What’s City West? It’s the neighborhood directly east of downtown… you might know it as Pico Union.
City West is seeing a ton of development of huge projects these days. Holland Partner, for whom a good friend of mine works, has already done two huge deals there and just broke ground on a 600+ unit development.
Here’s the money quote in the article I link to above:
“The complex will offer studio to three-bedroom apartments ranging from about 500 to 1,300 square feet. Rents are expected to start around $1,500 and go to slightly under $4,000…”
So, at the smaller end (which is typically the more expensive end of the price / sq ft spectrum), they’re asking $3 / sq ft for brand new, highly amenitized units in a crappy area.
I personally would rather live almost anywhere else and I think our tenants would agree. That said, $3 / sq ft is pretty cheap for what you’re getting – developers downtown and in Hollywood are expecting closer to $4 for similar product. Why is it so cheap?
That question gets to why there is so much action in City West right now. Hint: It’s not because everyone wants to live there.
What’s going on is that City West has it’s own zoning code which is much different than the code prevailing in the rest of the city. CW zoning allows for much denser, taller construction than is permitted elsewhere, even denser than R4.
There are two direct results of this more permissive zoning:
1. Developers can build huge projects. Since developers make money based on a percentage of the project cost / profit, generally speaking, the larger the project the better. In City West, you can build huge projects, so developers are naturally going to build there, even if the neighborhood is not particularly desirable.
2. The lower per-unit land costs mean that developers can charge lower rents ($3 vs. $4) for the same product and still make money. That’s good for the developers but it’s also good for the city.
So, City West is on its way up due to permissive zoning. Think anyone in the city is paying attention?