Graffiti Towers – Harbinger of LA Residential Real Estate Crash?
THE VIEW FROM HERE – People are most optimistic that prices will forever increase just before the crash. That was how it was for the Wall Street Crash in early October 1929. The same holds true for the Crash of 2008 due to Wall Street’s subprime rate frauds. When pre-crash confidence is high, too many people borrow and spend money thinking the boom cycle will be forever. Others foresee the coming crash. There are, however, always doomsayers who make their living crying wolf, but few can correctly extrapolate events to warn of a real crash. In 1999, Sen. Byron Dorgan (D-ND), for example, warned that the repeal of The Glass-Steagall Act and the legitimizing of Credit Default Swaps (CDWs) would collapse the real estate industry and drag the rest of the economy with it. Sen. Dorgan was no false prophet; he simply saw the folly of repealing Glass-Steagall to allow investment firms to own commercial banks and to allow Credit Default Swaps would result in disaster. Dorgan thought it would take about eight (8) years; he pretty much hit the nail on the head. Average Joe’s cannot distinguish false prophets from the sagacious. People heed those who emotionally satisfy them.
Like Schizophrenia, Real Estate Crashes Have a Prodromal Phrase
Although there is always a prodromal phase where people should realize that something bad is rumbling beneath the surface, few grasp the urgency. After it is too late, something clicks as if a critical mass has been reached. For the Crash of 2008, it was the abrupt overnight bankruptcy of Lehman Bros on September 15, 2008. Then, the world panicked. The “sell, sell, sell” mentality took hold, which caused the bottom to drop out of the market. Houses worth $2 Million one day were worth $500,000 a week later. Is Graffiti Towers (Oceanwide Plaza) evidence of prodromal to Los Angeles real estate crash? Yes! Until a few days ago, almost no one knew that the Graffiti Towers existed. Now, they are known worldwide. What a difference a little paint can make.
Named “Oceanwide Plaza” (as if it were located in Santa Monica), the three vacant towers are known as “Graffiti Towers.” Oceanwide Plaza was doomed ab initio. It was to be $1 Billion project, but now costs are projected at $2.3 Billion with three towers housing luxury condominiums, apartments, a swanky hotel plus upscale retail. By 2010, it was clear that Los Angeles had excess downtown capacity. In fact, the original the high rises on Bunker Hill always had that problem but it was never widely acknowledged. The 2010 US Census proved that Los Angeles was basing its planning on Lies and Myths. It still does. Independent demographers, who were not on the city payroll, foresaw the population decline, which became a reality a few years ago. Wise people do not build more in face of declining demand. Perhaps, the Oceanwide’s developer realized about a decade ago that it should cut its losses. Our deluded city council thinks that some private financier will re-fund this project.
Muralists Climbed High above the City to Turn Trash into Art
The artists who have been turning the buildings into a tourist attraction are not ragtag taggers; they are true artists. Inadvertently, the artists are raising a serious question: Why is LA constructing all these mega towers when their best use is for graffiti-art? Why would the city authorize more density in DTLA when LA already had mind-boggling traffic congestion during rush hour? Why did the city authorize the Graffiti Towers when all the demographics showed that first Hollywood and then city would lose population unless the densification mania stopped?
What Happens When There Is Excessive Densification?
First, politicos, developers and Wall Street lie, claiming there is huge demand. It’s known as LA’s Big Lie #1 – a housing shortage. Several DTLA towers are going bankrupt due to lack of tenants so that some owners are simply walking away from their buildings and taking a loss to offset gains in other real estate ventures. It’s as if the Trojans saw the Greeks loading soldiers into the horse but ignored it. Let’s face it, the three huge, vacant towers right across from LA Live are much larger than the Trojan Horse. “They have eyes, yet they cannot see.” Mark 8:18
Lies and Myths Change People’s Perception of Reality, but They Do Not Change Reality
One reason for the huge bubble in Los Angeles real estate prices in DTLA and elsewhere is the non-stop lying plus endless supply of gullible Angelenos. Home buyers have been shelling out two to three times the value to buy a nice home in LA. Landlords carry unwarranted high mortgages which require high rents. That means Wall Street is sucking hundreds of billions out of the LA economy. The fraudulent high housing cost is a major way that the 1% (Wall Street) is systematically transferring wealth to itself from everyone else. Mortgages to cover criminally hyped housing costs mean that much of owners’ mortgages are based upon illusion or delusion. Similar to a Ponzi Scheme, those who run the scam rake in the big bucks. Ponzi Schemes are quick affairs, but Wall Street has managed to stretch out this con for an impressive amount of time. After their folly of the subprime crash, Wall Street may have learned to go a little slower so people are less likely to catch onto the corruption.
Lack of Construction Did Not Cause Homelessness
Angelenos witness the Homelessness Crisis, but they believe the myth that a failure to construct more housing and an upsurge in mental illness caused the crisis. The reality is that there was no housing shortage for the poor until the city council had over 28,000 RSO units destroyed. Developers bought up and destroyed hundreds of blocks of old, modest single family homes. Google the west side of Wilton south of Clinton. You can see where blocks of modest starter homes were destroyed and replaced by high end apartments. It was the intentional destruction of poor people’s homes which turned the poor into The Homeless. Of course, politicos, developers, and Wall Street push the Big Lie #1 that a lack of construction caused homelessness because they want to be paid to construct Poverty Projects. There was no big pay day for the avaricious real estate developers to rehab RSO units and for the city to make low interest loans to assist people to upgrade their modest homes. It’s always socialism to help the poor and wise business to give billions of dollars to the wealthy.
The Law of Supply and Demand Is What People Believe until They Don’t Believe it Anymore
The Crash comes when reality overtakes the lies and myths. Predicting when that will occur is tricky. Sen. Dorgan foresaw the Crash of 2008 and Cassandra foresaw the fall of Troy, while the populace remained blinded until it was too late. Now, LA is facing a $400 Million deficit. Why? Because real estate like Graffiti Towers are not property tax cash cows. City sales tax from Graffiti Towers’ non-existent retail shops is zip, zero, nada. Destroying existing viable low end retail and modest detached homes and replacing them with excessive densification caused Los Angeles to hemorrhage businesses which moved to other states where their payrolls stimulate the economies of Austin, Texas, at alia. Angelenos would do well to take a gander at these mixed-use projects with their vacant store fronts. Some like the Metro Building on SE corner of Hollywood and Western have never been more than 1/3 rented. Yet, the city continues to build more mixed use projects while people and businesses are fleeing, taking their disposable income with them.
Will Graffiti Towers touch off the public’s realization, “Something is seriously wrong if graffiti is the best use for these towers.”?
(Richard Lee Abrams has been an attorney, a Realtor and community relations consultant as well as a CityWatch contributor. You may email him at [email protected])