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Wall Street Journal
http://online.wsj.com/article/SB123690304370913677.html

The largest private landowner in downtown Los Angeles said 
it may have to file for bankruptcy protection, the latest 
sign of how the credit crunch has frozen a multibillion-
dollar revitalization of the city's downtown.

Real-estate firm Meruelo Maddux Properties Inc. said 
Thursday that it was working to reach agreements with four 
lenders after the developer stopped making interest 
payments on 26 loans valued at $266 million. Three of those 
loans are due, and the company hasn't been able to extend 
them.

"The debt capital markets have totally shut down," Andrew 
Murray, the company's chief financial officer, said in an 
interview.

It is the latest shoe to drop for Los Angeles's downtown 
district, which has been the focus of a decade-long renewal 
project designed to convert old warehouses and office 
buildings into lofts, high-rise residential towers and an 
entertainment and retail district.

Major pieces already are in place, such as the Staples 
Center sports complex at the south end and the Frank Gehry-
designed Walt Disney Concert Hall at the north end. The 
first phase of L.A. Live, an entertainment complex, opened 
in December. And developers have added thousands of new 
condominiums and rental apartments.

But some plans have stalled, threatening the goal of 
building out the surrounding area. The Related Cos., a 
national developer, missed a city deadline to break ground 
on a $3 billion condo and retail corridor. The first phase 
of the project, once slated to be completed this year, 
probably won't be finished before 2012 because the 
developer hasn't been able to secure financing. Related 
says the project is on hold temporarily. "When things pick 
up a little, downtown will do very well," said William A. 
Witte, president of Related of California.

And, as in other cities, the condo market has been hurt by 
slow sales. Condo prices in downtown Los Angeles fell to 
less than $400 per square foot in the fourth quarter of 
2008, down $100 from the previous year, according to CB 
Richard Ellis.

Meruelo Maddux, which owns land but has done little 
development, has reached 50% occupancy on its first luxury 
rental building, Union Lofts, which opened in mid-2008.

Meruelo is late on completing a 35-story apartment 
building, adjacent to L.A. Live, that is due to open this 
fall. The company said it will keep making debt-service 
payments on that project, which it originally had planned 
to open in May.

Meruelo is trying to sell its buildings to pay down debt 
and to persuade its lenders to restructure loans, but said 
that if those options fail, a bankruptcy filing could be a 
"strategic alternative."

Executives say they remain committed to the idea of 
residential development in downtown Los Angeles. "Downtown 
L.A., the economy aside, will continue along its evolution 
unabated because so much has already occurred," Mr. Murray 
said.

Unlike in Miami or San Diego, the downtown area doesn't 
have a large supply overhang. Real-estate brokerage Marcus 
& Millichap forecasts that 39 new condo and 394 rental 
units will be added to the downtown market this year.

But while the district's troubles may reflect economic 
headwinds that have battered real estate nationally, some 
experts say downtown has also suffered from too many high-
priced developments. "The price points that were projected 
aren't sustainable," said Raphael Bostic, a real-estate 
professor at the University of Southern California. "The 
prices you have to charge now make the returns relatively 
unattractive."