Los Angeles is cheap and that’s why REITs love it.

Acquisition of Los Angeles County property by real estate investment trusts during the July-to-September period surged 50 percent over the second quarter, according to preliminary figures provided by Alliance Capital/CB Commercial.

REITs snapped up property worth $602 million, up from $404 million the previous quarter.

They are reacting to the simple fact that Los Angeles is only now starting to recover from a prolonged recession, and prices and rents are still near the bottom. REITs are typically public companies that specialize in acquiring or developing undervalued property and then capitalizing on the rise in rental income as the market improves.

“People don’t know when rental rates are going to go up, but there is a lot of interest in L.A. because it is the last major market to recover, and there is a lot of upside potential,” said Diana Laing, chief financial officer at Arden Realty, one of the region’s most active REITs.

Office property has replaced apartments as the most popular target for REIT acquisition in Los Angeles. Office property accounted for $390 million of the $602 million in REIT acquistions during the third quarter.

“It doesn’t surprise me at all. Office REITs can’t find enough property right now,” said Jim de Bree, partner and REIT specialist at Deloitte & Touche in Los Angeles.

Because of the longer leases on office property, many tenants are still paying the same rent they were five years ago in the depth of the recession. But many of those leases are beginning to expire, and the hope among REITs is that they can buy up property and enjoy increased returns as tenants renew leases at higher rates in the coming years.

And because of the longer leases, a rise in rents over the coming months will still be in effect for years to come even if the recovery in the real estate market stalls or turns south.

The hottest markets in Los Angeles remain the Westside, the Burbank/Glendale area and around the Los Angeles International Airport.

Kilroy Realty Corp., a major player in the Los Angeles office and industrial property market, is most excited about Santa Monica and Calabasas.

“We like the entertainment district of Santa Monica, based on the growth in the industry and strong economic fundamentals of the area,” said Senior Vice President Tyler Rose.

Calabasas has the advantage of a fast-paced residential development market, which is spurring demand for office property in the area.

“People want to work close to their homes,” Rose said.

Kilroy also likes the fact that property taxes are lower in those areas than they are in the city of Los Angeles.

As for Glendale and Burbank, Rose feels that office tenancy is already too high to attract much more REIT acquisitions there REITs prefer to buy undervalued, high-vacancy buildings and then add tenants to increase value. Glendale and Burbank are not seen as undervalued markets.

But downtown Los Angeles is, and the more adventurous REITs are starting to look there.

Sam Zell’s Equity Office Property Trust last week closed a deal to acquire the Obayashi building at 550 Hope St. in one of the first major downtown acquisitions since the recession.

Zell’s company is the biggest REIT in the country, and its entry into downtown Los Angeles is undoubtedly being closely watched by other REITs.

Downtown has one of the highest vacancy rates in the city. De Bree believes some companies are starting to recognize that rents are cheaper downtown than on the Westside, and are considering a move to the central city. Insurance companies, in particular, are increasingly interested in moving downtown, he said.

That, in turn, is attracting the attention of REITs like Equity Office Property Trust.

And there are ample landlords looking to sell their properties downtown. Following the Obayashi deal, De Bree believes other Japanese landlords who bought downtown buildings in the late 1980s may be ready to sell, despite the fact that prices remain far below what they paid for the property.

“When Tokyo decides it is time to liquidate, they sell,” De Bree said.

Meanwhile, there is quite a bit of REIT activity outside the office segment. Meridian Industrial Trust, based in San Francisco, sees tremendous opportunities in L.A.’s industrial sector.

“In the greater Los Angeles area, we have gone from 700,000 square feet when we went public in February 1996 to around 6.5 million square feet now,” said broker Dennis Higgs.

Within L.A. County, Meridian has focused on industrial properties in Montebello, Vernon and the City of Commerce.

“Los Angeles is still a very competitive market. In some cases there is still some undersupply. We feel there is another two-year window of opportunity,” Higgs said.