DOWNTOWN LOS ANGELES - New housing projects are under construction all across Downtown Los Angeles. From Chinatown, where the 280-unit Jia Apartments are being built, to Eighth Street and Grand Avenue, where San Francisco’s Carmel Partners are erecting a 700-unit complex, hundreds of millions of dollars are being invested.
This activity is giving Downtown boosters reason to cheer: More housing brings more restaurants, bars, entertainment spots and retail.
However, some view the residential surge with caution. Certain architects, urban planners and developers worry that parking lot sites that could accommodate high-rises instead are being filled by five- to seven-story, wood-framed apartment complexes encased in plaster.
Gone is a chance to create residential density in the part of the city where it isn’t largely opposed by community stakeholders, and where it makes the most urban planning sense — alongside mass transit and jobs. Instead, Downtown is getting the type of buildings that predominate in suburban areas.
“It seems odd that as the city grows, the quality of Downtown stone construction is being replaced by sticks and plaster,” said Eric Owen Moss, director of the Southern California Institute of Architecture. “A bigger scale and larger conception is being replaced by a smaller scale and no conception, other than an easy to replicate economic model.”
The concern is shared by City Planning Director Michael LoGrande. While he acknowledges that projects like the Jia Apartments and the 280-unit Ava Little Tokyo are adding much-needed supply to a market that currently has an occupancy rate near 95%, he worries that future Angelenos will look back at today’s growth surge and lament that the developers didn’t aim higher.
“In some of the areas where we have the most allowable density, which were intended from 30 years ago to be high-rise zones, we’re getting five-story buildings,” LoGrande said. “A lot of the growth that we need to accommodate the future could be on these sites, right next to transit. That opportunity could be lost.”
Type One vs. Type Three
Several key factors are driving the trend. The first is basic economics: Type-three buildings — those made with wood frames — are significantly cheaper to build on a per-square-foot basis than steel-framed high-rises.
In Los Angeles, buildings that exceed 75 feet are required to implement type-one construction, which relies on sturdier steel and concrete engineering to withstand earthquakes. So, developers are mostly designing projects to stay under the plateau, resulting in six- and seven-floor structures.
The higher cost of type one construction means that steel-framed residential buildings don’t pencil out financially unless they’re allowed to go tall. According to several developers, type-one structures start to be cost effective in today’s market at about 20 stories.
Type-three low-rises cost about $200 per rentable square foot to build. Steel-frame high-rises, depending on the size and design, cost anywhere from $80 to $300 more per square foot, according to multiple developers with experience in both construction types.
That means a 150,000-square-foot wood-frame complex would cost $30 million to build. The same building made with steel would cost up to $75 million.
Of course, high-rise apartments command higher rents, thanks to the better views and the perceived value in higher quality building materials. It’s no coincidence that the three most expensive rental buildings in Downtown — the Watermark Tower, 717 Olympic and Apex, all in South Park — are high-rises.
The key question for developers is whether projected rents and having more units justify the costs of building a high-rise. For companies like Holland Partners, the answer, so far, has been no.
The Vancouver, Wash.-based developer has built three projects with 488 units in City West. They include the seven-floor, 210-apartment 1111 Wilshire, which opened this year. The project was originally entitled as a 398-unit high-rise, but was downscaled after the economy soured.
The company, which is planning another type-three complex in City West, is no stranger to high-rise construction. It has built more than 40 towers and has three underway in other cities right now. Tom Warren, the company’s chief operating officer in Southern California, said Holland would consider doing a Downtown high-rise, but only in the right location.
“In my view, high-rise is the right product type when we’re building in the most desirable locations, where there’s not sufficient land available and there’s a reason to be right there,” Warren said.
Today, the most desirable location, from a rent perspective, appears to be the portion of South Park near Olympic Boulevard and Flower Street, Warren said. In other areas, a premium-priced high-rise might not succeed because there are too many less expensive alternatives, he said.
But don’t tell that to Historic Core developers Izek Shomof and Barry Shy. The real estate veterans, who have separately focused on turning old office buildings into modern apartments, are preparing new high-rises. Shy has plans for three structures: at Sixth and Spring streets; at Olympic Boulevard and Broadway; and at Ninth and Hill streets.
Shomof, who is moving forward on a 22-story tower at Fourth Street and Broadway with about 400 units, is scratching his head at all the mid-rise construction. He believes type-one not only pencils out today, but that it promises better returns.
“High-rises can get more units and the numbers work out better if they go higher and taller,” Shomof said. “I’m just surprised, wondering what is the catch? What am I missing?”
More Than Money
In addition to cost considerations, high-rises bring a more time consuming and expensive city approvals process, even on sites where the zoning allows them.
In most of Downtown, developers are technically entitled to build projects with a Floor Area Ratio — the city’s primary density metric — of 13 to 1. That means a building designed to cover the entire land parcel would be allowed to rise 13 floors. Buildings with a footprint that takes up only half the parcel could reach 26 floors.
While 13 to 1 is considered relatively high — most of the city is zoned at 3 to 1 or less — a voter-approved ballot initiative in 1986 halved allowable density citywide. That slashed the Downtown limit to 6 to 1.
As part of an effort to circumvent the new law, the Community Redevelopment Agency and City Council in 1989 passed an ordinance that essentially created a pathway for developers to get back to 13 to 1, but only if they agree to provide an array of public benefits.
Today, developers primarily get around the 6 to 1 limit through another means: They purchase TFAR — transferred floor area ratio — from the city, which transfers theoretically unused density from above the Los Angeles Convention Center. It is also known as buying “air rights,” and it’s not cheap.
The developer of Park Fifth, a mixed-use mega-project north of Pershing Square that died with the recession, purchased 692,888 square feet of TFAR for $3.5 million. Shy and Shomof will both have to buy TFAR (their cost is not yet known), as developer Sonny Astani had to do for his Concerto tower (now the Apex) in South Park.
Conversely, type-three projects are relatively easy to permit and they fit within the 6 to 1 density envelope. The added cost and the extra time it takes to navigate the city approvals process for a high-rise scares away some developers, said land use consultant Craig Lawson.
“To entitle a high-rise is more complex, there is more uncertainty, there are more hearings and developers don’t like that,” Lawson said. “When I tell them I have a process [to permit a type-three project] that’ll take four to six months, they’re happy. If I say 12 to 16 months, they’ll say, ‘I’m done. I can’t do this.’”
While market factors may ultimately be the driving force of density decisions, the regulatory challenges to doing high-rises have a better chance of being altered now than ever.
The Planning Department is embarking on a five-year effort to overhaul the city’s 1946 zoning code, and officials plan to spend the first two years focusing specifically on the part of the code that deals with Downtown.
LoGrande, who considers the chief goal of code reform to be making it easier for developers to build the kinds of projects that the community desires, said the department could consider implementing minimum density requirements in areas particularly suited for high-rise construction.
Minimum density rules would essentially force developers to design a building that would be taller than 75 feet, necessitating type-one construction. Construction costs would then dictate a high-rise.
Still, minimum density zones are controversial because they limit what property owners can do with their land. They are generally opposed by property rights advocates.
Developer Tom Gilmore said that instead of requiring high-density in certain locations, the code should merely facilitate high-rises.
“You do what the adaptive reuse ordinance did,” Gilmore said, referring to the 1999 legislation that simplified the permitting process to convert old office buildings into housing. “You can encourage a certain type of building by making it easier to build that way.”
While the rules could ultimately change, some insist that the market will remain the key driver in construction trends.
“Even if there were no cap on density, I don’t know that you would suddenly see an influx of high-rise development, simply because of construction costs,” said Joel Miller, a principal at planning and engineering firm Psomas.
Astani, who is looking to break ground on a 640-unit mid-rise at 12th Street and Grand Avenue this year, also sees the trend primarily as market-driven.
The flood of type-three apartment complexes came in the wake of a recession, when developers are typically more risk-averse, Astani said. Still, he thinks that high-rises will eventually become the new Downtown trend. It just may have to wait, he said, until condominium values and rental rates catch up with construction costs.
In the meantime, recently opened projects and those slated to finish in the next two years will deliver some 10,000 new housing units to Downtown.
Contact Ryan Vaillancourt at email@example.com.