If you’re acquainted at all with the real estate market in Los Angeles, or have been to DTLA in the past few years, then it should come as no surprise that the housing market in downtown has experienced quite the resurgence.
In fact in just the last 12 months the median sold price in downtown Los Angeles increased by roughly $50,000 (as shown in the graph below), and the average sold price increased by nearly $100,000!
Not impressed? Well, if we look back even further we see that the median price between Nov. 2011 and Oct. 2012 was $282k, while the median price between Nov. 12 and Oct. 2013 was $412k… That’s a 46.1% year over year appreciation!
While I am a firm believer that scarcity is the driving force behind much of Greater LA’s recent housing market boom, I do believe that we are seeing a genuine increase in demand for DTLA property. Given the cultural revival (art & indie based) currently occurring and the influx of capital from firms such as AEG, who are essentially Terraforming downtown into the clean/professional/upscale environment that they desire, I don’t believe it is farfetched to say that people genuinely want to own property in DTLA.
Now, I would like to pose a question: What is LA really known for? Movies, yes… Crazy diets, I concur… Convertibles, I guess… but really, what it is REALLY known for is TRAFFIC; and the worst place to be during rush hour is in Downtown.
Anyone who has tried to pass through the 110 or 101 freeways between 4 pm and 8 pm can attest to the fact that the traffic incurred is just this side of unbearable. But what if you actually lived down there? Well, the reality is that traffic is only one of the problems with “city living”. The other major problem is PARKING.
Residents of DTLA I am saddened to report that things are about to get a whole LOT worse. Six parking LOTS in downtown recently sold for $82 million, and the acquisition was not undertaken with the intention of addressing the existing parking or traffic issues. Mack Real Estate Group and AECOM Capital acquired the lots with intention of converting them into apartment buildings.
Currently there are 14,000 apartment units completed in downtown, 5,100 units currently in construction, 3,000 units already approved for construction, and 7,000 more proposed. Mack and AECOM plan to add an additional 1,500 on to that toll. This means that in the next several years we will likely have doubled the number of apartments in downtown Los Angeles.
So, what happens to an impacted city when it becomes more impacted? For one thing it doesn’t get less congested.
The resulting influx of renters will undoubtedly drive up the cost of retail and commercial space as the customer base for a downtown business will grow drastically; however what it will do to the value of residential properties is fairly uncertain. It could either make life so painfully difficult down there that values decrease, or it could increase values because of the “metropolitan city” draw.
Where values will ultimately go as a result of the construction in downtown is unknown at this point, but one thing about DTLA Livin’ that is absolutely certain is that life with a car is going to be hell down there!
So, while the city is not forcing you to go green, the sheer lack of space and congestion residents will experience in the next several years will likely make them seek out walking shoes and bicycles.
My advice: Buy shares of NKE, RBK, and keep an eye out for the Specialized Bicycle Components IPO!
-JJM
John is the Vice President here at JohnHart, and as such is responsible for managing and directing the firm towards obtaining its ultimate goals.
He is also one of our main contributors on the Blog. (please see his profile page on the main site for more information.)
