Do you know what’s keeping me up at night lately?
It’s the following question: To what extent are apartments downtown and in Hollywood substitutes for the apartments we are renovating in East Hollywood, Silver Lake, Highland Park, etc.?
I mean “substitutes” in the economic theory sense: “A product or service that satisfies the need of a consumer that another product or service fulfills.”
Now, obviously, in the narrow sense of a place to sleep, eat, and keep your stuff, all apartments are substitutes. But the real question is the extent to which neighborhood and product type differentiates what we do from the many, huge apartment buildings people are building in Hollywood and Downtown.
How much do prospective tenants value living in older buildings with character versus newer ones with more amenities? Proximity to Sunset Junction versus, say, Hollywood & Vine or Broadway & Olympic? Boutique buildings versus giant people-warehouses?
The answers to the above questions, along with the overall health of the economy and the pace of job creation in LA, will determine whether we continue to hit or exceed our pro formas or take haircuts as new product comes online.