Downtown Awaits Next Round of Conversions

"Once the recovery arrives, Downtown will come roaring back because there are lots of buildings that are still available to convert to residential use," Killefer says. The old Downtown office buildings, constructed in the 1920s and 1930s--and some even earlier--are ideal for converting into housing units," Killefer notes. Many are architectural landmarks, like the Eastern Columbia Building, which was converted to lofts designed by Killefer's firm.

He cites the large windows, high ceilings, ample natural light and other features of the old buildings that explain why "Everybody got out of the gate so fast" in the now-stagnant building boom. It also helped greatly that the City of L.A. adopted an adaptive reuse ordinance that made it financially feasible for developers to convert the old office buildings to apartments and condos.

In addition to the old office buildings, other Downtown properties like parking lots and single-story retail buildings that could be razed, lend themselves to conversion for apartments and condos, according to Killefer. He says the next round of building will actually be easier than the first because many of the elements of Downtown living that were missing before are now in place. "What wasn't there before was all of the infrastructure, the bars and the restaurants and the dry cleaning shops and so forth, which lags behind the housing, but now there is a lot of it there," Killefer explains.

It's anybody's guess when the economy will change directions and the pace of Downtown residential construction will pick up again, but others besides Killefer are optimistic about the long-term future of Downtown L.A. A recent report on the Downtown multifamily market by Marcus & Millichap, for example, stated that, "Ongoing redevelopment projects are expected to present long-term rent upside once the local economy stabilizes."

According to the Marcus & Millichap report, apartment deliveries in the Greater Downtown area dropped by nearly half to 840 units from 1,500 over the past 12 months, along with 640 condo units. Nearly 1,050 apartment units are under way in Greater Downtown, but more than half are not slated for delivery until 2010. Some 1,800 condo units are under construction and 6,300 units are proposed, according to the report.

Despite the 25,000 or so rental and for-sale units that have already been built and those that are under way, Killefer says, Downtown holds the potential for substantial additional development once the economy recovers. Demographic changes, smaller families, a renewed interest in Downtown living and the overall development in Downtown L.A. have set the stage for at least a couple more cycles of residential building, he says. In addition, Downtown has become "a fun place to live," he says.

Once the pace of development accelerates again, "We will probably overbuild a second time," Killefer says. But that won't be the end of the Downtown residential building booms. "There are lots of underdeveloped properties in the Downtown area, so it may take a couple of more cycles before we're pretty well built out," he says.