The Rauch family's USD 2 billion Fourth & Central megaproject in Downtown Los Angeles, whose plans were first presented in 2021, received final city council approval on 30 June. The five-year delay, caused by environmental reviews and numerous redesigns, could easily be interpreted as another sign of the inertia in the city's development process. However, the approval of the 7.6-hectare mixed-use project, comprising 1,589 residential units, offices, and retail spaces, came at a crucial time.
Given the dwindling confidence in Los Angeles and the argument of a former mayoral candidate who described downtown as a "hellscape," the granting of approval for such a significant project injects much-needed optimism into the development market, especially in the city centre. Jessica Lall, Managing Director for Downtown L.A. at CBRE, stated that the project clearly signals that Downtown L.A. still has a future. She emphasised that there are still large projects being pushed forward despite current challenges, describing Fourth & Central as an important anchor in a significant part of Los Angeles.
Lall added that the project has become a central component in the argument for all concepts in the city centre. Had it not been approved, it would have confirmed fears that the city is not open to business activities and transformative visions. Given a potential low point in prices and property valuations, Fourth & Central could further pave the way for creative developments and redevelopments.
Marco Chung, Senior Market Intelligence Analyst at Avison Young, noted that the value of this approval is informational, not transactional. The market already knew that downtown plots were inexpensive. Comparable sales had confirmed this for years, Chung stated. Bank of America Plaza traded at nearly USD 150 per square foot earlier this year, while Aon Center transacted at approximately USD 130 per square foot – significant reductions compared to the average price of USD 450 per square foot pre-pandemic. The permitting risk had hampered development, Chung argued, and the unanimous approval of Fourth & Central by the city council eliminated this variable. He called it "living proof that the city will allow density on a grand scale in the district where sponsors doubted it the most."
Chung stressed that this dynamic applies to housing, not necessarily to offices, which have their own challenges and capital structures. However, given Downtown L.A.'s growing residential population, currently over 90,000 residents, and the desire for more foot traffic to support retail and offices, the new investment in Fourth & Central sends a positive message to nearby owners, especially ahead of major events like the FIFA World Cup and the Olympic Games. The new cluster of ten buildings is intended to bridge the gap between neighbourhoods, with nearly one in seven units planned as affordable housing. The Rauch family will relocate their decades-old cold storage facilities to another site in the region.
Larry Rauch, President of Los Angeles Cold Storage, stated after the approval of Fourth & Central that they had spent literally years developing the plan to transform this industrial site into a mixed-use community. He added that the city's decision-makers' approval of their vision for Downtown Los Angeles makes this important milestone all the more rewarding.
The approval of Fourth & Central is also an indicator of improved development policy in the city centre. The urban "Downtown 2040 Plan" has increased the proportion of downtown that allows "by-right" developments from approximately 30 percent to 60 percent, which accelerates lengthy approval processes. In addition, SB 79, the recently approved state law, increases density bonuses for transit-oriented developments and covers a significant part of the city centre. Developers now have the opportunity to realise larger and faster projects.
Kelly Farrell, Managing Director of Gensler's Los Angeles office, highlighted that "by-right" developments alone cannot remove all hurdles to approvals, but are a "really compelling step" that will advance projects. Furthermore, considering the city's updated "Adaptive Reuse Ordinance," which provides incentives for projects built as recently as 2011, suddenly many more potentials arise for the redevelopment of the city centre's older building stock.
This is not the only sign of new life in the city centre. Developers Jamison and Kennedy Wilson, as part of a new 15-project programme with 4,000 residential units, plan to convert the L.A. World Trade Center on Figueroa Street for USD 200 million into 512 residential units, with affordable housing starting at approximately USD 1,000 per month. Multi-family developer Jamison Services also announced plans in January to convert the 33-storey Health Plan Tower on Seventh Street into nearly 700 residential units. These developments merely reinforce the long-standing trend of the city centre towards more residential space.
