Rescue me

Editor Rob Wagner explores how Dubai cash is helping revitalise downtown Los Angeles at a time when US investors are too nervous to spend on real estate developments.

In the 1980s there was considerable angst among American real estate experts that Japanese investors were elbowing out competitors by buying up prime properties from Los Angeles to New York.

What seemed like a savvy move 20 years ago came around and bit the Japanese on the backside by the end of the '90s when their economy tanked. Perhaps the biggest blunder occurred when the Mitsubishi Estate Company purchased most of the investment holdings in Rockefeller Center in New York for an estimated US $1.4 billion (AED5.1 billion). Mitsubishi bought a historic icon but thanks to dwindling renters it never became the cash cow the company had envisioned.

Japanese investors shrank back from such ostentatious real estate deals and only now have made tentative steps to again pursue US properties.

But Japan's loss is Dubai's gain as Arab investors are looking to Western nations to invest their wealth. They learned lessons from the Japanese and found that selected equity partnerships in key land holdings and construction projects can return handsome profits. Surprisingly, there is little hand-wringing among American politicians and real estate competitors over foreign investment of American construction projects and real estate acquisition.

The reason? American companies need Arab cash to kick-start projects. A case in point is the $3 billion Grand Avenue project, now simply named The Grand, in downtown Los Angeles, a city with a long history of failed urban revitalisation and piecemeal building that left the civic centre with zero character and identity.

Buoyed by the unexpected success of the Frank Gehry-designed Walt Disney Concert Hall, which was completed in 2003, the city and county of Los Angeles began considering a project that would complement the hall, if not exceed it, by creating a vibrant downtown.

The project is situated over a total of 36,421m², plus a 64,750m² park, on three city blocks that will include up to 2600 residential units, retail and restaurants and the five-star Mandarin Oriental Hotel, with luxury residences to anchor it.

The Related Companies' California division under President Bill Witte brought back Gehry, who is currently charged with designing the new Guggenheim Museum in Abu Dhabi, and then sought the Dubai-based Istithmar World as an equity partner. Istithmar provided $100 million, and just recently three Korean insurance companies, under the umbrella of the Honua Group, announced an additional investment of $100 million in the project.

READERS' COMMENTS

MORE FROM ARABIANBUSINESS.COM