Watt's $600 million planned City Center complex for sale.

Project victim of soft real estate, financial markets

Major developer Ray Watt has slapped a "For Sale" sign on his planned $600 million-plus Watt City Center highrise complex near downtown L.A.

His Watt City Center project, on a 6.48-acre Harbor (110) Freeway-front site, becomes yet another victim of today's dismal real estate and financial markets.

Watt and partner Kent Merselis, operating as W&M Partners Development Corp., spent five years and untold millions of dollars pursuing plans for the controversial two-tower complex in the "Central City West" district. It had been considered one of the key projects aimed at boosting development of that 314-acre district just west of the freeway.

Like so many other stalled downtown area projects, however, the development planned at 7th and Bixel streets wasn't able to sign on a major "anchor" tenant to justify construction of the first 24-story phase. The L.A. County Transportation Commission's board had voted in "closed session" to take Watt City Center's entire first phase but its successor agency, the Metropolitan Transportation Authority, backed out -- and that seems to have been the final blow.

The freeway-front sign on the sloping property refers interested parties to Senior Vice President Joe Faulkner of CB Commercial Real Estate Group, who is marketing the former "Thomas Cadillac" site on behalf of W&M. Also available are the custom-built steel beams fashioned for Watt City Center's phase-one office tower. A second tower of up to 60 stories has also been approved.

Watt and Faulkner said the "asking price" for the site -- including the steel and approved "entitlements" for 1.6 million square feet of office development -- is $50 million. But downtown real estate sources agreed the property isn't likely to fetch even half of that today, considering the soft office market, reluctant construction financing climate and abundance of approved projects nearby.

Along with the entitlements, a buyer would also inherit obligations to build 80 units of affordable housing at a cost of perhaps $15 million, and to make an estimated $20 million worth of traffic-flow improvements to adjacent streets.

Faulkner noted that the price Watt and Merselis paid for the property, as the downtown market peaked in the late 1980s, amounted to $37 per floor-area-ratio foot. The FAR figure is the amount of commercial space that can be built per square foot of land. So on the 6.48-acre site entitled at a 6:1 FAR, the purchase price was something over $59 million.

Watt said the owners have hired Faulkner and associates to sell the property "with the blessing" of W&M's mortgage lender, the Cayman Islands branch of Swiss Bank Corp. Title records indicate that W&M in August 1988 pledged the property as security for a Swiss Bank note "in the principal sum of up to $178 million."

Watt City Center was approved nearly four years ago by L.A.'s City Council over objections of city's Planning Department and Planning Commission. The approval came during an interim moratorium on development in effect within the Central City West district before a comprehensive "Master Plan" for the district was approved in February 1991. Watt had reportedly attempted to sell the property for $150 million in 1990.

Like other projects just outside the "downtown highrise core," the Watt development wasn't able to attract major "pre-lease" tenants as several major new core highrises competed fiercely around the turn of the decade.

Watt City Center didn't make the final cut for a proposed new Metropolitan Water District headquarters. And despite the staunch support of former L.A. Mayor Tom Bradley -- a longtime Watt ally -- the Watt project also lost the MTA when the agency's new board decided to house operations of its merged predecessors, the LACTC and Rapid Transit District, at a highrise already under way near Union Station.

W&M recently shut down its downtown development office and is handling inquiries through Faulkner and an office in the Santa Monica headquarters of the Watt Companies. Watt said he's "open to all offers and all opportunities" from prospective buyers and tenants. "We've continued to show the property; we're trying to generate as many leads as possible" with the hiring of CB and the planting of the big sign.

But prospects for a quick sale aren't encouraging, other downtown real estate professionals noted. "Even if a project makes sense financially, financial sources just don't want any new real estate projects on their books," commented architect/planner Chris Martin, president of the Central City Association's executive committee.

While "there won't be many downtown buildings developed for a while," Martin added that some "bottom-fishing" buyers might look favorably on such a well-located site with entitlements in place. "It's just not worth what it was a few years ago," he said.

"It think it makes sense for them to sell and cut their losses," added John Semcken, marketing director with the nearby Los Angeles Center project, Central City West's biggest planned development. He added that the L.A. Center team has pre-leased 60 percent of its phase-one tower to Unocal Corp., but nevertheless hasn't been able to secure construction financing in the current real estate environment.

But Watt City Center's entitlements "are worth a lot," Semcken said. "It's a valuable asset to be able to go up at any time."

The 74-year-old Watt, who has built more than 100,000 homes and a slew of office developments during his distinguished 45-year career, was assistant Housing & Urban Development secretary in the Nixon Administration.

He has felt the pinch of the local real estate downturn. In 1990, he cut the work force at his former Watt Industries Inc. umbrella organization from a high of about 700 to less than 400.

Last March, Watt Industries sold nearly all the assets of its Watt Housing Corp. unit to UK-based Baezer Homes for $116 million. Then last June, Watt Industries withdrew from a partnership with California State University Northridge that was to build offices, a hotel, a stadium and other facilities on the school's campus.

As the economy and real estate environment start to recover, Watt said, his trimmed organization will "concentrate on housing opportunities."