Embracing Commutes Measured in Steps, Not Miles
By DANNY KING
In one of the indelible images of the silent film era, actor Harold Lloyd dangles helplessly from the hands of a clock on the face of the Brockman Building downtown.
Going inside and plunking down up to $400,000 for one of the 76 condominium units earmarked for the 12-story building, however, may be just as daunting or rewarding a task.
With more than 1,000 market-rate apartments built and almost completely rented between 1998 and 2002, and cultural draws like Staples Center and Walt Disney Concert Hall attracting potential residents, builders are shifting their efforts toward for-sale units.
Just 114 condo units have been built downtown since 1998, but there are now nearly 600 units in various stages of development, according to the Central City Association. Another 900 are being considered for either vacant downtown land or existing office buildings, including the Roosevelt Building at Seventh and Flower streets.
As a result, the stock of downtown condominiums could more than double within the next two or three years.
Among them are Toy Factory Lofts, a 130-unit loft-style development under construction on Industrial Street, and the 66-unit South Grand Lofts at Grand Avenue and 11th Street, which Lee Group Inc. and CIM Group Inc. plan to break ground on next month.
"We've seen a lot of not-just-anecdotal evidence that there's a fairly deep market for ownership in downtown," said Mark Tolley, managing partner at Long Beach-based Urban Pacific Builders LLC, which will close escrow on the Brockman Building at Grand Avenue and Seventh Street by the end of the year. "There's a very healthy demand."
Some of the demand is from out-of-towners like Bruno Ledwin, an Orange County-based attorney who just paid $420,000 for his 1,450-square-foot, one-bedroom unit at Flower Street Lofts. "I was spending four hours a day commuting," said Ledwin, whose primary residence is in Dana Point and had been commuting to L.A. three or four days a week.
Last year, the median price for a condominium in the downtown area (including Chinatown and part of Echo Park) was $213,000, more than 46 percent higher than the 2001 median of $145,000, according to DataQuick Information Services. So far this year, the median price has risen another 19 percent, to $253,000.
By comparison, last year's median price countywide of $203,000 marked a 20 percent increase from 2001.
The new product has moved quickly and appealed to a broader range of buyers than expected, according to Jeff Lee, president of L.A.-based Lee Group. At that company's recently completed Flower Street Lofts project near 11th Street, 70 of 91 condos will have closed escrow by the end of the month, he said.
Many downtown condo buyers are singles and couples without children and moving from areas like Pasadena and Los Feliz. About 10 percent to 15 percent of Flower Street Loft buyers are using the units as second homes.
"(Buyers) are coming from everywhere," said Lee, who noted that three-quarters of the buyers do not even work downtown. "We thought 40 percent would work downtown."
Couple that with a central Los Angeles market where rents have appreciated 10 percent in the past two years, and developers are more willing to invest in for-sale units. Tom Gilmore, chief executive of Gilmore & Associates LLC, which has built 230 apartment units in the old Bank District since 2000, is turning his sights to the redevelopment of the old El Dorado Hotel on Spring Street Gilmore's first downtown condo project.
"Once you know someone will pay $1,500 a month (for an apartment), they can pay in the $350,000 to $400,000 range for a condominium," said Gilmore, whose company will begin construction on the El Dorado next year. "Before, it was so difficult to value because the rents were so screwy."
Still, potential homeowners are taking a leap of faith by buying downtown, which is still at least a year away from getting its first supermarket in nearly 60 years. At $480,000, the average unit at Flower Street Lofts is nearly double the median-priced condo in the area and comparable to more established markets like Brentwood, Westwood and Santa Monica.
"The neighborhood right now is not the best, but there is potential," said Ledwin. "With all the new developments, I think it will appreciate."
Additionally, improvement costs for loft-style units can top $50,000, while homeowner's dues, which can range from $150 to $300 a month for a typical condo, are $440 a month at Flower Street, largely due to parking.
And homeowners are buying into an area where affordable housing dominates and the largest contingent of residents live in nearly 5,000 single room occupancy units.
All of which limits the number of potential buyers and could create challenges when attempting to resell the units, said Stephen Cauley, associate director of the Richard S. Ziman Center for Real Estate at UCLA's Anderson School.
"If you're a young lawyer or CPA working downtown who doesn't have a family, you're going to be willing to pay a reasonable quantity for living downtown. But it's hard to imagine the government workers being able to afford places like that," said Cauley, adding that security issues and the lack of schools will keep families away. "It's a very risky play."
That said, developers could look to Denver and San Diego where revitalization efforts in or near the city center have created a burgeoning housing market. With ongoing redevelopment activity for San Diego's Gaslamp Quarter dating back to the 1980s, the median price for a downtown condo was $460,000 in August, an 18 percent premium to San Diego County condos as a whole.
In the zip code encompassing Denver's Lower Downtown ("LoDo") district, whose redevelopment efforts date to 1988, the median home price was $405,000 through Sept. 30, nearly twice Denver's median, according to DataQuick.
L.A.'s first downtown condominium units were created when one of the three Bunker Hill Towers buildings, first developed in 1968 as part of the Community Redevelopment Agency's first project, was converted to 255 units in 1980.
Within three years, the Promenade and Promenade West Condominiums were built on Bunker Hill, while the Skyline Condominiums opened on Ninth and Flower Streets. That brought downtown's condo total to 730.
Between 1983 and 2000, however, just one condo complex, Central Avenue's 167-unit Tokyo Villas, was completed. By the late 1980s, the recession and the exodus of Fortune 500 companies put the kibosh on further condominium developments.
The Toy Warehouse Lofts on Santa Fe Avenue, completed in 2000, were at the forefront of the current wave of condo developments, initiated in part by the adaptive reuse ordinance City Council adopted in 1999 to streamline the approval process for commercial-to-residential conversions.
The ordinance was advanced, said Carol Schatz, president and chief executive of the Central City Association, to help alleviate "an enormous inventory of Class-B and Class-C buildings we knew we weren't going to fill with corporate tenants."
The ordinance will continue to have its effect on downtown as about half of the condo units under development, including South Grand, the Brockman Building and the El Dorado, fall under adaptive reuse.
So far in their young history, downtown condo values have benefited from the low interest rates and persistent L.A. housing shortage.
The increases could continue, but L.A. hasn't had a residential downtown for a century and the future could just as well reflect the title of Lloyd's 1923 film: "Safety Last."
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