Business development, business loans in LA area

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Oct. 20, 2009

KPCC business analyst Mark Lacter talks about business development and business loans in the Southland.

Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. So we're coming out of a deep recession. True?)

Mark Lacter: That’s what everybody says.

Julian: We've seen sign after sign that business is down and consumers are broke, yet the landscape isn't all bleak?

Lacter: A little less bleak than you might believe. Actually, there’s still some construction going on, Steve, despite all the bad news.

Check out Los Cerritos Center, where a new Nordstrom is in the final stages of a $95 million makeover. Now, the shopping mall is owned by the Macerich Company, which is based in Santa Monica and is in pretty bad financial shape. But Nordstrom is helping out with the financing, with the assumption that at some point the economy will begin to recover and consumers will begin spending.

Another example is L.A. Live, where its developer AEG is putting the finishing touches on that massive high-rise that will house two hotels and a bunch of luxury condos set to open early next year. The L.A. Live folks were lucky because they had arranged financing before the roof caved in on the credit market.

Julian: Are banks starting to take a few more chances on big development proposals?

Lacter: Well, not really. That’s why developers of the planned Grand Avenue complex on the other side of downtown L.A. aren’t as fortunate as the L.A. Live people. The credit window shut tight before they were ready.

Same is true for a number of condo and office projects, some of which may be perfectly worthy. Problem is there are so many delinquencies already on the books involving office buildings and hotels and shopping malls, and all those debts have to get sorted out

Just this week it's being reported that one of the mortgage notes for office property at Playa Vista is being sold. So once the current construction work is completed, it could be a while before we start much in the way of new activity – not great news for construction employment or the local economy in general.

Julian: Except at Los Angeles International Airport.

Lacter: That’s right. The Airport Commission yesterday signed off on more than a billion dollars in construction contracts for the Bradley International Terminal.

The plan is to add a million square feet of space to a facility that most everyone agrees is way too small and cramped – don't forget, Bradley has remained pretty much unchanged since it opened in 1984. The expansion will be used for additional ticket counters, security checkpoints, passenger lounges, and restaurants and retail stores.

The other big improvement will be installation of gates that can accommodate the new generation of commercial jets, especially the giant Airbus 380. Just a couple of years ago this project seemed like a no-brainer, because there had been such a big increase in international air traffic.

Julian: So how do they pay for it?

Lacter: Well, the city's Los Angeles World Airports will be selling bonds to investors, just as the state government does when it tried to finance its big public works projects.

Of course, selling bonds also means having to make debt payments, so that might result in some cost-cutting of the airport operations. What all this comes down to is not just getting a loan, but having the ability to pay off that loan.

Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes a business blog at LAObserved.com.

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