DOWNTOWN LOS ANGELES - Onni Group, a Vancouver-based developer that last year bought two Downtown properties, is quietly finalizing plans to build a 32-story apartment tower at Ninth and Olive streets.
The proposed $100 million development at 888 S. Olive St. would rise on a plot entitled in 2009 by LaeRoc Funds. Onni bought the site along with the adjacent Coast Savings Building from LaeRoc last year for $16.5 million.
The so-far-unnamed 283-unit tower is currently in the plan check phase of the permitting process and is on pace to break ground by August, said Chris Evans, Onni’s executive vice president. He said financing is in place to start construction, but declined to specify how the firm will fund the project.
Onni last year opened a five-person office in the Coast Savings Building, which will remain an office complex. The company also has offices in Chicago and Phoenix.
The bulk of Onni’s business is in Canada, where between greater Vancouver and Toronto the company has nearly 4,000 condominiums currently under construction, Evans said. It also owns and manages about 4,000 rental units between Canada, Phoenix and Chicago.
Most of Onni’s under construction developments are high-rises in urban areas. The company builds both apartment and condominium projects, but plans rentals for the Olive Street site. It also owns and manages about 4.5 million square feet of commercial space, including office, retail and industrial properties.
The firm has been eyeing the Downtown Los Angeles market since about 2004, Evans said. The company finally made its move last year when it also bought a 70,000-square-foot mid-rise office building at 1212 S. Flower St. That site includes an adjacent parking lot that Onni plans to develop with a residential building in the future.
“From looking at the Downtown market outside-in, we saw the market change significantly in 2008 and it basically stopped,” Evans said. “Obviously if that market would have lived another three or four years, Downtown would look significantly different than it does today, but we believe in that transformation and that it’s going to continue to happen.”
The proposed building, which is a slight variation on LaeRoc’s project, includes about 11,000 square feet of ground floor retail and a 663-space garage.
If all goes as planned, Onni’s project would open in 2015. It would also mark the first start on a Downtown high-rise since 2007, when Meruelo Maddux Properties (this week renamed Evoq) broke ground on the 35-story tower known today as the Watermarke.
Onni is not the only player looking to bring the cranes back to Downtown. Related Cos., developer of the proposed Grand Avenue project, continues to look for financing and hopes to break ground by October on a 19-story apartment tower, said Bill Witte, president of Related California.
Developer Sonny Astani said he plans to break ground this year on the 240-unit phase one of Angelena, an apartment complex at Eighth Street and Grand Avenue. A pair of seven-story rental buildings has been announced for 1340 S. Figueroa St.; construction is underway on a 210-unit housing complex at 1111 Wilshire Blvd. in City West; and work began this year on One Santa Fe, which will deliver more than 400 apartments to the Arts District. Chinatown Gateway will bring 280 apartments to that neighborhood in 2013.
“What this activity shows you is that the market fear that occurred in 2009 and 2010 has dissipated and the growth prospects for Downtown are very healthy,” said broker Mark Tarczynski, senior vice president at real estate services firm Colliers.
The return of high-rise development would mark the latest churn in a real estate cycle that hit doomsday in 2008 and saw seeds of recovery in 2010 as institutional investors increasingly looked to purchase multi-family housing projects. Now, the rental market in Downtown appears strong: Dallas-based MPF Research found that occupancy in Downtown apartments (including buildings in City West and other neighborhoods on the outskirts of the Central City) stands at 96.8%.
“There was a trend over 2010 of decreasing vacancy and increasing rents in Downtown and we’ve seen concessions disappearing and overall higher demand for apartment units,” said Tracey Seslen, a senior research associate with USC’s Casden Real Estate Forecast.
Prices are going up too. According to Colliers, Downtown rents jumped about 8% in 2011 over the previous year. There is some more supply in the pipeline: ST Residential’s 271-unit Apex (formerly Concerto) is due to open as apartments this year. So are the 88-unit Chester Williams Building and the 43-apartment Winston building.
Despite the current and planned activity, Tarczynski said the projects that are currently under construction — Colliers estimates that the market will add about 300 units per year for the next three years — represent a modest supply that won’t satisfy rising demand.
Still, even if demand appears to be mounting, Onni’s proposal is not an obvious slam-dunk. Related’s Witte said that, for most developers, high-rise construction is generally too costly compared to rental returns.
“The only way that makes sense, potentially, is if you’re really designing condos and the exit is that you convert to condos and sell them,” said Witte. “There are developers who are playing the cycles and will build condos now, rent them and look to sell them as condos when the market improves.”
The Related project is different because it includes a 20% affordable housing component, which gives the developer access to less expensive bond financing.
Onni’s Evans declined to comment on the company’s financing model, but he said the firm will leave a future door open to a condo conversion.
“Today we’re certainly looking from a rental point of view to make the project make sense and we’ll see what happens in the future,” Evans said.
Contact Ryan Vaillancourt at firstname.lastname@example.org.