In atouted as the largest adaptive reuse project in downtown Los Angeles, local multifamily developer Barry Shy has paid $75 million for a block in the city's Broadway-Spring district, an elephant's graveyard of earlier attempts at redevelopment.
Centering on a 12-block stretch of two parallel streets — Broadway and Spring Street — the site was the city's business center in the early decades of the 20th century. The March sale is evidence that the downtown area's runaway housing market has finally cracked a street that has been notoriously hard to market to investors and loft dwellers alike.
“I can't see anything but good coming of the sale,” says Con Howe, director of West Coast projects for the Urban Land Institute. The former planning director for the city, Howe is a big booster of housing conversions in downtown L.A., where more than 4,500 apartments and condos are either on the market or under.
Shy says the purchase fills a block-long gap between two other properties he already owns in the area. The Israeli-born developer says he plans to create 2,000 apartments inside five existing buildings, and build a new tower on top of the current parking lot.
The developer says he bought the properties because “the price was right,” citing costs of less than $80 per sq. ft. for the 800,000 sq. ft. portfolio and a 1.5-acre parking lot. His financing consists of “private investors and myself.”
The developer says he wants to startas soon as possible, but has not set a date. The plan is to create the new units all at the same time, rather than in phases. The confident, almost brash developer plans to spend $80,000 per unit in conversion costs. “My strategy is to rent them out as apartments, then convert them to condos and sell them in the $500,000 range,” says Shy.
Beyond potentially making Shy one of the largest landlords in downtown L.A., the purchase represents “the creation of a new neighborhood,” says Michael Ross, managing director of Colliers International's Los Angeles office. Ross and broker Fred Cordova led a Colliers team that represented both the buyer and seller, a unit of L&RCo.
Shy's bid for dominance in the downtown apartment market is a big gamble. Although the city as a whole needs new multifamily units, downtown is a specialty market appealing to affluent, young buyers who prefer an urban setting.
Best known as the home of the Los Angeles Times and the original West Coast Stock Exchange, Spring Street is a time capsule of the 1920s and '30s, with many buildings covered in the wedding-cake ornament of the period.
The street has long been the focus of the city's Community Redevelopment Agency — yet project after project failed during the 1970s, '80s and '90s, including a pioneering condo conversion, a repertory theater and a short-lived night club in the old Stock Exchange building.
Part of the problem is that local residents have long viewed Spring Street as the western edge of skid row. Then 15 years ago, the redevelopment agency relocated skid row to a site further east. Even when artist's lofts became fashionable in the industrial east end of downtown L.A. in the late 1980s and early '90s, however, Spring Street remained untouched.
While the loft market in downtown L.A. may eventually soften due to rising interest rates or overbuilding, the area has already achieved a critical mass as a neighborhood, according to Howe.
“I don't think there is any turning back,” Howe says of downtown L.A.'s housing market. “There may be some blips on the market, but it's here to stay.”