DOWNTOWN LOS ANGELES -An investment group led by Historic Core developer Izek Shomof has purchased the Title Insurance Building at 433 S. Spring St. and plans to build 250 condominiums.
The deal includes an adjacent structure at 419 S. Spring St. where PNK I Group, a hotel developer and operator, has had a lease in place since 2007. The company is angling to convert the building into a hotel aimed at business travellers.
Shomof would not disclose the purchase price but said he partnered on the deal with Naty Saidoff, owner of Capital Foresight, a Bel Air-based commercial real estate holding company. The Shomof/Capital Foresight group paid for the property in an all-cash deal, Shomof said.
The investors have an ambitious schedule in mind: “We’re hoping to break ground in four months,” Shomof said.
The road to a groundbreaking — finalizing drawings, securing entitlements and getting building permits — usually takes longer than four months. Development timeframes are often extended even further when it comes to converting nearly century-old Historic Core buildings.
If Shomof is able to realize his vision, the project would be the first start on a Downtown condominium venture in years and only the fifth for-sale residential property in the rental-dense Historic Core. Two area condo pioneers, the El Dorado and Rowan Lofts, are on the same block.
“I believe the market is changing and three years from now, when it’s going to open up, the market will be a great market to sell,” Shomof said.
PNK, which develops and operates primarily middle-market hotels such as Comfort Inn and Holiday Inn, is angling to break ground on a hotel at 419 S. Spring St. this year, said Jay Kumar, the company’s president and CEO. PNK, which has let the property sit vacant for almost five years, has not finalized its financing, he said.
Kumar said the group is in advanced negotiations to bring a Cambria Suites to the building. The brand, a division of Choice Hotels, is oriented toward business travelers.
“One niche that is missing in the area is mid-scale hotels,” Kumar said.
He said the company imagines a hotel where the rooms would mimic the residential loft aesthetic of the neighborhood.
The plan to develop condos at the Title Insurance Building comes as many real estate investors are funneling their money into the rental market. Denver-based Simpson Housing Group last month paid $38.75 million for the Brockman Lofts, which was originally planned as condos; it will open as apartments. Starwood Properties, which acquired developer Sonny Astani’s 30-story Concerto tower and renamed it Apex, is proceeding with a rental plan too.
The trend accompanies an increasingly tight rental market. According to a recent study by the USC Lusk Center for Real Estate, rental rates in the Downtown area have increased 18.2% since 2010 and occupancy is at 96.8%. Only the Westside has a higher average rental rate than Downtown.
Shomof, however, may be poised to capitalize on another trend in Downtown housing — there’s not nearly enough supply of for-sale units to satisfy demand, brokers say.
“The realtors down here, we have nothing to sell,” said Bill Cooper, whose brokerage The Loft Expert focuses on Downtown condos. “It’s crazy.”
Cooper said it has become par for the course for newly listed units to generate multiple offers, many from investment-minded cash buyers.
“I’ve probably written 30 offers this year and I have five things in escrow,” he said.
Hal Bastian, who has led the Downtown Center Business Improvement District’s monthly Downtown housing tour for prospective buyers or renters for about 10 years, has encountered the same phenomenon.
“We’re finding that the market is very tight,” he said.
Currently, there are only a few “new release” for-sale projects, including 940 E. Second St. and the Gallery Lofts in the Arts District. The Ritz-Carlton Residences are on the market too, but the units that start around $800,000 appeal to a limited market. With few new condos available, Bastian has been showing his groups units on the resale market, though that segment is tight too, he said.
Shomof is known for redeveloping several buildings on the 600 block of South Spring Street. His properties include Premiere Towers, Spring Tower Lofts, City Lofts and the Hotel Hayward. He also heads a group of investors who recently purchased two faded residential hotels at Fifth and Los Angeles streets, the Baltimore and King Edward.
In buying 433 S. Spring St., Shomof said he hopes to better connect Spring Street between Fourth and Sixth streets. That plan will likely get a boost next year with the opening of the Spring Street Park across the street from the Title Insurance Building.
Bill Stevenson of Downtown Properties, developer of the Rowan and El Dorado, said the Shomof project, if successful, would be “a huge boost to the Historic Core.” He said the hotel could have an even greater impact by delivering a new demographic to the neighborhood — tourists with dollars to patronize local retail.
Still, Stevenson knows better than most that converting a historic building is not easy. While the El Dorado sold out its 65 units in about 20 months, the overall project was a financial disaster due to cost overruns stemming from multiple construction- and city permitting-related delays, Stevenson has said.
“There is demand for condos and it seems to me [Shomof’s] timing is about right if he hits the market in a couple years,” Stevenson said. “But it’s not going to be an easy building to convert. If he can break ground in four months, he’s a miracle worker.”
The 13-story Art Deco Title Insurance Building opened in 1928. The insurance company left the property in the 1970s and it housed a furnishings design center in the 1980s.
It also housed the Central Library from 1989-1993 after a fire damaged the permanent structure on Fifth Street. Today, the building is a heavily used location for filming. Groundfloor Café operates a cafe and art gallery in the building.
Contact Ryan Vaillancourt at firstname.lastname@example.org.
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