Amy Wolff Sorter is a contributor to Real Estate Southern California, from which this article was excerpted.

Southern California is, on paper, the last place one might find residential high rises. Given the area’s proximity to the San Andreas fault and its longstanding history of earthquakes, many high rises can come tumbling down like a house of cards. Additionally, high-rise residences are not exactly cheap living.

Such matters haven’t deterred high-rise developers or investors, however. Building codes ensure safety, they point out. And a growing demand for luxury high-rise residences–especially in infill and urban areas–are spurring developers to meet that demand, despite mounting construction costs and niche demographics.

“Relative to historic levels of construction in Southern California, we’re seeing unprecedented amounts of high-rise residential buildings in the region,” says Marc Renard, executive director of Cushman & Wakefield of California Inc. One exception to the rule is Los Angeles, where very few of these projects have dotted the sky as of late. That doesn’t mean, however, that Los Angeles isn’t still in the high-rise business; it simply means that these projects, especially in Downtown, don’t start from the ground up.

“In Los Angeles it’s more that you have a dozen or so office buildings that have been converted to residential high rises,” says Brent Sprenkle, senior vice president out of Sperry Van Ness’ Los Angeles office. “We’re not seeing very much new construction of that multifamily [product type] here because of the demand for already existing condos. And in West L.A. we haven’t quite had the rental appreciation necessary to build more rental units. It doesn’t make economic sense to build [them].”

What does seem to make sense, however, is mixed-use and luxury product types. Near Los Angeles’ Staples Center, the four-million-sf L.A. Live features a strong residential component. The $1.8-billion Grand Avenue project, meant to revitalize Los Angeles’ CBD, also has high-rise multifamily.

While Renard mentions Los Angeles, Orange County and San Diego as examples of development hot spots for high rises, other markets are chiming in with projects as well. Ontario Town Square, a mixed-use development, complete with 471 residential units, has broken ground. Not too far away, Sacramento-based Panattoni Development Co., in conjunction with Toll Brothers Inc. in Horsham, PA, is developing the 120-acre, mixed-use Piemonte at Ontario Center.

Meanwhile, in Irvine, local developer Geoffrey H. Edmunds California Inc. has joined forces with Opus West Corp. to create the 15-story Plaza Irvine. “There’s a number of projects on the drawing board and one or two in the ground,” says Geoffrey Edmunds, the firm’s president. He adds that the demand for residential units has been spectacular. Of the 202 units that should be complete by the end of April 2007, 190 of them are sold.

When it comes to this kind of trend, the main question is “Why is this happening?” On the surface, the obvious answer is “bookend demographics.” On the one hand, you have young, urban professionals who don’t want to commit to a single-family residence. On the other hand, you have empty nesters who also don’t want to commit to a house or the land.

But sometimes those high rises end up as the top part of a larger mixed-use component. Such developments bring all sorts of amenities to the tenant and/or condo owner. They are also appealing to their residents because it means they can live, work and play, without having to commute too far. “Everyone wants to get off the darned highway,” adds Mary Jane Olhasso, economic development director with the City of Ontario.

The mixed-use projects are also a boon for developers who are watching costs. “People have come to conclusion that mixed use, not necessarily office over retail, but multifamily and condos, will perform substantially better,” Sprenkle says. “Seeing a lot of people for first time ever buying development sites with the idea that they’re going to do mixed use is encouraging. You see it a lot in Hollywood and you’ll see it elsewhere down the road, especially because many local governments are in favor of it.”

Though potential tenants and condo owners have different reasons for wanting space in these specialized residential projects, they do have one thing in common: they have a lot of money to spend. Though some of the high-rise projects might have an affordable housing component attached to it, especially in the various business districts, it’s not cheap for the average user to buy or even rent. Tenants and condo owners pay for the view and, many times, pay the amenities that come with a high-rise development.

Experts note that many people are willing to shell out $5 million for a condo unit, simply for the building’s status and name, which can make rents hover around the $6 to $7 per sf per month range.

With developers paying up to $800 per sf for a standard high rise, most of these projects target above-average wage earners simply because developers can’t afford to not pay attention to high-end users or buyers.

As if the costs of high-rise developments weren’t enough, getting through the permitting and entitlement processes can be daunting, as ordinances in various submarkets prohibit anything too high. Though the barriers to entry can be daunting, experts agree that these challenges aren’t stopping developers. But will this result in a glut of luxury housing on the market?

Olhasso believes there is still enough demand to justify a lot of the supply coming on line, especially as more baby boomers want fewer hassles with single-family residences. “The empty nesters might still be part of the work force, but want to live in something that’s low maintenance,” she says. “They’re sick of the yard, they don’t need it, but they’re accustomed to the luxury of a Toll Brothers project.”

Renard also believes that, given the demand for housing of almost any kind, high-rise multifamily overbuilding isn’t likely to be an issue. “The ones out there and planned may take longer to absorb,” he says. “But long-term prospects for such developments in Los Angeles and Southern California are strong.”

Edmunds adds a word of caution, however, pointing to what happened in San Diego. “There were a lot of investors in the marketplace there for a few years, so there was a lot of overbuilding,” he notes. “We have to let that market settle back down before we can go ahead with new projects.”

Most experts agree that high-rise, high-density multifamily, with or without mixed-use, is likely to be around for a while. “The key is you need to be in the right market at the right time,” Edmunds explains. “Demand will be back by 2008 because inventory of investor units should be sold out by then. Logic tells us those units will re-sell, and the market stabilized again.”

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