Small Plots Pull Lots of Attention

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Taking advantage of an ordinance that allows homes to be built on very small lots in urban infill areas, Lennar Corp. is about to begin construction on two Hollywood projects totaling 89 single-family homes.

The Miami company, one of the nation’s largest homebuilders, has begun grading a 7-acre hillside lot, on Cahuenga Boulevard West just north of the Hollywood Bowl, where it will build a gated community of 42 homes. A second, denser project will bring 47 homes to a 1.7-acre lot at Melrose Avenue and Gramercy Place on the site of a former school.Both projects, small-lot subdivisions featuring three-story single-family homes, are expected officially to break ground in the next 30 to 60 days. Construction is expected to wrap up early next year.

Paul Habibi, a professor at the Ziman Center for Real Estate at UCLA and an owner of multifamily properties in Hollywood and throughout Los Angeles, said Lennar’s investment is a strong indicator that the housing market is improving.

“The real estate market has really turned a corner,” he said. “This is the first time postrecession that we’ve seen builders come out and do this kind of project at some level of volume.”

Lennar was able to develop the denser projects thanks to a 2005 city ordinance that allows for the development of land zoned for commercial or multifamily use into smaller residential parcels as long as those projects are ground-up developments with independent foundations, walls and roofs. In many cases, the walls of each house stand within inches of its neighbors’.

Few developers took advantage of the ordinance with the onset of the recession, but with housing sales on the rise again, dozens of small-lot projects are in the works across Los Angeles. Given the limited amount of space available for development, most of these dense projects are more modest in size, generally between three and 15 houses, though there are a few builders, including Lennar, aiming much bigger.

One of the larger infill projects to get under way is Newport Beach developer Trumark Homes’ 70-unit single-family home development in Silver Lake, slated for completion early next year.

Trumark expects to sell its homes for between $575,000 and $650,000. Lennar expects to sell its homes for a bit more, starting from $700,000 for those on Melrose Avenue and from $850,000 for those on Cahuenga.

These denser developments, where the height and proximity between buildings in many ways feels more like an urban East Coast neighborhood, are meant to appeal to first-time homebuyers as an alternative to condominium living and to be a counterpoint to traditional single-family homes on larger lots in the same neighborhoods. Because the owner of a small-lot property rarely owns much land beyond the perimeter of the house itself, property prices are dramatically less than for houses with yards.

The Melrose project will offer two floor plans: a 1,600-square-foot, two-bedroom and two-bathroom unit and a 1,900-square-foot, three bedroom and three-and-a-half bathroom unit. Homes at the Cahuenga development will range from 1,900 to 2,600 square feet and have similar bed and bath configurations as those on Melrose. Both projects will have second-story balconies and enclosed garages.

Janet Price, a spokeswoman for Lennar in Aliso Viejo, said the company is not preselling the two projects, preferring to begin marketing once construction nears completion in the spring.

Given the heated nature of the market, waiting also allows Lennar to lock in construction costs now and bet home prices will be even higher when they are ready for delivery next year.

Price didn’t think Lennar would have trouble finding buyers.

“Small-lot homes have become a niche option for buyers in Los Angeles, providing a townhome style of living with the benefits of single-family home ownership,” she said. “The L.A. housing market has a healthy buyer demand and we are looking forward to entering it.”

David Hurtado, a broker at Keller Williams Realty’s downtown L.A. office, said that with inventory low and demand rising he didn’t think developers will have a problem moving these types of units. He saw the sale of 14 similar units on Las Palmas Avenue in Hollywood over only two weekends earlier this year.

“I think (small-lot homes) can work anywhere in Los Angeles, but specifically in places like Hollywood and along the beaches where developers can draw buyers willing to spend $700,000 or $800,000,” he said.

Changing nature

While embraced by planners, small-lot urban infill projects have met resistance from neighbors in some pockets of the city.

The Atwater Village Neighborhood Council, for example, where bungalows and single-family homes abound, late last month voted against recommending a plan that called for three two-story residential buildings on a single lot, claiming the project would change the character of the area and encourage more high-density projects. While advisory, neighborhood council votes do send a message to both developers and members of the City Council.

Habibi said this sort of opposition was to be expected, but that developers that were prepared should be able to move through the approvals process.

However, City Councilman Tom LaBonge expressed support for the work Lennar is doing in Hollywood.

“I think these small-lot subdivisions are going to be the rage of the future,” he said.

Habibi said that when Los Angeles passed the small-lot ordinance eight years ago, it attracted the attention of homebuilders who traditionally work with large-scale suburban developments and are eager to get a foothold in urban areas.

The small-lot single-family homes, he said, make economic sense and are more familiar to these builders than towering multifamily and condominium projects.

“In a place like Hollywood, it’s not easy to build single-family detached homes like you would in Calabasas, so a lot of homebuilders have turned to building these small-lot subdivisions,” he said.

But, he added, it takes a different set of skills to develop high-density urban infill projects than it does to build full-lot single-family communities.

“It’s just a different type of construction, so like anything else, if you’re not a specialist in it, you come in at a higher price with a longer timeframe, and that diminishes your return,” he said. “It remains to be seen how successful Lennar and these other big homebuilders will be.”

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