Downtown L.A.'s Revitalization, Far from Over

LOS ANGELES—The revitalization of Downtown Los Angeles continues to be a hot topic of discussion in the commercial real estate industry, with many speculating on when activity will peak. Overall, property values rise as the market gains influence regionally, nationally and even internationally, resulting from capital and resources being infused to meet the demands of this growing urban epicenter. As jobs and population increase, a myriad of new restaurants, bars, retail, and other amenities are being added every year. For investors, this means there is no better time to snatch up existing properties and lots, with many Downtown neighborhoods promising exciting opportunities for growth. 

There has been strong retail momentum in active hubs such as Broadway, FIGat7th, the Fashion District, and Historic Core. New-to-LA retailers, in addition to those already rooted in LA, recognize Downtown's emergence as a retail destination as well as the city's center for entertainment, dining, culture, nightlife, and urban living.

Demand for housing in Downtown is rapidly outpacing supply with just over 31,000 residential units and more than 53,000 residents currently, as reported by Downtown Center Business Improvement District (DCBID). Additionally, DCBID reports a projected tripling of the population in 15 years. As the local population and visitor base grow, the resurgence of culture and entertainment has no end in sight. Finally, with an estimated 500,000 employees in 2013 and continuing employment growth, the need for high-quality housing Downtown is clear.

Apartment buildings enjoy steady demand, low vacancy, and rising rents.  Condo pricing is seeing some of the same upward momentum as the apartment sector. Due to limited supply—down 67% since April of last year—condos have an average price of $540 per square foot and a 6% year-over-year increase despite a decreased number of sales. Many of the converted residential buildings under the adaptive reuse ordinance were originally slated as condos and changed to apartments prior to the recession. The limited supply and upward pressure on condo pricing will provide investors with an attractive option to convert those buildings back to condominiums and sell the units individually.  It's clear that the demand for both apartments and condominiums Downtown is not going anywhere, and we've only just embarked upon the residential boom in Downtown LA

One of Downtown's key hubs is the Historic Core, which is currently undergoing a transformation thanks to Councilman Jose Huizar's Bringing Back Broadway initiative—initially catapulted by the opening of the Ace Hotel—which is transforming the area into a thriving pedestrian center. Spring Street, just one block east from Broadway, is a key Downtown neighborhood also enjoying resurgence. It enjoys some of LA's most architecturally significant buildings which are hot commodities for redevelopers and foreign investors hoping to capitalize on LA's high demand for Downtown living. This area is becoming increasingly significant not only in the Historic Core, but to Downtown's revitalization as a whole. Creative energy is spawning a wave of redevelopment, as creative office supply remains low and historic architecture attracts technology and fashion industry tenants. 

We recently listed National City Tower on Spring Street, a historic 12-story residential over retail property for $45 million, and are getting a strong response from a diversity of potential buyers including institutions, private and international buyers. Because the property has been fully stabilized over the past 12 months with key restaurant tenants and has a high residential occupancy, this property comes to market at the right time for interested buyers to swoop in and own a piece of a growing downtown hub in revitalization mode.

The progression of Downtown Los Angeles is an exciting one to witness firsthand, and the flurry of activity we've seen is just the beginning of what we can expect in the next few years.

Bryan Glenn, is a senior director at Charles Dunn Co. The views expressed in this column are the author's own.