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.
The apartment building will include amenities such as a pool, spa, billiard tables, community exercise facilities and rooftop decks. It will have both surface and underground parking.
Ever since Associated Estates declared in its strategic plan two years ago that the company wanted to expand to Southern California, it has been patiently waiting for the right opportunities.
“We feel like our patience paid off,” Friedman said. “Both locations are great opportunities to stick on the ground with first-class projects.”
Associated Estates’ downtown Arts District project, set to begin construction early in the second quarter of 2014, sits on a 5.6-acre site at 950 E. Third St., adjacent to the Southern California Institute of Architecture. The project is a joint venture with L.A.’s Legendary Developments LLC, which owned the site and partnered with Associated Estates to handle construction and property management.
The project, called 950 Third, will have 472 apartments, retail space and underground parking.
“It’s hip. It’s avant-garde. People are digging it,” Rivera said about the Arts District. “It’s cutting-edge and attracting a lot of attention from investors.”
Rivera pointed to the project across the street from 950 Third, One Santa Fe, a multi-acre, multiuse development with 439 residential units designed by Michael Maltzan to be completed in the winter of 2014, as a sign of the neighborhoods growth.
“With the attention drawn to the projects in the area, its just going to become bigger and bigger,” Rivera said.
The large projects in the Arts District could reshape the gritty neighborhood.
“The Arts District has been on an upswing for some time,” Lustig-Bower said. “Downtown L.A. is becoming more of a city that you want to be in for the evening. It’s transforming into what I hope to be a 24-hour city.”
She said prestigious schools in the area, the Colburn Conservatory of Music and SciArc make the area stand out.
Friedman said in addition to Downtown’s night life and its “up-and-coming” status, an increase in jobs in that neighborhood is what attracted Associated to develop in the Arts District.
Still, not everyone was sold on the Arts District as a residential location.
Mark Tarcynski, executive vice president of Colliers International’s downtown L.A. office, said though the area has potential to grow even more in the future, there is still some work needed to transform the neighborhood.
“The jury is still out whether it’s a successful area,” Tarcynski said. “It’s a very rough area with chain link fences which doesn’t show very well for institutional money.”
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