Developers Seek Profit
In Los Angeles

Real-estate developers are betting billions that Los Angeles wants a downtown. So far, the evidence is mixed.

East of some of the world's richest addresses in Beverly Hills and Santa Monica, the city's downtown will get $10 billion in public and private investment by 2010. But midway through the building boom, no one would mistake downtown Los Angeles for the bustling round-the-clock urban enclave touted by boosters of the Staples Center sports arena before it opened in 1999.

Businesses and residents still prefer West Los Angeles over downtown, where vacancies rose to the 19% range in late 2002 and are just now trending down. Average downtown office rents rose to $25 per square foot per year in the first quarter from year-earlier, though still below the $31 per square foot average in West Los Angeles, according to Property & Portfolio Research Inc., a Boston-based real-estate-research firm. The vacancy rate among downtown apartments was 6.9% in the first quarter, above average for the city. But rents also were above average at $1,657 a month, and are expected to climb as more high-end units are built, PPR says.

A frenzy of residential construction already has lifted downtown's housing stock by about 41% since the end of 1999, and while the population has doubled, it still numbers just 24,000 in a city of 3.8 million residents. Carol Schatz, president of the Downtown Center Business Improvement District expects approximately 7,000 more residential units in the near future, some to be constructed in 20 towers of 15 stories or more.

One residential project rising out of the ground is the 267-unit Market Lofts in the South Park section of downtown. The lofts will be located over a 50,000-square-foot Ralphs, the downtown's first major supermarket in 50 years. Avi Shemesh, a principal in the CIM Group, which is developing the lofts with the Lee Group, says adding much-needed service businesses to the area is important to the success of the downtown residential community. "We look for the missing part," Mr. Shemesh says.

Amid hopes that the office market will expand as more people move into downtown Los Angeles, Maguire Properties earlier this year purchased the 52-story 777 Tower building, designed by architect Cesar Pelli.

The hope for some investors is that as more people move downtown, the office market will grow. Earlier this year Los Angeles-based Maguire Properties, already downtown's largest office-property owner, said it paid nearly $360 a square foot for the 777 Tower office building in downtown Los Angeles.

Overall, nearly all sectors of the region's real-estate market improved in the second quarter as the area's economy stabilized in the past year. After small but steady job losses from 2000 through 2004, Los Angeles's strengthening defense sector and housing industry helped nudge up employment by 0.4% for the 12 months ended in March, though losses in government and manufacturing jobs helped hold the rate below the national pace, according to consulting firm Economy.com.

Housing costs have gone from high to staggering recently, hitting a median home price of $474,800 in the second quarter, the seventh most expensive metropolitan area in the nation, according to the National Association of Realtors.

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