DOWNTOWN LOS ANGELES - Historic Core apartment king Barry Shy has been sitting on big plans for a new tower at Sixth and Main streets ever since he bought the site for $30 million in 2006. Now, he’s eyeing an April groundbreaking on a 40-story, 350-unit complex dubbed SB Omega.
Shy’s plan calls for 35 levels of apartments above a five-story, 1,200-space parking facility. The structure would stand more than twice as tall as most Historic Core buildings.
“The rental market, it’s amazing,” said Shy, who already owns some 1,200 apartments in five Downtown buildings. “I have no vacancy and the rent keeps going up.”
Shy said the SB Omega plans meet the site’s land-use allowances and will not require special city approvals. But zoning records for the property at 601 S. Main St. indicate that the plan may actually require special signoffs, or only allow a smaller building.
Either way, Shy is convinced that now is the time to start the process.
In that regard, he is far from alone. A chorus of experienced Downtown developers are all responding to current market conditions: Central City apartment occupancy is at an all-time high, with some area landlords reporting that their buildings are about 98% full.
The situation is creating what might be called the next Downtown housing boom. At least 10 buildings, with nearly 2,400 apartments, are either under construction or are slated to break ground in the next 16 months.
Old Bank District developer Tom Gilmore is among those posting a 98% occupancy rate on his books — but even that figure is somewhat deflated, he said.
“We are effectively full,” he said. “The only reason I’m not at 100% is because I can’t turn the apartments over fast enough.”
With supply squeezed, rents are climbing. Rates in the Downtown area have jumped 18.2% since 2010, and were projected to grow another 6% in 2012, according to the USC Lusk Center for Real Estate’s Casden Multifamily Forecast.
The list of developers with plans to break ground on Downtown housing projects by the end of 2013 reads like a who’s who of veteran area builders: It includes Steve Needleman, Joseph Hellen, Alex Moradi, the Hanover Company and Related Cos.
They don’t appear to be bluffing. The Los Angeles Department of Building and Safety, which must sign off on all major construction projects in the city, is tracking a 19% year-to-date increase in revenue citywide — that means more developers are paying for permits to put shovels in dirt.
More telling, said Bud Ovrom, general manager of Building and Safety, is that the best measure of imminent construction — plan check revenue, or the fees collected from developers who are fine-tuning their blueprints and other construction documents — is up 11% year-to-date, from $6.5 million to $7.2 million.
“Now, who knows if Iran comes up with a nuclear weapon or God only knows what can happen in the world, but right now this upward trend is very real,” Ovrom said. “We know the numbers better than anybody. Every indication we have is the upward trend is going to proceed into the foreseeable future, both in terms of new ground-up construction and adaptive reuse.”
The players seeking to capitalize on the tight market include developers from across the country, and at least one from north of the U.S. border. The properties also represent a variety of structures, with some developers pursuing seven-story buildings (generally the height limit for wood-framed construction) and others opting for steel-boned high-rises.
Houston-based Hanover Group, which opened the luxury 717 Olympic tower in 2008, is seeking approvals for a 281-unit complex at Olympic Boulevard and Hill Street. The company is looking to break ground next year, said Simon Ha, chair of the Downtown Los Angeles Neighborhood Council’s Planning and Land Use Committee, which received information on the project.
Related California, developer of the Grand Avenue project, recently secured financing for a 19-story, 271-apartment tower just south of the under-construction Broad museum. Work on the $100 million edifice is expected to start by November, with an anticipated opening in 2014.
The familiar names are being joined by newcomers such as Vancouver-based Onni Group, which is set to break ground this fall on a 32-story tower at Ninth and Olive streets. The 283-apartment complex is one of three new Eighth Street housing projects slated to break ground this year.
Carmel Partners is in line to start construction on a 700-unit project at Eighth Street and Grand Avenue that was entitled by developer Sonny Astani (Carmel did not respond to multiple requests for comment, but Astani said the firm, which paid $63 million for the project, planned to start work in 2012). At Eighth and Hope streets, Wood Partners is poised to break ground this year on a 22-story apartment tower with 290 units.
The past several years were relatively quiet in terms of new development, leading to a pent-up demand. Newly opened projects include the Historic Core’s Chester Williams Building and the Jeffries. In other situations, such as Seventh Street’s Brockman Lofts and Roosevelt Lofts, landlords bought and finished construction at projects that had stalled during the recession. Apex, the 271-unit tower at Ninth and Flower streets built by Sonny Astani but now owned by ST Residential, is slated to start leasing as luxury apartments this month.
Other large projects are in the throes of construction, among them the 280-unit Chinatown Gateway at Cesar Chavez Avenue and Broadway, the two-phase, 440-residence Avant at Flower Street and Pico Boulevard, and One Sante Fe, a $160 million development that will create 438 apartments near SCI-Arc in the Arts District.
It is an inarguably big, capital-intensive wave, with at least 2,396 units slated to break ground by 2013. Still, that will do little to relieve the supply pressure that is pushing rents higher, said Gary Painter, director of research at the USC Lusk Center for Real Estate.
According to the Downtown Center Bus iness Improvement District’s 2011 Down town Demographics Survey, there were 28,861 housing units in the area at the start of 2012. That means the 2,396 apartments in the pipeline reflect a potential 8% increase in supply, and even if all those get built, they won’t open for one to three years.
“We’re not talking about a number that’s going to relieve pressure on prices,” Painter said. “It’s going to decrease the rate of increase. That’s all.”
Gilmore, one of the first modern era developers to build housing in the Downtown core, said the units forecast to come online in the next few years represent a drop in the ocean, chiefly because the area remains home to some 500,000 jobs. The residential population is estimated to be around 50,000.
“You have to always go back to the fundamental math of how many jobs are there versus how much housing, and the ratio is still way out of whack,” Gilmore said. “We could probably use 200,000 more units of housing.”
In the meantime, rents are poised to rise steadily. Shy, who has long kept his prices slightly below prevailing market rates, said he plans to continue the same practice, though as overall prices go up, he’ll increase accordingly.
“I still prefer to be a little bit below market so then I can rent it easily,” he said.
A Downtown News analysis found that currently available apartments in the rental-dense Historic Core average about $2.03 per square foot per month. But buildings that have opened recently are asking higher rates. Owners of the Chester Williams Building, for example, plan to rent units for an average $2.10 per square foot, with a range of $1.90 to $2.40 per square foot. Two units now for lease at the Jeffries, which opened in July, are offered at $2.17 and $2.36 per square foot.
Contact Ryan Vaillancourt at email@example.com.
©Los Angeles Downtown News.
A Sampling of Some of the Projects Slated To Break Ground by the End of 2013
Project: SB Omega
Size: 350 units, 35 stories
Location: 601 S. Main St.
Developer: Barry Shy
Timeline: Shy hopes to break ground by April, but that hinges on his belief that the project is “by right.” The site’s zoning allowances may only allow a smaller project, in which case Shy would have to go through the lengthy public review process to notch special land-use approvals.
Project: Onni Tower
Size: 283 units, 32 stories
Location: Ninth and Olive streets
Developer: Onni Group
Timeline: The firm plans to break ground this fall and open the building by fall 2014.
Project: Olympic and Hill
Size: 281 units, seven stories
Location: Olympic Boulevard and Hill Street
Developer: Hanover Company
Timeline: The firm is looking to submit plans for final review in early 2013 and break ground later in the year, according to the Downtown Los Angeles Neighborhood Council.
Project: Eighth and Hope
Size: 290 units, 22 stories
Location: Eighth and Hope streets
Developer: Wood Partners
Timeline: The firm is nearing a groundbreaking. A company rep told Downtown News in July that it would start work this month.
Project: Grand Avenue tower
Size: 271 units, 19 stories
Location: Grand Avenue at Gen. Thaddeus Kosciuszko Way
Developer: Related Cos.
Timeline: The firm plans to break ground by November, with completion slated for late 2014.
Project: 1111 Sunset
Size: 92 units, seven stories
Location: 1111 W. Sunset Blvd.
Developer: Linear City
Timeline: Demolition is under way and the firm is securing a general contractor. Completion is expected in early 2014.
Project: 430 S. Broadway
Size: 50-60 units
Location: 430-434 S. Broadway
Developer: ICO Development
Timeline: The firm, which handled the conversion of the Pacific Electric Lofts, bought the building in August. Plans are preliminary, but the adaptive reuse entitlement process generally takes about one year. The timeline is uncertain.
Project: Singer Sewing Machine Building
Size: Nine units, nine stories
Location: 806 S. Broadway
Developer: Steve Needleman
Timeline: Needleman has begun preliminary work at the site with plans to start interior work this fall, and construction is expected to take about two years.
Project: Spring Street garage/apartments
Size: Up to 90 units, 12 stories (including parking)
Location: 500 block of South Spring Street, between the Spring Arcade and Alexandria Hotel
Developer: Joseph Hellen
Timeline: Hellen is finalizing plans to submit to the city. The project, he said, is “by right” and won’t require a lengthy public review process. Hellen is looking to break ground in summer 2013 and take 18 months to build.
CORRECTION: A previous version of this story incorrectly reported that the Onni Tower was slated to rise at Eighth and Oliver streets. It is to be located at Ninth and Olive streets.