of the Community Redevelopment Association – all of the CRAs in the state were vaporized by Governor Brown – there are scores of projects driving the most dramatic renewal of any major city in the country. There are no fewer than 70 active development projects in or near the downtown core, ranging from restoration of Clifton’s Cafeteria on Broadway to the construction of Farmers Field, the only purely speculative professional football stadium built in; well, forever. LA does not yet have an NFL team.

Values are going through the roof. The owner of the Downtown Car Wash, a fixture for more than 30 years in the South Park district near LA Live and Staples Center has announced he is selling after getting serious interest from several developers for his parcel of three quarters of an acre after listing it for $25 million, or $683 per square foot. That’s just the dirt.

Population is growing dramatically, but the numbers will astonish you for reasons you might not expect. There are – get this – 45,000 residents living in downtown LA, While this is a 300% increase from just 10 years ago, these numbers are still surprisingly low for a major internationals city. Growth is relative. But the trend that cannot be quantified is that downtown is emerging as the coolest area in downtown LA. You have to have lived in our fair city to understand what a radical change that represents after being the black hole in the middle of the megalopolis for 50 years.

Keep your eye on Los Angeles.

THE FUTURE OF BUSINESS IN CALIFORNIA

It was a brilliant presentation of undeniable facts from Larry Kosmont, President of Kosmont Companies about the economic and political forces presently at work in California…and the ramifications to every business in the state.

Mr. Kosmont made his 2012 Economic Forecast presentation to the Central City Association in downtown Los Angeles on Thursday, February 16. Some of the facts Larry laid out were daunting:

• The state is frozen in a dread triangle of high unemployment, staggering pension obligations, and the legislative’s preferred response: tax increases.

• There are 15,000 retired public workers in California with pensions greater than $100,000 annually.

• The casualties resulting from the elimination of the State’s redevelopment agencies will include tens of thousands of jobs and hundreds of projects, including the construction of the vast majority of new affordable housing in the State.

• As California raises its taxes, it continues to lose business to Arizona, Nevada, and Colorado

• Mr. Kosmont describes a “hollowing out” of our business economy: successful businesses are incubated in California, but most of the blue collar/middle class jobs are then exported due to the high cost of doing business here, leaving only a skeleton crew of sales people to maintain the company’s presence.

• Downtown Los Angeles is the brightest spot in the state, as the residential population grows and businesses springing up constantly to be a part of the revival of a once great urban core.

The conclusion: California is not the promised land it once was, but it can be rescued.

Mr. Kosmont’s presentation is available online at www.kosmont.com. It is very interesting reading.