Hollywood Land Prices Soar $100 PSF

Hollywood land prices are garnering high prices, if a recent sale is any indication. Cresent Capital Partners paid $373 per square foot for an unentitled development sit in Hollywood at 5570 Melrose Avenue. At the time that the CBRE brokerage team of Fred Aframian, Joyce Goldstein and Ed Matevosian brought the property to market, comparable land sites were selling for $280 per square foot. Despite the aggressive pricing, the sales team received more than 400 inquires for the property.

“When we began marketing the deal, the average price for comparable land was at $280 per square foot,” Goldstein, an associate at CBRE, tells GlobeSt.com. “We educated our sellers on the market, but also ensured them that we would achieve top of pricing through our marketing efforts. We collectively agreed to list the property at an aggressive price point, well above market average. We hit 99% of our asking price; so it was a great success.”

One of the reasons that the site was able to attract such high pricing is because the seller, Kessab LP, which is the owner-operator of West Hollywood Automotive Service Center, was willing to hold the property during the entitlement period. “This site was priced on the higher side, and the reason it worked was because the seller was able to carry the property while the buyer was obtaining the entitlements,” explains Aframian, a senior associate at CBRE, tells GlobeSt.com. “That’s not always the case.  Many sellers want the higher prices but aren’t able to or want to hold on.  Also, cost of construction isn’t where it was a year ago. These cost increases have negatively affected the valuation of development sites.”

The location also helped attract attention. The property is a 19,000-square-foot corner lot with mixed zoning. “The mixed-zoning allowed for the developer to get creative with their entitlements,” adds Aframian. “Hollywood is still an attractive, hot market, but developers are pickier these days. Development projects need to check many boxes such as location, development potential and timing.”

Development activity in Hollywood has spiked in recent years, especially as the office market there has grown. As a result, there is tremendous demand for land sites. “There are about a dozen sites currently available,” says Aframian. “There is plenty of demand. We receive requests weekly, and we are also seeing many smart developers that know how to get creative, how to effectively engage the community and accomplish projects in non-traditional ways.”

The activity in the market should remain strong well into the future as the market continues to grow. “Our outlook is optimistic as we’ve seen incredible growth. Los Angeles, specifically Hollywood, has a lot of demand because of its young demographics and its vibrant live-work-play environment,” says Goldstein. “We’ve just become a first-tier city, and there’s a lot more growth and development on the horizon.”

The story, however, isn’t all rosy. There are some challenges that may come from the development boom, like low absorption rates that could impact pricing. Developers are also keeping an eye on the new Linkage Fee Ordinance and the City of Los Angeles Transit Oriented Communities Affordable Housing Incentive Program. “Once linkage fees are applied, beginning mid-June, many developers will include the additional cost into their underwriting thereby land values are likely to decrease,” says Goldstein. “On a positive note, sites that do not require a zone change and that fall within the TOC program of Measure JJJ will do well, as the city is allowing for additional density and intensity on those sites.”