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Downtown Apartment Market Gains Steam
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| The Pacific Electric Lofts leasing team is one of many riding a renewed wave of interest in the Downtown apartment market. Rents have risen 6% over the last year and occupancy levels top 95% across the board. Photo by Gary Leonard. |
Rental Rates, Occupancy Inch Upward Despite Condo Craze
by Kathryn Maese
An upbeat Ragtime band and shapely burlesque dancers helped usher in a new era for the historic Pacific Electric Building at Sixth and Main streets, which recently reopened with 314 loft-style apartments.
While the Nov. 5 celebration was modest compared to the crowds and the giant Earth Harp recently strung to the top of the new Elleven condominium building in South Park, the Pacific Electric Lofts have nonetheless been remarkable in their own way. "They've been leasing faster than we anticipated," said Kristin Stewart, a leasing agent for the building. "We've been open for move-in for three months and so far we're leased 71%."
It's an increasingly common refrain in Downtown's rental market, which has quietly propelled the local housing spree with hundreds of new units and occupancy levels topping 95%. Though apartments have received much less fanfare than the red-hot condominium sector, Downtown rental activity has nonetheless made some surprising gains over the last year.
According to a recent report by RealFacts, which tracks the local housing industry, rents in Los Angeles have increased 6.3% over last year to $1,663 for an average unit, and a whopping 18.2% over the last four years. In Downtown, rents average more than $2 a square foot.
Although modest compared to the steep price tags attached to Downtown condos - in many cases more than $550 a square foot - real estate experts say it signals the start of an upward trend for a market segment that has been relatively flat over the last few years.
"In Downtown, people have to take a lot of things on face value either because they haven't seen the building before they move in, or there's no Traders Joe's, no Ralphs, no Nordstroms," said Tara Bannister, executive director for the California Apartment Association of Los Angeles. "But you don't see the leasing challenges Downtown that you might expect. Even though you have so many units coming online, people are renting them and filling them in pretty quickly."
Bannister said multiple factors are beginning to buoy leasing activity in Downtown, not the least of which is a tug-of-war between supply and demand. As fast as new condo projects are announced, and sometimes even before they break ground, interest lists become overloaded with eager homebuyers ready to spend more than half a million on a starter unit.
Both the insatiable demand and the high prices have left many would-be buyers out in the cold. As a result, some are turning to apartment rental, while others are choosing to wait until prices stabilize. If the home ownership market cools as interest rates rise, experts predict demand for apartments could increase over the next year.
"The price of owning a home has gone up 21% since last year while rents are up only 6%," Bannister said. "Many people can't continue to afford to own so they choose apartments."
The improving job market has also been tied to leasing activity. According to the Urban Land Institute's Emerging Trends in Real Estate report released two weeks ago, "recent employment gains have been enough to spur increasing apartment rentals - room-mating declines and young adults move out of their parents homes as they find more work."
Disappearing Units
Perhaps more relevant to the Downtown apartment market, observers say, are soaring land prices that eventually get passed on to homebuyers. Developers are snapping up property at near record prices, in some cases more than $500 a square foot for raw land.
In another trend, at least three existing apartment complexes are being converted to lucrative for-sale units, further diminishing the supply of rental apartments and boosting demand. The 303-unit Alexan Savoy, now renamed the Alexan, is being redeveloped into condos (the conversion is happening before it officially opens), while 161 units at the Little Tokyo Lofts and 217 units at Museum Tower will be lost to the for-sale sector. In all, about 700 rentable units are being taken off the market.
While tough for renters, that is good news for apartment developers like G.H. Palmer Associates, which owns 1,153 units in Downtown Los Angeles. The company's 632-unit Medici is almost 100% leased with rents averaging $2,110. As of last week, the luxury complex listed only four vacancies on its website, with the smallest - 400 square feet - going for $1,709. A 2,340-square-foot penthouse can be had for $6,685 a month.
Likewise, both the 225-unit Piero, open just a year, and the 296-unit Orsini are completely leased. Unlike other developers scrambling to get in on the condo boom, G.H. Palmer is going full-throttle with plans for another 2,647 apartments in the next three years.
"We believe that rents will continue upwards," said Peter Novak, the firm's vice president. "Right now the majority of the supply is for sale, and we have nowhere near kept up the pace with the for-sale housing going up."
What's more, leasing agents say their competition is limited to a select number of buildings with similar amenities and style. The modern Pegasus Building at Sixth and Flower streets, for example, does not compete for tenants who are interested in the raw lofts in the San Fernando Building at Fourth and Main.
"We do a comparison survey sheet that lists everything from roofs to patios to fitness center to social activities and elevators," said Jesse Wagner, an assistant manager at Metro 417, one of three apartment buildings owned by Forest City. "Each of our properties has its own clientele. If they like finished luxury living then they come to Metro 417. If they want bare concrete floors then we refer them to Met Lofts, while the traditional tenants who like carpeting would go to The Met."
Much like the condo lists that form before a building is even completed, new apartment projects are pre-leasing at an ever-increasing pace. Met Lofts, which is set to open later this year, is nearly 35% leased; the Reserve Lofts at Olympic and Olive, slated for move-in next month, have already rented about 10% of its 79 units that start at $1,550.
"The market is moving," Bannister said. "We're not just talking about increased occupancy in buildings but more people moving into Downtown. To see a building like the Pacific Electric Lofts fill up without the others suffering, it's amazing."
Contact Kathryn Maese at kathryn@downtownnews.com.
page 1, 11/14/2005
© Los Angeles Downtown News. Reprinting items retrieved from the archives are for personal use only. They may not be reproduced or retransmitted without permission of the Los Angeles Downtown News. If you would like to redistribute anything from the Los Angeles Downtown News Archives, please call our permissions department at (213) 481-1448.
While the Nov. 5 celebration was modest compared to the crowds and the giant Earth Harp recently strung to the top of the new Elleven condominium building in South Park, the Pacific Electric Lofts have nonetheless been remarkable in their own way. "They've been leasing faster than we anticipated," said Kristin Stewart, a leasing agent for the building. "We've been open for move-in for three months and so far we're leased 71%."
It's an increasingly common refrain in Downtown's rental market, which has quietly propelled the local housing spree with hundreds of new units and occupancy levels topping 95%. Though apartments have received much less fanfare than the red-hot condominium sector, Downtown rental activity has nonetheless made some surprising gains over the last year.
According to a recent report by RealFacts, which tracks the local housing industry, rents in Los Angeles have increased 6.3% over last year to $1,663 for an average unit, and a whopping 18.2% over the last four years. In Downtown, rents average more than $2 a square foot.
Although modest compared to the steep price tags attached to Downtown condos - in many cases more than $550 a square foot - real estate experts say it signals the start of an upward trend for a market segment that has been relatively flat over the last few years.
"In Downtown, people have to take a lot of things on face value either because they haven't seen the building before they move in, or there's no Traders Joe's, no Ralphs, no Nordstroms," said Tara Bannister, executive director for the California Apartment Association of Los Angeles. "But you don't see the leasing challenges Downtown that you might expect. Even though you have so many units coming online, people are renting them and filling them in pretty quickly."
Bannister said multiple factors are beginning to buoy leasing activity in Downtown, not the least of which is a tug-of-war between supply and demand. As fast as new condo projects are announced, and sometimes even before they break ground, interest lists become overloaded with eager homebuyers ready to spend more than half a million on a starter unit.
Both the insatiable demand and the high prices have left many would-be buyers out in the cold. As a result, some are turning to apartment rental, while others are choosing to wait until prices stabilize. If the home ownership market cools as interest rates rise, experts predict demand for apartments could increase over the next year.
"The price of owning a home has gone up 21% since last year while rents are up only 6%," Bannister said. "Many people can't continue to afford to own so they choose apartments."
The improving job market has also been tied to leasing activity. According to the Urban Land Institute's Emerging Trends in Real Estate report released two weeks ago, "recent employment gains have been enough to spur increasing apartment rentals - room-mating declines and young adults move out of their parents homes as they find more work."
Perhaps more relevant to the Downtown apartment market, observers say, are soaring land prices that eventually get passed on to homebuyers. Developers are snapping up property at near record prices, in some cases more than $500 a square foot for raw land.
In another trend, at least three existing apartment complexes are being converted to lucrative for-sale units, further diminishing the supply of rental apartments and boosting demand. The 303-unit Alexan Savoy, now renamed the Alexan, is being redeveloped into condos (the conversion is happening before it officially opens), while 161 units at the Little Tokyo Lofts and 217 units at Museum Tower will be lost to the for-sale sector. In all, about 700 rentable units are being taken off the market.
While tough for renters, that is good news for apartment developers like G.H. Palmer Associates, which owns 1,153 units in Downtown Los Angeles. The company's 632-unit Medici is almost 100% leased with rents averaging $2,110. As of last week, the luxury complex listed only four vacancies on its website, with the smallest - 400 square feet - going for $1,709. A 2,340-square-foot penthouse can be had for $6,685 a month.
Likewise, both the 225-unit Piero, open just a year, and the 296-unit Orsini are completely leased. Unlike other developers scrambling to get in on the condo boom, G.H. Palmer is going full-throttle with plans for another 2,647 apartments in the next three years.
"We believe that rents will continue upwards," said Peter Novak, the firm's vice president. "Right now the majority of the supply is for sale, and we have nowhere near kept up the pace with the for-sale housing going up."
What's more, leasing agents say their competition is limited to a select number of buildings with similar amenities and style. The modern Pegasus Building at Sixth and Flower streets, for example, does not compete for tenants who are interested in the raw lofts in the San Fernando Building at Fourth and Main.
"We do a comparison survey sheet that lists everything from roofs to patios to fitness center to social activities and elevators," said Jesse Wagner, an assistant manager at Metro 417, one of three apartment buildings owned by Forest City. "Each of our properties has its own clientele. If they like finished luxury living then they come to Metro 417. If they want bare concrete floors then we refer them to Met Lofts, while the traditional tenants who like carpeting would go to The Met."
Much like the condo lists that form before a building is even completed, new apartment projects are pre-leasing at an ever-increasing pace. Met Lofts, which is set to open later this year, is nearly 35% leased; the Reserve Lofts at Olympic and Olive, slated for move-in next month, have already rented about 10% of its 79 units that start at $1,550.
"The market is moving," Bannister said. "We're not just talking about increased occupancy in buildings but more people moving into Downtown. To see a building like the Pacific Electric Lofts fill up without the others suffering, it's amazing."
Contact Kathryn Maese at kathryn@downtownnews.com.
page 1, 11/14/2005
© Los Angeles Downtown News. Reprinting items retrieved from the archives are for personal use only. They may not be reproduced or retransmitted without permission of the Los Angeles Downtown News. If you would like to redistribute anything from the Los Angeles Downtown News Archives, please call our permissions department at (213) 481-1448.
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