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.