KB Urban project draws attention after CEO's exit.

Could plans for L.A.'s convention center hotel be upended by the sudden departure of KB Home Chairman and Chief Executive Brace Karatz?

The Los Angeles home builder says absolutely not, but there's some talk of that in the downtown community since Karatz's resignation from his post last week after the company said he personally backdated stock option grants.

The company's KB Urban division is planning to build more than 200 residential condominiums above the high-rise hotel, and its participation is considered key to making the project pencil out. (The hotel itself will be operated under two flags: a 124-room Ritz-Carlton hotel atop an 876-room Marriott Marquis.)

However, the departure of Karatz, who has been a big booster of the project, leaves some wondering if the deal could unravel--especially since the downtown condominium market is rapidly losing steam.

"Revenue assumptions are down for condos. The assumptions have got to change," said a downtown official, who asked not to be identified.

A broker, who also asked not to be identified, noted that Karatz wielded his power to push the hotel deal through even when it didn't "pencil." The project is KB Urban's first and only significant development.

However, officials at KB Home say that Karatz's departure will not halt the project, which is slated to open in 2010.

"It is not affected by the departure," said Caroline Shaw, senior vice president of corporate communications for KB Home. "We announced that all the paper work is done and we are meeting regularly, moving forward and meeting the target dates for opening."

Shaw called KB Urban, headed by Jeffrey Gault, "an integral part of the company" adding that it is "business as usual" as the company looks to launch its portion of the L.A. Live project with main developer AEG.

AEG officials did not return calls seeking comment.

Others in the downtown community also voiced doubts that the project would be altered at this stage. It was first announced in January.

"KB is so far along with AEG on the hotel and condo project that it is unlikely that it will be cancelled," said Steve Fifield, president and founder of Fifield Cos., a real estate development firm.

Still, the realities of the soft downtown condo market could force some changes to KB Urban's plans for the high-end condos, dubbed The Residences at The Ritz-Carlton, Los Angeles.

The condo development was announced before the downtown market hit a rough patch. There is speculation that perhaps the condo units will have to be made smaller with the hope that more units will generate more revenue.

This fall Lincoln Property Co. cancelled its plans to sell units at a condo development called Mozaic in the downtown Los Angeles. Instad, units in the high-end development, which feature, granite countertops, hardwood floors and vaulted ceilings are being rented.

By DANIEL MILLER 

Staff Reporter