Financing for DTLA Residential Is Not What It Used to Be

The residential market in Downtown Los Angeles is continuing to grow tremendously. Despite the delivery of thousands of new units last year, the multifamily vacancy rate in Downtown Los Angeles is continuing to trickle down and rents are holding steady. As a result, developers and investors are bullish on the market, and finding capital partners with equal enthusiasm. The improved market sentiment is relatively new for a market that a decade ago was a risk.

“The risk was huge. When I think about what the first adaptive reuse projects went through to get financing—the risk was huge,” Carol Schatz, president of the DCBID, tells GlobeSt.com. “I think now all of this market activity and growth, obviously a lot of that risk has been removed. The most important thing is what this demonstrates for the city as a whole. Los Angeles is now being recognized as a world-class city, and that could not have happened without what has happened downtown. It has created this wonderful sense of optimism in Los Angeles.”

The bulk of new units delivering last year and in the years to come has been point of concern for some analysts, who predict that there will be a drop in rents and increase in vacancy because of the new supply. The decreasing vacancy and stable rents, however, tell how strong the market demand really is, according to Schatz. “It is our job to look into the future and figure out what all of the units coming online will mean for the market,” she explains. “Rents are holding steady, and that is wonderful news because we have 12,000 units in the air right now.”

It isn't only the rental market. The condo market is also seen increasing activity and projects in the pipeline, and the demand has been strong. Ten50, one new condo build from Trumark Urban, is nearly sold out, and the first tower of Metropolis, a luxury high-rise condo project, is already 75% sold. “That is very important condo project,” adds Schatz. “Condos are important in terms of putting a stake in the community, but California law makes it very difficult for developers to build this product.”

As the office market grows, which Schatz is anticipating this year, she says the demand for apartments will also continue to grow to accommodate the new workforce. “We have seen this over and over again,” she says. “When Gensler moved downtown, their employees chose to move downtown, and that trend has continued.”

The residential market in Downtown Los Angeles is continuing to grow tremendously. Despite the delivery of thousands of new units last year, the multifamily vacancy rate in Downtown Los Angeles is continuing to trickle down and rents are holding steady. As a result, developers and investors are bullish on the market, and finding capital partners with equal enthusiasm. The improved market sentiment is relatively new for a market that a decade ago was a risk.

“The risk was huge. When I think about what the first adaptive reuse projects went through to get financing—the risk was huge,” Carol Schatz, president of the DCBID, tells GlobeSt.com. “I think now all of this market activity and growth, obviously a lot of that risk has been removed. The most important thing is what this demonstrates for the city as a whole. Los Angeles is now being recognized as a world-class city, and that could not have happened without what has happened downtown. It has created this wonderful sense of optimism in Los Angeles.”

The bulk of new units delivering last year and in the years to come has been point of concern for some analysts, who predict that there will be a drop in rents and increase in vacancy because of the new supply. The decreasing vacancy and stable rents, however, tell how strong the market demand really is, according to Schatz. “It is our job to look into the future and figure out what all of the units coming online will mean for the market,” she explains. “Rents are holding steady, and that is wonderful news because we have 12,000 units in the air right now.”

It isn't only the rental market. The condo market is also seen increasing activity and projects in the pipeline, and the demand has been strong. Ten50, one new condo build from Trumark Urban, is nearly sold out, and the first tower of Metropolis, a luxury high-rise condo project, is already 75% sold. “That is very important condo project,” adds Schatz. “Condos are important in terms of putting a stake in the community, but California law makes it very difficult for developers to build this product.”

As the office market grows, which Schatz is anticipating this year, she says the demand for apartments will also continue to grow to accommodate the new workforce. “We have seen this over and over again,” she says. “When Gensler moved downtown, their employees chose to move downtown, and that trend has continued.”