Apartment Construction Stars Again in Downtown L.A.

By Maura Webber Sadovi

After slowing to a crawl following the recession, the pace of apartment construction is coming back in downtown Los Angeles.

In downtown Los Angeles a number of new projects are getting under way following a pause that ended last year, according to Carol Schatz, president of the Central City Association of Los Angeles, an organization that advocates for Los Angeless businesses. (The Journal wrote last month about the downtown L.A. office market, which is also rebounding, albeit slowly.)

Some 1,526 new apartments and condos are under construction in downtown L.A. Thats still far below the 8,224 units under way at the peak of the market in 2007, but Ms. Schatz says its a positive sign that an increasing number of developers are once again confident enough to build. Its anyones guess when we get back to the ferocity we experienced before the crash, but its good news, Ms. Schatz says.

Most of the units being built downtown are rentals, which is not surprising given the still troubled for-sale market. Prices for condos and town homes in L.A. have yet to stabilize. The median price of condos and town homes in Los Angeles County fell 8.4% in the first quarter to $214,458 from $234,185 in the year-earlier period, according to a sample of sales by the California Association of Realtors.

By contrast, apartment rents have been rising since last year and the first quarter average asking rent stood at $1,425, just below the recent annual peak of $1,464 hit in 2008, according to Reis Inc, a real-estate research firm.

Related Cos., one of the developers whose delivery pipeline is gearing back up in the Los Angeles area, says only select locations like the tony beachfront city of Santa Monica have recovered enough to warrant condos. L.A.s rental market is strong, says William Witte, president of Related California. Except for a few niche locations, the condo market is still a work in progress.

Later this year Related will begin building a 271-unit high-end rental apartment in downtown L.A. near the new Broad art museum being built on Grand Avenue. Rents in most units are expected to start at $2,200 a month. In January, Related began building a 158-unit luxury condominium project in Santa Monica, where the asking prices will start at $800,000.

But some analysts are keeping a wary eye on the uptick in construction because it is coming even as L.A.s apartment markets recovery is relatively new.

For landlords to have pricing power they need, one rule of thumb is that rents should rise about 5% annually for at least 12 to 18 months before new supply is added, says Hessam Nadji, managing director of research and advisory services at Marcus & Millichap Real Estate Investment Services.

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Apartment Construction Stars Again in Downtown L.A.