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Brokers, Investors Banking on Koreatown's Growing Attraction
By Keeley Webster
CALIFORNIA REAL ESTATE JOURNAL
Posted 6/12/2006
With its proximity to jobs downtown and the nightlife of West Hollywood and Hollywood, Koreatown has become a favorite with both apartment investors and for-sale residential developers.
A few years ago, apartment investors discovered that the location could attract urban hipsters who wanted to live in those two areas but couldn’t afford the rents, along with Koreans looking for luxury digs.
Interest in value-add apartment building purchases in Koreatown became so great that Sperry Van Ness Vice President Brent Sprenkle said he sold the same apartment building three times over the past five years.
What investors discovered was that rents were so low in Koreatown – typically in the $500- $600 range – that they could raise the rents by 200 percent and still offer a discount over Hollywood or West Hollywood.
In addition to drawing in the hipsters by upgrading the 1920’s art deco apartments, investors also could capitalize on existing rental market by improving buildings that appealed to the lower-income residents and the upper-end Korean market.
Block by block, a transformation began to take place in the Los Angeles neighborhood, which has the diverse housing stock redolent of older city neighborhoods. Apartment buildings constructed in the 1920’s, 1960’s, and 1980’s with styles unique to each era were built on the same block.
The diversity of the tenants matches the apartment communities in Koreatown. Income and personal preference draw the three main demographic groups – Koreans, El Salvadorans and white urban dwellers – to different styles of housing. Latinos, primarily El Salvadorans, make up 50 percent to 60 percent of the population, and Koreans make up 25 percent to 30 percent, according to Sprenkle.
Koreans tend to be attracted to the high-rise luxury apartments cropping up all over Koreatown. Whites like the transformed 1920’s art deco apartments. The Latino population tends to live in the workforce housing.
Investors were attracted to the diverse demographics and drove up the value of Koreatown apartment buildings 100 percent over five years, to $110,714 per unit, according to Sperry Van Ness. Comparatively, Santa Monica saw an 83 percent increase, hitting $225,000 per unit and West Los Angeles registered a 64 percent increase, growing to $230,555 per unit in 2005.
Although the frenzied buying of existing stock is beginning to peak, both for-sale and new rental product are in the works.
Within a five-block radius of the west side of Koreatown, at least 10 developments are in construction. Among these are the 449-unit transit-oriented development being constructed atop the Red Line station at Wilshire and Vermont by Urban Partners. Chandler Partners has plans for a 158-unit luxury apartment with 7,00 square feet of retail at 3675 Wilshire Blvd. Oxford Associates has started grading the site for a 225-unit apartment project on James W. Wood Avenue.
Forest City Enterprises is ahead of the game with the 238-unit Mercury. Forest City recently completed conversion of the former headquarters of the Getty Oil Co. into a 22-story luxury condominium complex.
Koreatown Trends
The Mercury came on line in time to capitalize on two trends that were coalescing in Koreatown: a desire by Korean-Americans to move back into Koreatown – claiming the largest congregation of Koreans living outside Korea – from other areas in Los Angeles and the South Korean government’s raising the ceiling on investment in U.S. residential property from $300,000 to $1 million on May 18.
“It was in all the Korean newspapers that the ban had been lifted,” said Mary Ann Osborn, urban account manager with The Ryness Co., which is handling sales and marketing for Mercury. “Some of the buyers were coming with money from people back home in Korea.”
When Mercury held its open house May 20-21, 85 percent of the buyers were Koreans and Korean-Americans, Osborn said.
Koreans are moving back to Koreatown because of its proximity to downtown, Korean stores and cultural institutions.
“It used to be a status symbol to live away from Koreatown, “ Osborn said. “Now, the reverse is true, and they are almost embarrassed they don’t live there.”
With an interest list of 1,800 people for the 238 units, Osborn said, they’ve discovered a pent-up demand in the Koreatown market for high-rise apartment units.
Bankers, lawyers and business owners with locations in Koreatown want to move closer to their businesses, but there was no existing high-rise residential in Koreatown for the empty-nesters and young professionals who wanted to move back, she said.
The one- and two-bedroom units ranging from 763 square feet to 1,500 square feet are selling for $300,000 to $1.5 million.
Although Forest City is targeting the high end, The Bascom Group LLC, whose sweet spot is workforce housing, also has found an investment it likes in neighboring Westlake.
“We think workforce housing is the best play in the market,” said Scott McClave, a principal with The Bascom Group, “There are far more average Joes who need a place to live than people who can afford to pay $4,000 a month for a luxury apartment. That’s our niche: blue-collar to young white-collar.”
Bascom purchased the circa 1920’s 189-unit William Penn located at 2200 W. Eight St. for $9.9 million, or $51,058 per unit, on April 28.
“It’s an exciting infill location in an area that is gentrifying,” McClave said.
The company plans to do only a moderate rehab to the property, including improvements to the kitchenettes, bathrooms and lobby. It will add community barbecues and picnic tables to the community courtyard. Previous owners had replaced the electrical system, plumbing and windows.
The building has no parking, but it’s half a block from several bus stops. It had a 96 percent occupancy, with rents from $550 to $635.
Bascom purchased the apartment community because of the changes it could see occurring in the surrounding area.
“We don’t want to move into an area in decline. We target areas that are improving and gentrifying,” McClave said. “In Westlake, Home Depot and Starbucks are going in. They have a thriving Latino community. Every shop is full. There are people on the street every day. It’s not a transient community.”
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