Los Angeles is becoming the land of the mixed-user, and Downtown LA's upcoming Metropolis megadevelopment will soon be the king of them all. When completed in 2018, Metropolis, with its three massive towers full of condos, retail space, and hotel rooms, will be the biggest mixed-use development on the West Coast. Those 1,500 condos have already been selling steadily, years before the project is even completed—in September of 2014, developers said that 40 percent of the project's 38-story, 310-unit, first phase condo tower had already been sold, and by October of this year, the number of sold condos had risen to 65 percent. But those numbers can be deceiving—locals are worried that much of the real estate in Metropolis is actually being swooped up by absentee owners (many from China, like Metropolis's developer) who do not intend to live, shop, or in any way support the surrounding community, KPCC reports. Chinese investors have come to think of American real estate as somewhere to house not themselves, but their assets.
One reason that Metropolis developer Greenland USA was able to jumpstart construction on a parcel of land in South Park that had for decades defied development was its ability to easily reach millions of Chinese buyers (plus something like $40 million in tax breaks). Since the company is already a known entity in China, it's able to advertise the $600,000-to-$2 million Metropolis condos directly to buyers already in the market for international real estate.
Even better for Greenland, the National Association of Realtors recently found that 70 percent of Chinese buyers in the US pay all cash. Those readily available funds come in handy when financing a massive $1-billion condo megaproject in three phases. According to Pin Tai, president of Cathay Bank, those initial buyers build "a foundation" for the rest of the project—he says that "most banks require up to half a building to be under contract before they'll approve a mortgage." Those cash-only initial buyers provide both the bankroll and the borrowing power necessary to finance the three phases of the Metropolis project. Tai, whose bank is handling several Metropolis resident's mortgages, says the target customer for the Metropolis development is "probably 30 percent Chinese Investors."
But while the surge in Chinese condo investment may be a boon to real estate developers, it could also have a negative effect on the surrounding neighborhood. According to a 2015 survey by the National Association of Realtors, only 39 percent of Chinese homebuyers planned on using their US property as a primary residence. Most properties are left vacant, simply an investment that appreciates in value until it's time to sell. It's a trend that has also been gaining popularity in New York and London, leading real estate appraiser Jonathan J. Miller to refer to such condos as "safe deposit boxes in the sky that buyers can put all their valuables in and rarely visit." Sure, it's a sound financial investment for a global traveler with means, but if too many condo buyers have this attitude, it could mean trouble for property values in the area. Dominic Ng, chairman and CEO of East-West Bank, says he always advises developers to "make sure 80 percent of the residents are going to stay there full-time," lest the property turn into a "ghost town."
This threat of a ghost town condo in Downtown LA has Downtown LA Neighborhood Council member Scott Bytof worried about the effect on the area. While a fully sold Metropolis would be peachy for Greenland Holding, it would do little to pump money into the local economy, a situation Bytof calls a "missed opportunity." For Metropolis to fully invigorate South Park, it would need to fill its towers with full-time residents that walk the streets of the neighborhood and patronize its shops and restaurants.
Greenland won't divulge how many condos they've sold to Chinese investors, but the developers claims it's not courting solely Chinese buyers. In a written statement to KPCC, the company says Metropolis "already has buyers from eight different countries" and they "expect the residents of Metropolis to be as diverse as the rest of Los Angeles."
· Who will be living in downtown LA's new mega condos? [KPCC]
· South Park's Unbuilt Metropolis Condos Already 40% Booked [Curbed LA]
· South Park Megaproject Metropolis Selling Yet-to-Be-Finished Condos Starting at $555k [Curbed LA]