The demand has much to do with the growth of Downtown as a cultural center, featuring amenities and nightlife that rival those of any neighborhood in Los Angeles. The context also includes changes in nearby communities such as Echo Park and Silver Lake, according to Richard Green, director of the University of Southern California’s Lusk Center for Real Estate.
“Property values in surrounding neighborhoods are increasing greatly, so buying a condo Downtown is getting more appealing,” Green said. “Two years ago, you could buy a house in Silver Lake for $400 a square foot, and that’s simply not the case anymore.”
Downtown has been through a sort of stop-and-start process. A handful of local buildings were planned as condominiums before the recession, and architects and developers designed and installed the upscale touches and appliances that mean the most to buyers. However, many of those buildings changed to apartments as lending markets were hammered and securing mortgages became nearly impossible. Only a few projects, such as 920 E. Second St. in the Arts District, actually made it to market as for-sale residences.
“Across the board, construction financing for rentals has been easier to secure in the last few years than for condos,” Howe said. “So when people say developers are choosing one over the other, sometimes it’s not their choice.”
Developers who opened their Downtown buildings as rentals haven’t exactly faltered. Downtown’s apartment vacancy rate dropped to just 3.4% in the fourth quarter of 2013, according to the USC Lusk Center for Real Estate, so even if a developer misses on the financial goals of an apartment project, Green says, it will still fill up.
The upside of condos for developers is that they have higher potential profits. In a strong market, developers can snag a 20% rate of return versus 8% or 9% on rentals, according to Green.