Condo construction finally appears to be on upswing and the housing market is showing signs of life, but apartments remain popular and some developers are still sticking with them for now.

In fact, if you throw a dart at a map of Los Angeles, you’ll probably hit the site of an apartment building under construction. There are more than 4,000 rental units being built across Los Angeles County today and at least 4,000 more in the pipeline. Compared with condos, apartments are cheaper to build, easier to finance and can be filled more quickly.

Empire Property Group LLC, a multifamily developer and investment company in Los Angeles, is building an apartment complex in West Hollywood right now despite growing demand for condos.

“We could have gone condo but we felt as though that market is very much underserved for apartment buildings,” said Craig Berberian, managing partner at Empire Property.

The company broke ground this year on the 25-unit, four-story project. Known as Empire at Kings Road, it will be located at 1232 and 1236 N. Kings Road, between Santa Monica Boulevard and Fountain Avenue.

Most of the units will have two bedrooms and will average about 1,200 square feet. The building will include a large gym and spa on the top floor as well as a garden courtyard on the ground floor. It’s scheduled to be completed next year.

It’s not as if the company is opposed to condos. In fact, Empire Property is entitling a condo project in Beverly Hills. But the developer opted for rental units in West Hollywood in part because the economics of condo development haven’t yet reached a point where every project is viable.

Berberian said the apartment building could achieve a cumulative return of 20 percent by the time Empire Property sells it off, which could be seven or more years away. As a condo building, the project might have actually lost money.

“It would be too risky for us,” he said.

Math problem

It works like this: Empire Property received a construction loan with about a 2.8 percent interest rate. The company expects to rent the entire building out in about six months of completion. Rents haven’t been set yet but comparable units in the neighborhood average about $3,300 a month, Berberian said.

The company then plans to secure a long-term loan for a low market rate, likely at about 4 percent, to pay off the construction loan while making a return of about 7 percent each year from rental income, generating positive cash flow for the company.

As a condo project, the construction loan would have been similar but Empire Property would have had to pay off the loan with the sale of individual condos, which could take a year or more. To complicate matters further, the price of those condos, and in turn the profit for the company, would be dictated by the market and could mean the company falls short of its needed amount.

Condos in the neighborhood had a median sale price of $655,000, or about $451 a square foot, in August, according to data from Seattle brokerage Redfin.

“On this particular deal, if (sale prices) run below $450 a foot, we are running the risk of not meeting our investment targets,” Berberian said.

Not only that, but apartment buildings typically cost about 15 percent less to build than condo projects. Meanwhile, rents have shot up 8 percentage points in the last year.

Ken Kahan, principal at development company California Landmark Development, agrees that the market still favors apartments over condos in many cases.

His company completed a condo project last year at 1817 Prosser Ave. in Westwood. He sold the units – mostly 1,250-square-foot, two-bedroom condos – in about six months, but only got about $475 a foot.

“We did well but did not get huge price points,” he said.

Those kinds of results led the company to convert two of its other condo projects to apartments. One of them was 75 percent leased within five weeks for an average rent of about $4,000 a unit.

If the market continues to improve, Kahan said he may sell them as condos again. But that could still be five years away.

“The condo market is still in its first inning in my opinion,” Kahan said. “But the rental market is on fire.”