Preservation or affordability on Sunset?

Curbed LA has a story today about the possibility that the city will deem the Hollywood Reporter building on Sunset a Historic Cultural Monument and thereby prevent a developer from moving forward with plans to build ~300 hotel rooms, ~190 condos and and ~700 apartments on the site.

I appreciate interesting architecture. But I think the time has come to make the trade-offs inherent in preservation explicit.

We are living through a full-blown housing affordability crisis. We’re not even building enough units to keep pace with population growth, let alone put a dent in existing rents.

With respect to my fellow smaller-scale developers, absent some major changes to the zoning laws and building codes, we’re not the ones who are going to solve this crisis. It’s simply not possible to add thousands of units 4-8 units at a time.

The solution, like it or not, is large complexes, where one developer can add hundreds or thousands of units of housing in one shot.

Currently, the only places the zoning allows for these huge complexes is along commercial streets like Sunset.

In this case, we have an obviously obsolete office building (it’s been vacant for years!) taking up land that could be used to add materially to the city’s housing supply.

We need to ask ourselves what’s more important: The aesthetic sense of the preservationists among us, or the ability of working and middle class people to continue to live in our city?

Where our tenants are coming from

Regular readers know that I approve all of our tenants personally.

Why?

Well, I’m the one who’s going to have to deal with going to eviction court if they turn out to be screw-ups, so it’s best that I sign off on them upfront.

But there’s another reason, too: Reviewing all the tenant applications gives me insight into the kind of people our units attract.

And right now, the key insight is that something like 10-20% of our applicants are creatives coming from Brooklyn.

Not NYC as a whole; Brooklyn.

To me, this says the Eastside is starting to see an influx of relatively well-educated, well-paid renters coming from a market with much higher rents than our own. You can guess what I think that will do to asking rents over the medium term.

Why we’re selling 2727 E 4th St.

Regular readers know I’m not a fan of selling LA real estate, particularly in improving neighborhoods.

So, why are we selling 2727 E 4th St. in Boyle Heights?

The fund that owns it has a structure which requires we meet a certain yield threshold to keep pace with the investors.

To get the yield up above that threshold, we would have to invest more time and attention than we have available, given all the projects we’re currently working on.

So, since the value is up nearly 2x since we bought it in late 2013, we’ve decided to let the property go.

At $1.3MM for nine units approx. 1.5 miles from the Arts District, I think 2727 has a ton of potential.

It just needs someone with bandwidth to give it the love it needs… that’s not us… is it you?

LA population growing faster than housing stock

Just like the prices for every other commodity, pricing for housing units (eg rent) is governed by supply and demand.

Between 2016 and 2017, Los Angeles gained ~40,000 people (taking us above 4MM for the first time).

The number of apartments delivered, in the midst of a historic boom in multifamily construction: ~13,000.

Depending on how many people you think fit in an apartment (and my guess is that the median is something like 2), construction is either falling behind population growth by a little or a lot.

Either way, expect more rent growth in the next year or so.

Restaurants, bars and gentrification

Bisnow has an interesting article today about the ability of a few pioneering restaurants to “spur development in underserved neighborhoods”.

Now, before we dive in, we need to be clear that “underserved neighborhoods” are not empty places waiting for some new business to come in and put them on the map.

Generally speaking, these neighborhoods are full of normal people who have been living in them just fine for generations. To the extent that they’re “underserved”, it’s often due to long-term private and public disinvestment. And, to the extent that new restaurants introduce new people to those neighborhoods, there is the real possibility of kicking off cycles of gentrification, which often involves the displacement of some of those long-term residents.

All of that said, restaurants / bars do seem to have a unique power to attract new, affluent potential tenants to a neighborhood.

A salient example is Cafe Stella, which opened in Silver Lake in 1998.

Silver Lake, particularly the part to the north of Sunset, has had an artsy, interesting vibe at least since the 1920s. It has been an important center of gay life in LA since at least the 1960s (probably before). And there are tons of interesting, modernist houses dating to the 1950s and 1960s in the hills around Silver Lake reservoir, attesting to the (great) taste of at least some of its occupants.

But the Silver Lake that you probably know, the area around what became known as Sunset Junction, with the Farmer’s Market on Saturdays, Black Cat, Sawyer, Kettle Black, Pine & Crane, Night Market, etc., really didn’t didn’t exist before Cafe Stella opened.

Stella was the pioneer that showed what was possible for retail along Sunset in the neighborhood. And, as other entrepreneurs recognized what was possible, they followed Stella.

The cluster of interesting restaurants and bars has made the area along Sunset a wonderful, vibrant, walkable area… making the apartments around there much, much more valuable than they would otherwise have been and thereby creating a ton of value for property owners.

Can you think of some other neighborhoods in LA that await their own Stellas?