The Frymar Construction crew works on a new low-income apartment building on Olympic Boulevard Thursday afternoon. Applications for building permits have dropped considerably given an inability to get financing.

(photo by Brandon Wise)

DOWNTOWN — The once pervasive sounds of drilling, sawing and hammering are quieting.

In a city where residents frequently complain about the amount of construction activity and waged an unsuccesful campaign to restrict development, the recession is pulling the plug on many projects.

The number of applications requesting new construction in Santa Monica has been on the decline as the economic downturn has been giving developers a hard time securing financing for projects, according to a recent memo by Eileen Fogarty, the director of planning and community development.

In the staff report to the City Council about existing citywide development, Fogarty said that there has been a 65 percent decline in such applications from calendar year 2007 to 2008, noting that small- and medium-sized condominium projects have basically stopped.

The slowing of construction locally is reflective of a trend taking shape nationally where private-, state- and federally-funded projects have been falling through since last fall when several of the major financial institutions filed for bankruptcy.

“Basically the municipal bond market shut down so private developers weren’t able to get bank loans,” Ken Simonson, the chief economist for the Associated General Contractors of America, said.

Simonson said the recession is hitting some contractors harder than others, some of whom are still busy with projects that will keep them alive for the next few years, others scrambling to find work and even laying off employees.

Mario Savvides, a local developer who owns several residential properties in the city, said that new construction in Santa Monica, and anywhere for that matter, is “dead.”

“It makes no financial sense for anyone to do anything,” he said. “But even if someone wants to do something, there is no money they can borrow.”

He notes that construction activity has slowed down for the past year to 15 months. Some of his more recent projects include condominiums at 19th Street and Broadway and another residential complex at 15th Street and Santa Monica Boulevard.

While it’s been more difficult lately to sell condos, Savvides said he is doing relatively well compared to developers elsewhere. But he’s not seeing the profits he used to.

“It’s not like we’re making [a lot of] money,” he said.

There are currently 31 pending projects in the city, about seven of which have been placed on hold for reasons that include problems in obtaining financing.

The applications include several mixed-use developments, a media production facility, a gas station, several condominium complexes and a 50-unit single-room occupancy (SRO) project on Nebraska Avenue. A larger 623-unit SRO in the light manufacturing and studio district has been withdrawn.

There are also approximately more than 68,000-square-feet of new commercial development proposed for the city, much of which is spread out over roughly a half dozen mixed-use projects that include retail space. City staff is encouraging developers to incorporate transportation demand management measures designed to offset traffic impacts.

“These measures are incorporated as conditions of approval,” Fogarty said in the report.

She notes that small- and medium-sized condominiums have “ceased” in 2008, possibly because of stricter affordable housing requirements that went into effect in 2007 and the recession.

“Of the 149 condo units pending planning review, applications for only nine units have been submitted in the past year,” she said. “Others have been pending review for an extended period of time due to design issues or applicant non response.”

Fogarty adds that there’s been an increase in interest for development agreements, mainly by applicants proposing projects on large parcels. The reason can be attributed to the upcoming changes in the Land Use and Circulation Element, which will require the agreements for certain projects in the industrial area.

Other pending projects also include a mixed-use hotel, residential and retail complex at Seventh Street and Wilshire Boulevard and a gas station on Cloverfield Boulevard.

While residential construction activity has decreased over the past several years, the downturn is now impacting hotel and office development, both of which were strong just a year ago, Simonson said.

University and hospital construction has also been impacted because of the drop in value of their endowments.

He doesn’t expect an upturn in construction employment until the middle of 2010.

“I think the federal stimulus money will definitely help but it’s not going to be enough to offset what will be a year-long downturn in private and state and locally-funded projects,” he said.

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