OverviewPressLinks Back to Press page Downtown L.A.'s New Homefront Publish Date: 10/01/2004 Downtown L.A.'s New Homefront Lofts, condos and mixed-use projects redefine city life. By Troy Soumis Flower Street Lofts meet criteria for live-work lofts, and are designed as much for living as for working. Built on an automobile culture, Los Angeles has historically resisted development of high-density urban housing. Now suffering the consequences of 40 years of urban sprawl, the city is finally growing up rather than out and many of its residents are embracing the benefits a city life provides. Nowhere is this change more visible than the central business district, or CBD. Thanks to city officials' relaxing rules for mixed-use development a few years ago, downtown is experiencing a boom in both residential and retail development. This change, notes Larry Hudson, director of assets management for MJW Investments, is the foundation of downtown's revival. It enables developers to get obsolete office or manufacturing buildings zoned for adaptive reuse in about 90 days, whereas zoning changes routinely take five to 10 years. MJW Investments is converting 10 early 20th century manufacturing buildings in the city's Fashion District to residential with ground-floor retail space. Old manufacturing buildings in downtown Los Angeles' Garment District, with large expansive windows and open space, provided the perfect setting for a loft conversion project at Santee Court. A changing landscape It all began about four years ago when developer Tom Gilmore converted three office buildings in the Old Bank District to residential lofts. Since then, about 6,000 units have been completed or are in progress. Additionally, more than one million square feet of retail space is under way or proposed in downtown, including a 50,000 square-foot Ralphs supermarket – the CBD's first major grocery store in over three decades. Pivotal to downtown's residential success, the new Ralphs is the centerpiece of the 120,000-square-foot retail component of the CIM Group's $247 million South Village project, which also includes 1,200 loft-style apartments and condominiums. To make the lofts appealing to a variety of buyers, finishing touches such as hardwood floors were used instead of the polished or painted concrete floors common in a traditional artist loft. New neighbors With CBD serving as the hub for the city's light-rail system and moving closer to becoming a 24/7 environment, downtown residential projects are attracting a young, hip crowd in search of an urban lifestyle, as well as middle-aged professionals who are downsizing. Los Angeles architect Michael Lehrer, designer for exteriors and commercial space at Santee Court, says that what's really incredible about the downtown community is its emergence as a true melting pot. Noting that most downtown projects include 10 percent to 20 percent of affordable housing units, he says that rather than creating a gentrification issue, new development is mixing up people from a broad social and ethnic spectrum. "This is a new thing – a balance of different types of folks – and it has created synergy between the districts," Lehrer says, comparing the new downtown scene to the relationships that exist between Manhattan's ethnic neighborhoods. A perfect fit Loft-style projects dominate downtown residential development, because the loft's open design concept fits the character and framework of converted office and warehouse buildings. The loft concept has enabled developers to provide interesting, livable spaces inexpensively, but it also offers residents an opportunity to create their own environment," Hudson says. "Aesthetically, these are fantastic old buildings with walls of glass, steel window frames, concrete floors and walls,"Lehrer says. The Flower Street Lofts, at 1140 South Flower Street across the street from The Staples Center, occupy the historic UPS Building in downtown Los Angeles. Building for the buyer According to Hudson, Santee Court's Fashion District location is attracting "jeans crowd" professionals, techie and creative types traditionally associated with beach communities. "This is a young person's market, and they're not looking for a box on the Westside," notes Architect Don Barany, who designed Santee Court interiors, the Toy Factory Lofts, loft apartments at 5816 Grand, as well as a number of other projects currently under way. On the other hand, projects near the Financial District tend to attract a broader spectrum of people, from attorneys and physicians to artists and movie-industry technicians, notes Condosource broker Gustavo Lamanna. "Some condo buyers work in downtown, some don't," he says, adding that loft buyers typically are professionals, but without the stiff shirt. "It's not a Beverly Hills crowd." The Flower Street Lofts offer plenty of light and expansive views of the downtown Los Angeles skyline. New projects South Park RPO LLC recently broke ground on South Park Lofts, a project with194 live-work units, ranging in price from $300,000 to over $1 million, that will feature the open space of a traditional artist loft, without the "rough edges," notes Tom Cody, a principal at South Park. Los Angeles architect Johannes Van Tilberg, who designed the Flower Street Lofts, believes it is very important that loft condominiums have some defining separation for at least one sleep area in order to create privacy. One giant room doesn't work for everyone, especially not for people who want overnight guests, he points out. "Renting a loft is one thing: You can try it and if you don't like it, move out. Buying a loft for $400,000 in downtown is a pretty big decision, and people are more discriminating," Van Tilberg adds. Architect Johannes Van Tilberg used angles and separate levels to define rooms and provide privacy in sleep areas. About 2,000 condominiums existed in downtown prior to the recent building boom. However, of the 26 new residential developments completed since 2000, only four are condominium projects, and most of the 372 units at the Flower Street Lofts, Barlette Building, Toy Factory Lofts and Toy Warehouse Lofts sold quickly. MJW Investments President Mark Weinstein explains that the majority of projects are rentals because initially lenders did not buy into downtown's viability as a residential community, so the developers had to rely on historical tax credits to get projects to pencil out. An owner who receives historical credits must hold the property for a certain period, but many of the loft projects may eventually be converted to condominiums. With the success of downtown mixed-use developments, in particular the few condominium projects that have gone up, lenders are beginning to loosen their purse strings. Some developers are reconsidering their original strategies, including Weinstein, who altered the plan for Phase II of Santee Court to include condos. Meanwhile, a survey by the Downtown Center Business Improvement District, or DCBID, found that nine out of 10 downtown residents would prefer to own than rent. This is good news for developers working on the second wave of condominium development. Eight projects, totaling 1,276 units, are under construction or going through the permitting process, including: The Douglas Building, with 50 units; Grand Lofts, with 66 units; Brockman Building, with 76 units; Teramachi Senior Housing, with 127 units; Santee Court-Phase II, with 88 units; Eleven Eleven Lofts-Phases I and II, with 403 units; and The Yards, with 400 units. A pedestrian bridge provides Flower Street Lofts' homeowners with easy access to the project's parking structure. The price is right Demand for condominiums is at an all-time high throughout the Southland due to skyrocketing home prices. Priced out of the single-family market, many current renters now view condos as their only hope for homeownership and a good alternative to renting that puts them close to work, cultural amenities, shopping, dining and entertainment. Due to high demand for downtown condominiums, prices have doubled over the last decade, according to the DCBID. However, downtown condos are still the best deal in town, with a 1,000 square-foot unit priced at about $300,000, compared with the $400,000 to $500,000 price tag on a similar size unit on the Westside. Developers are currently pricing units to ensure a vibrant downtown community and reasonable profit. However, the market is likely to change quickly, as happened in San Diego, where a condo priced at about $350,000 a year ago is selling now for over $500,000, notes Condosource broker Kathleen Parsons. "It's obvious that that some downtown condo buyers bought units as an investment, with the intention of 'flipping' them almost immediately," she says, pointing out that some units are already coming back on the market. Two units at Flower Street lofts purchased in 2003 in the low $500,000s are back on the market for between $689,000 and $935,000. Likewise, units at Toy Factory Lofts purchased for about $400,000 are back on the market for about $550,000 to $600,000. With demand for condominiums far out stripping supply, downtown real estate will continue to escalate for the foreseeable future. The biggest challenge for developers will be keeping up with demand. -------------------------------------------------------------------------------- Troy Soumis is a real estate broker and partner in Condosource, a real estate brokerage specializing on the condominium and loft segment in Southern California. He may be reached via e-mail at soumis@condosource.com.