A year after purchasing two sites in Los Angeles, Associated Estates Realty Corp. is about to break ground on its first project in the market, a $70 million, 175-unit Miracle Mile apartment complex.
Construction is slated to begin next month on the parking lot behind the old Desmond’s department store at 5500 Wilshire Blvd. The project marks the first California development for the Richmond Heights, Ohio, real estate investment trust, which has developed apartment projects in 10 states and the District of Columbia.
“Miracle Mile is a very difficult area to develop in because there’s not a lot of land left,” said Jason Friedman, Associated Estates’ vice president of acquisitions.
Apartment development along the stretch of Wilshire Boulevard between La Brea and Fairfax avenues has been particularly active in the last several years as developers have taken advantage of lower interest rates and a particularly robust rental market.
Laurie Lustig-Bower, executive vice president of CBRE Group Inc., said most L.A. rental submarkets have an occupancy rate above 95 percent.
“The whole apartment market is doing very well. I believe the rent market is still poised to grow,” Lustig-Bower said. “I think we’ll see rents climb even higher.”
Along Wilshire, that lure can be seen in the hundreds of apartment units that have been built in the last several years:
BRE Properties Inc. of San Francisco completed a 284-unit apartment project in 2008 in the 5600 block; Foster City’s Legacy Partners Inc. followed with a 163-unit apartment building at 5550 Wilshire; and BRE is in the midst of building the 478-unit Wilshire La Brea apartment building at Wilshire and La Brea. That project is set to come on line in the fall.
Though Associated Estates has not started preleasing or pricing its Wilshire units yet, something it only starts doing three to six months before opening, the property is expected to be competitive with its neighbors.
The average asking rent in that ZIP code was $2.40 a square foot in the second quarter, up 10 percent from two years earlier, according to RealFacts LLC.
“That whole market is doing very well, apartment development would be well received by investors,” said Javier Rivera, vice president of Jones Lang La Salle Inc.’s downtown L.A. office.
Associated Estates acquired the Desmond’s property and the adjacent lot in May 2012 for $37.3 million in an off-market deal with Legacy Partners Commercial Inc. The company plans to leave the existing art deco building alone; since the department store closed, it has been converted into office space.