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.
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.