When fashion designer Linya Rothschild moved downtown five months ago from a leafy Westwood neighborhood, she traded a bucolic tree-lined street for a concrete jungle.
What she didn’t leave behind were sky-high home prices. On a square-footage basis, Rothschild, who has decided to buy a penthouse in the Grand Street lofts, is paying $491 a foot for her new condominium.
That’s more expensive than condos in her former Westwood neighborhood and except for five exclusive Westside neighborhoods higher than the median per foot price of condos in every ZIP Code in L.A. County.
“It’s going to be a great investment,” she said. “If it was going to stay the way it is I would still think seriously about buying here. But with all this development going on I think prices are only going to keep going and going and going.”
Rothschild is among the growing number of L.A. homebuyers who are betting big on downtown’s revival. Buyers and developers alike have flooded into the market, banking on a Manhattan-like ending to a story that began with some abandoned bank buildings.
There remain some uncertainties, such as the upward movement of interest rates and pending city approval of a retail and entertainment complex surrounding Staples Center that involves a public financing package totaling $150 million. Still, the area is already priced as if success were a slam-dunk.
Resale asking prices at the Flower Street Lofts near Staples Center are higher on a per-foot basis than the median prices for condos in Brentwood’s 90049, Beverly Hills’ 90210 or Marina del Rey’s 90012. Only beach cities such as Manhattan Beach, Hermosa Beach, Malibu and Santa Monica’s 90403, along with Century City’s 90067, are priced higher, according to DataQuick Information Systems.
“Are these prices sustainable? I don’t know how to answer that,” said Kevin Ratner, a senior vice president with Forest City West, a division of Cleveland-based developer Forest City Enterprises Inc. “The desire to live downtown will only continue to grow as it becomes more of a neighborhood and a viable place to live in people’s minds.”
Until seven years ago, Rothschild’s South Park neighborhood was a grimy industrial landscape of parking lots, warehouses and the underused Los Angeles Convention Center.
That began to change when Staples Center opened. Restaurants followed and two years ago condo developer Lee Group Inc. and partner CIM Group Inc. sold out their 91-unit Flower Street Lofts across from the arena, proving people would pay in the $400,000 range to live downtown.
Now it is a construction zone. There are close to 3,000 condos and apartment units being built or planned in South Park alone, much of them ringing the proposed $1 billion sports and entertainment district that will be built on the surface parking lots flanking Staples Center.
Demand for condos in the neighborhood has been so strong that developers of a 164-unit condominium building at 1111 S. Grand Ave. recently pre-sold 80 percent of their project 14 hours after their sales office began accepting reservations.
“We’ve been extremely optimistic,” said Mike Pfeiffer, one of the project’s developers, “but we’re floored at this response.” He said prices varied throughout the building, ranging from $300,000 to $1 million.
Resales are another indication of demand. Several of the original buyers of Flower Street Lofts have flipped their units and reaped huge gains in a little over a year. One owner who bought a two-bedroom unit for $458,000 has the property under contract to be sold for $699,000 a profit of $241,000.
Another owner of a ground-floor, two-story condo with two bedrooms has the 1,560-square-foot unit listed on the market for $749,000, which would represent a gain of $289,000.
In a few years, Rothschild who is paying about $750,000 for her loft believes the 1,527-square-foot unit will be worth more than $1 million. “These prices are going to appreciate immensely once everything gets built,” she said.
Developers, initially cautious in pricing new units, have become more aggressive.
The 66 two-bedroom units in the Grand Lofts at 330 W. 11th St. will start in the mid-$500,000 range and be priced between $380 and $500 a foot, said Jeff Lee, president of Lee Group.
Lee was able to take into account Flower Street resale prices and how much units at 1111 S. Grand Ave. fetched when setting rates for Grand Lofts.
“When we sold Flower we were really pioneering but we’re not pioneering so much anymore,” he said. “It’s not a perfect science yet but we have some better information available to us.”
Developer Tom Gilmore believes rates will eventually level out between $450 and $500 a foot and only increase marginally afterwards.
Like other builders, Gilmore who is converting the former El Dorado hotel on Spring Street into a 66-unit condo building with partners Goodwin Gaw’s Downtown Properties Holdings LLC and Morgan Stanley said that over the next three years prices will begin to differentiate themselves by neighborhood and building.
“The variation isn’t there yet because we’re still establishing a market,” he said. “In the next two or three years we’re going to see multimillion-dollar apartments but we’ll also have places selling for $350,000. That will be an expression of a healthy market.”
With more than 10,000 downtown apartment and condominium units coming online in the next three years from the Staples Center and the Fashion District through the historic core and Bunker Hill the other concern is the depth of the market.
As the supply increases, prices are expected to begin leveling off as prospective buyers have more options. “It’s like musical chairs,” said Ratner, whose firm is converting 1100 Wilshire Blvd. into 230 condos. “You have to hope your project is done before the music stops.”
Developers say they are most worried about speculators who either rent out their units or flip the properties quickly. Both can have a detrimental effect on a new community.
“As a condo developer, you have to always be aware of speculative buyers,” Ratner said. “What you want to create is an environment that people who own the units will enjoy. You want to get people in there who invest in the community and care about it.”
To ensure buyers of its Grand Lofts were the right fit, the Lee Group interviewed potential purchasers and took them on weekend “hard hat” tours of the site while it was under construction.
Rothschild went through one of the interviews before buying her unit. “They want people who live and work downtown,” she said. “(They) want to create a sense of community.”