Will the glut downtown affect Adaptive?

…and we’re back.

Have been getting a lot of questions re the high apartment vacancy rate in DTLA (about which Curbed wrote the other day).

Here’s the situation:

  • As usual for this stage of the cycle, developers have overbuilt downtown (they always do this, because DTLA is one of the few neighborhoods in which it is possible to build very large projects)
  • Over-supply of apartments has led to high vacancy rates
  • Owners are therefore offering major concessions to tenants, lowering the effective rents

The question is: Will this over-supply downtown affect rents in the Adaptive areas surrounding downtown?

I believe the answer is that the effect will be quite muted, and here’s why:

  1. The supply glut is specifically downtown, not in our neighborhoods (where it remains very difficult to build)
  2. The downtown life-style is very different than the one offered by Silver Lake, Echo Park, etc., because:
    1. The neighborhoods themselves are totally different – low density v. high density
    2. The buildings are different – many of our tenants simply would not consider living in a 200 unit “warehouse for people” of the type built downtown
  3. Even with the concessions offered by desperate landlords downtown, their rents are still higher than ours by at least $200-300 for each unit type


In other words, Silver Lake isn’t overbuilt, DTLA is not a good substitute for Silver Lake AND Downtown is more expensive.

So, while I can imagine some impact on the margins, I do not believe the glut downtown will have much impact on us.