THE STATE
Grocery store returns to a revitalized downtown neighborhood
By Cara Mia DiMassa, Times Staff Writer
July 19, 2007

South Park Renaissance
Ralphs Grocery got its start in downtown Los Angeles during the horse-and-buggy days. But the supermarket abandoned the city center in 1950, a symbol of the district's rapid decline in the wake of the post-World War II suburban boom.

Now, Ralphs is poised to return to the heart of the city, with a 50,000-square-foot market in the shadow of Staples Center and more than a dozen new condo towers. It is scheduled to open Friday.

The supermarket is a central part of a concerted effort by developers and urban planners to create suburban touches in one corner of downtown, an area known as South Park.

Much of downtown's renaissance so far has been focused on the rehab of buildings in the pre-World War II commercial core, where dozens of once-dilapidated office buildings have been converted into luxury lofts. Residents prize century-old brick facades and lovingly restored grand lobbies — and tolerate the sometimes grimy streets that come with them.

But just a mile away, South Park feels different.

Sparkling new steel-and-glass high rises are sprouting on the sites of former parking lots, auto dealerships and warehouses.

Developers and city officials have planned wide sidewalks and double rows of street trees, as well as pocket parks in the middle of city blocks. There's even a light-rail platform a short walk away.

This strategy has helped developers attract to South Park businesses that are more often seen in suburbia: a Cold Stone Creamery that is going in next to the Ralphs; a Starbucks at 11th Street and Grand Avenue; and bistros, markets, nail salons and other amenities to serve the well-heeled neighborhood residents.

In addition, the first phase of LA Live, a 4-million-square-foot "sports and entertainment hub," is expected to open in September. That development will include chain restaurants such as P.F. Chang's, as well as a 14-screen multiplex.

"This is a modern neighborhood," said Cynthia Heimbold, a furniture designer who moved to South Park six months ago from the historic district. "This is new construction. It's cleaner … and I knew it was going to grow a lot quicker than the historic core, because they were starting from scratch."

Heimbold has opened a furniture store on the ground floor of her building, the Elleven, to cater in part to the growing number of residents in the area. "It feels like we are on the forefront of something really cool that's happening," she said.

The push to integrate suburban touches into urban settings has become a cornerstone of some downtown redevelopments. Cities like San Diego; Portland, Ore.; and Vancouver, Canada ; have pushed for designs and amenities that foster safe and livable city centers.

"If you are a developer today and you are building in an area like that, if you don't think about the street-scaping and the neighborhood, you are nuts," said John McIlwain, a senior fellow at the Urban Land Institute, a land-use planning think tank. "People are buying not just an apartment but a neighborhood. Everything within a quarter mile, a five-minute walk, is as important as the countertops in their kitchens. It's an extension of their environment."

Realtor David Kean, who has represented buyers, sellers and renters of South Park units, said he finds that the upscale nature of the neighborhood appeals to many would-be residents.

"A lot of people want an area that's less fringey," Kean said. "They are willing to pay more to buy into an area that is already established and has stuff to do and restaurants nearby."

Still, some question whether the area will have the kind of urban fabric necessary to sustain it as a neighborhood over the long term — especially because housing prices in the area prevent many from moving in.

"It might look quite sanitized and manufactured. It's certainly not authentic. But at the same time, it's marketable," said Anastasia Loukaitou-Sideris, chairwoman of the Department of Urban Planning at UCLA. "Is it a neighborhood in the old sense of the word, where you know your neighbors and can borrow a bottle of milk from them? No, probably not. That doesn't come simply through design and wider sidewalks."

In South Park, more than 3,500 residential units have gone on the market so far, and about 5,400 more are planned to become available over the next three years or so.

If all of those units are built, that would mean that almost a quarter of residential units in downtown would be in South Park, according to the Downtown L.A. Business Improvement District.

Although most of the new developments have risen on former parking lots, there have been concerns from some housing advocates that downtown's upscale housing could move farther south, potentially pricing out low-income residents who have long called the area home.

For Heimbold, the reasons for moving to South Park were simple. She said she wanted "to be in an area I knew, a place that you knew was growing quickly, and would go up in value."

Rents at the Met Lofts, which developers describe as a boutique residence inspired by Bauhaus design, range from about $1,670 a month for a 687-square-foot space to about $4,500 for a 1,464-square-foot loft.

Most new South Park units, though, are condos, with prices starting around $500,000 and climbing steeply from there. "Not rebuilt. Not redesigned. Not re-anything," brags a website for Luma, one of the buildings by a consortium of Portland-based developers known as the South Group that has been at the forefront of the neighborhood's transformation.

When Jennifer Girsky and her husband, Marc, first decided to move into the area about four years ago, the entire neighborhood was still in the planning stages, and the building they had chosen was just a hole in the ground.

But Girsky said that when the couple saw plans for South Park, they loved the sparkling newness of the buildings and felt it was something vastly different for downtown. "Instead of looking old and urban, it's new and urban," said Girsky, a corporate flower designer.

The couple, in their 30s, live with their Maltese dog in a spacious 12th-floor unit with two bedrooms and floor-to-ceiling windows in Elleven, a 176-unit structure at 11th and Grand that is L.A.'s first residential high rise in 20 years.

The grand scale of South Park's transformation is due in large part to an abundance of available land, much of it amassed by the AEG Group, the firm owned by billionaire Philip Anschutz that also controls Staples Center.

"They had a dream, and they had Mr. Anschutz's money," said Jeff Lee of Lee Homes, which has four projects in the area, including one on land acquired from AEG. "They never gave up, and I am so glad we believed in their dream."

A big part of that dream involves a supermarket. When the downtown residential boom began, many of the new residents complained about the lack of a major supermarket in the city center. Many residents drive several miles away to stock up on groceries.

The opening of the Ralphs Fresh Fare is considered a symbolic boost for downtown — the latest sign that big retailers believe the downtown loft and condo community is strong enough to support their stores. Boosters hope that if Ralphs succeeds, other retailers will follow.

The first phase of LA Live, with more chain stores, will open in the fall. Both projects have been eagerly anticipated and could dramatically increase the amount of car and foot traffic in the area.

But others cite a third wave of proposed development, what Lee refers to as "the tower wave," as South Park's ultimate test. (Most of the new residential buildings in South Park today are in the 10- to 15-story range.)

Developer Richard Meruelo has begun construction on a 36-story building at 9th and Flower streets. The four phases of the Metropolis project, a mixed-use complex just east of the 110 Freeway, will each include a tower that is more than 30 stories.

And the Titan Organization Inc. plans to break ground early next year on twin towers at Grand Avenue and Olympic Boulevard — the design of which has led some downtown watchers to nickname them the "Grand Tetons" of downtown.

The plans, indeed, are grandiose. And several of the larger projects have fallen behind schedule. But as land costs in the area continue to rise, "the clock," Lee said, "is ticking."

--mailto:--cara.dimassa@latimes.com

Rental Reduction
With Rising Inventory and Flattening Rates, the Downtown Apartment Market Faces a Challenge - Edited
by Anna Scott
This month, the first residents began moving into the recently renovated Mandel Lofts, a four-story, burnished brick edifice wrapping around the corner of Seventh and Olive streets. Half a mile away on Broadway, the Judson C. Rives building waits in anticipation, the first tenants for its 60 units expected within weeks. Meanwhile, overlooking Pershing Square, the Title Guarantee building was slated to begin move-ins for its 74 apartments last week.
These are just three of the approximately 10 long-planned rental buildings slated to open Downtown this year. But as the developers get set to debut their multi-million dollar apartment complexes, they are suddenly encountering more competition than many expected.
The Downtown Los Angeles rental market has hit a storm that, if not perfect, is certainly jarring to many. Along with the expected slate of apartments, would-be renters now enjoy a wider choice from condominium developers suddenly fearful of being able to sell units for $400,000 or more during a credit crunch. Then comes a slew of other units created by a "shadow market," as investors who purchased condominiums several years ago strive mightily to rent them out.
In short, supply seems to have finally caught up with demand in Downtown's rental market. The trend, say experts, is likely to continue.
"Downtown two years ago was one of the tightest markets around," said Dolores Conway, director of USC's Casden Real Estate Economics Forecast. "You could find something to buy, but not to rent, because of the huge housing boom. Then the market changed. We have seen a steady decline in occupancy in 2007."
The dip has been largely spurred by the subprime mortgage crisis, which has thrown the entire housing market into a tailspin. That, combined with the fact that Downtown rents have risen in recent years, has prompted some developers to turn their condominium efforts into rentals in the effort to keep the cash flowing. The speculation is that many will seek to ride out the storm and, when the market rebounds, convert the apartments to condos.

Staying competitive amid the growing number of rental units poses a challenge to Downtown developers. Experts say those looking for apartments in the community will likely see rents flatten or even drop over the next year.
"There's a lot of choice Downtown," said David Kean, a broker with Prudential California Realty who represents properties Downtown and on the Westside. "People are going to have to step up to the plate and offer more amenities, offer a month's free rent. I think there will be a glut - but there already is a glut."

A Crowded Landscape
With the opening of new restaurants and nightspots, Ralphs supermarket and the Nokia Theatre, demand for Downtown housing steadily grew in recent years. Along with the oft-reported soaring condo sales, developers were enjoying a tight rental market.

Rents in the area encompassing Downtown and neighborhoods east to the 5 Freeway, west to Hoover Street and south to Washington Boulevard currently average approximately $2,068 for a two-bedroom apartment, or $2.08 per square foot, said Conway.
The Downtown core has been on the higher end of the scale. The Related Cos.' Hikari apartment complex in Little Tokyo opened in late 2006 with many units going for more than $3 per square foot - or nearly $3,000 for a two-bedroom residence. At the recently opened Orsini II in City West, two-bedroom units start at $2,200.
Soon, renters could find themselves with a lot more choice. Upcoming rental projects that were previously planned as condominiums include two buildings by SB Lofts developer Barry Shy with a total of more than 400 units, both expected to open within a year; the Amidi Real Estate Group's $50 million, adaptive reuse high-rise Ten Ten Wilshire in City West, opening next month and bringing 227 units available for short- or long-term lease; and the 118-unit Arts District building Artisan on Second from Trammell Crow Residential, scheduled to open by the end of this month.
"The market always helps to dictate" whether a project will debut as rental or condominium units, said Michael Bustamante, a spokesman for Meruelo Maddux Properties, developer of the 92-unit rental building Union Lofts in the Jewelry District, to open imminently. "We built our project with flexibility in mind so we'd be able to adapt to market conditions, and that's what we've done." Between October 2006 and September 2007, 1,300 rental units came online in the Downtown area, said Conway. In approximately the same period, occupancy dropped from 97.8% to 96%.
Although that does not sound like a steep fall, in rental terms the change is significant, Conway said. Previously one of L.A.'s tightest markets, Downtown now has a higher vacancy rate than Hollywood, the South Bay and the San Gabriel and San Fernando valleys.
Condominiums put on the rental market by investors who bought hoping to resell the units in the near future for a hefty profit have further diluted the rental market.
"We don't really have a way of measuring that, but we do know it's occurring," said Conway. "What it's doing is contributing a shadow supply to the market."
Condominiums available for lease last week on craigslist.com included units at the Packard Lofts near Staples Center, the Toy Factory Lofts in the Arts District, Market Lofts above Ralphs on Ninth Street, Elleven in South Park and the Eastern Columbia Building on Broadway. Including studio, one- and two-bedroom units, prices started as low as $1.60 per square foot and averaged just over $2 per square foot.

Holding Steady
Faced with a saturated rental market and the wild card of for-lease condominiums, some developers plan to lower prices in their upcoming projects.
"We've anticipated this all along," said David Gray of 424 Broadway LLP. The developer and architect of the soon-to-open Judson building, as well as several other projects, added, "Everyone knew that there was a problem in the residential real estate market."
Others say that despite the increased supply, the appetite for Downtown living remains strong enough to support current - if not increased - rents.
"I think there's a tremendous demand Downtown," said Kim Paperin, a managing director at Trammell Crow Residential. Rents at the company's Artisan on Second start at $2,000 for a one-bedroom apartment. "I think we're all going to do well."
Of the company's decision to shift from for-sale to rental units about a year ago, once construction had begun, she said, "The housing market certainly did have something to do with it, but we also saw a strong demand for rental housing."
Owners of existing rental buildings also say that they have not felt pressure to drop prices.
"Things are getting competitive, but between all my buildings I'm very satisfied," said Izek Shomof, who owns the Milano Lofts on Sixth Street and Grand Avenue, along with several buildings on Spring Street. Occupancy at his buildings ranges from about 97% to 100%, he said, and he has increased rents for some units in the past year.
Conway predicts that while the growth of Downtown's rental market will continue at a similar pace through 2008, rents will likely stabilize.
"Because we have a weaker economy, landlords will not have the strong demand that will allow them to raise the rents substantially," she said. At the same time, "the area's still very desirable to live in. Our best estimate is that rents will be close to what they are."
However, she added, the job market adds a layer of unpredictability. If unemployment ticks up, then demand will soften for everything.
One trend Conway expects to intensify in the next year is developers putting projects on hold as they wait to see how the housing market pans out.
Yuval Bar-Zemer of Linear City, developer of the Toy Factory and Biscuit Company lofts in the Arts District, agreed. His next project, a condominium complex called the Mill Street Lofts, was expected to break ground early this year but has been delayed for at least nine months because of the current housing market. He has not considered converting the project to rentals, he said.
"The cost of construction is so high, it's very hard to make the numbers work," said Bar-Zemer. "I think most of the projects that convert to rental have already broken ground; they can't stop the process and they decided to fill the time gap in the slow market."
Conway said she expects to see a full recovery in Downtown's housing market in three to five years, both in the for-sale and rental sectors.
"Downtown is still vibrant," she said. "L.A. Live will be coming online soon; there's the Nokia Theatre, Disney Hall, the Cathedral. There is a large demographic trend of young professionals and some retired Baby Boomers. Long term, I actually think things are going to be fine.
"But," she added, "it's hard to predict what's happening, because everything is in flux."