Former Hollywood resident Darin Beebower remembers when Tinseltown wasn't on the A-list. "When I'd get home from work, guys would be asking me if I wanted to buy drugs," recalls the multifamily division director for Los Angeles-based Madison Partners, a full-service commercial brokerage. "You were kind of concerned when you walked out the door."
But those days are gone. Today, Hollywood is back–with a bullet–and is the star of Los Angeles' blockbuster residential real estate market. Demand is especially high for residential properties in Hollywood, with 18 apartment properties and four undeveloped multifamily parcels changing hands since January 2005.
Hollywood Shuffle
Hollywood in general is experiencing increased deal velocity, particularly for rental properties, which are in high demand. The Community Redevelopment Agency of Los Angeles estimates that 90 percent of Hollywood's residents are renters. And they're occupying almost every available unit, slashing vacancy to 2.4 percent at the close of 2005.
Beebower's old neighborhood–bordered by Hollywood and Cahuenga Boulevards and Franklin and Highland Avenues–has been the most active section of Tinseltown. In the last year alone, 482 units in 10 multifamily properties have sold for a whopping $57.8 million. Residential demand is beginning to affect Hollywood's soft office market, too. A former office building on Yucca Street sold for $2.9 million to developers who will raze and replace it with a 54-unit condo community.
"Astute investors are buying properties in this very strong neighborhood near Hollywood and Highland because many are rent-controlled," notes Beebower. "Many of the current owners don't have the resources or the desire to spend the kind of money necessary to make renovations. So for investors with skills and experience in renovating, it's a great opportunity."
The Color of Money One investor that heard opportunity knocking is Franklin Point Associates, a partnership between New York's Praedium Group, a real estate investor focusing on underperforming and undervalued assets, and Coastline Capital Partners, a Hermosa Beach, Calif.-based real estate investment company.
Represented by Beebower, the partnership has purchased several properties in Greater Hollywood, including Franklin Point, a 53-unit property located at 1825 N. Cherokee Ave. The seller, Cherokee Partners, sold the building for $8.3 million, almost three times the $3 million price it paid in 2000.
The Apartment
Rent control kept rates low for the previous owner, but the new owners are aiming high. The partnership is investing $14,000 per door on upgrades. Improvements to individual units include new flooring, appliances, and lighting and plumbing fixtures; repainting; resurfacing cabinets and counters; and new air conditioning units. Common areas will be re-landscaped and repainted. New signage and exterior lighting will be installed, and the pool will be re-decked. Additionally, a barbecue pit will be added to the rear courtyard area.
"There's not a lot of quality apartment housing that's reasonably affordable in Hollywood," explains Steven Ludwig, one of Coastline's principals. "People have had two choices in Hollywood: lower-end Class C product at a decent rate or new inventory that's affordable to only a few. We're sliding into the middle of those two extremes."
The new owners will increase rates approximately 45 percent, or an average of $450 per unit. "Average rents were $1.42 per foot at acquisition," Ludwig notes. "Market rents will be $2.06 per foot." The renovated one-bedroom units will run between $1,400 and $1,500 per month; two-bedroom apartments will rent for $1,800 to $2,000.
That's more in line with Hollywood's rapidly advancing rates. Average year-end rents were $1,500 per month for a one-bedroom apartment; two-bedroom units went for $1,900. "That's a 9.4 percent price increase on the year, the highest of any submarket in L.A. County," notes Delores Conway, director of the Casden Forecast at the University of Southern California's Lusk Center for Real Estate. The only submarket more expensive is the Westside, which includes marquee neighborhoods like Beverly Hills and Santa Monica.
24-Hour Party People
Ludwig is betting that Hollywood can remain competitive with renters seeking a tony address. "Hollywood is making a strong comeback and reclaiming its rightful place at the apex of the California social scene," Ludwig asserts. "Many of the top trendy and glamorous restaurants, bars, and clubs have opened over the past few years in the immediate vicinity of this [hub]. There is amazing energy and a great vibe in Hollywood right now, and it's only getting better."
Additionally, there's Hollywood & Highland, a gigantic retail-restaurant-entertainment destination on the southwest corner of the hot spot. Opened in 2001, adjacent to Grauman's Chinese Theatre, the development is home to the Kodak Theatre (home of many star-driven events like the Oscars), big-name retailers, and restaurants.
"Hollywood's underlying fundamentals are very strong, starting with supply and demand," Beebower says. "And with the redevelopment continuing, there's a buzz among prospective tenants." Those are market dynamics buyers like to see. "I've been selling in Hollywood for a dozen years," Beebower says, "and the investment market has a reached a fever pitch I've never seen."
Back to the Future
Though some economists fret that a market correction might occur in the short term, investors and brokers working in Hollywood don't seem too concerned. "How deep is the market?" asks Jack Kyser, chief economist for the Los Angles Economic Development Commission. "That's a significant question that nobody's stopping to answer."
But Ludwig isn't worried about his investment. "Everybody in the world knows Hollywood," he says. "It was a glamour spot for many years and it's making a comeback. It's not a here-today, gone-tomorrow market. And there are still a lot of good deals left."
What to Consider Before Doing a Hollywood Deal
1– Learn the landscape. There's a lot of new condo and mixed-use development in the pipeline, says Laurie Lustig-Bower, executive vice president for investment properties in the multi-housing group of CB Richard Ellis. "Investors need to have a good understanding of all the up-and-coming developments and renovations in the area and how each could affect their properties."
2– Identify transit nodes. L.A.'s freeway congestion is legendary, and with at least 45,000 new jobs forecasted, it's not going to get better. So Delores Conway, director of the Casden Forecast at the University of Southern California's Lusk Center for Real Estate suggests looking for properties near transit areas. "Properties near transit nodes provide access and are more desirable," she says. The Downtown subway transfer station is 15 minutes from most Hollywood stations, providing easy access to employers in the Central Business District, San Fernando Valley, and South Bay. "You can get demand from people who don't want to commute on our congested highways."
3– Consider the existing tenant base. While many developers will cater to higher-end tenants, there's a real need for affordable housing, according to Helmi Hisserich, regional administrator for the Community Reinvestment Agency's Hollywood and Central regions. "Only about 6 percent of the units proposed for development over the next couple of years are planned to be affordable. We're doing everything in our power to encourage developers to include a reasonable number of units for very-low to moderate-income households."
Meta Housing Corp. is developing Courtland Senior Apartments, a 108-unit affordable senior community in Arroyo Grande, Calif. Amenities will include a clubhouse with kitchen, computer/business center, pool and spa, arts and crafts room, and laundry facilities. Leasing is scheduled to begin in late 2005.
Trimarchi Management in Schenectady, N.Y., bought the 1,032-unit AMLI of North Dallas apartments from AMLI Residential Properties in Chicago. The 1,032-unit property is near three of the metro area's top employment centers and is within minutes of major retail. The sale was arranged through the Dallas office of Apartment Realty Advisors.
Lightstone Group in Lakewood, N.J., bought Rochester, N.Y.-based HOME Properties' entire Detroit portfolio of 19 properties containing 5,046 apartment units for $230 million, or approximately $45,600 per unit. After closing costs and $72.7 million in debt repayments, net proceeds to Home were $150.4 million.
Silver-McCann Apartment Group, a joint venture between McCann Realty Partners in Richmond, Va., and Silver Capital in Washington, D.C., and Boca Raton, Fla., acquired the St. Ives Apartments in Dallas (Paulding County), Georgia. The 332-unit, garden-style community will be managed by RAM Partners. A 10-year Freddie Mac fixed-rate loan with a rate of 5.99 percent, originated by Deutsche Bank Berkshire Mortgage, financed the deal.
Archstone-Smith in Littleton, Colo., bought The Benton, a 322-unit community in Fremont, Calif., for $79.6 million. The acquisition was funded primarily through tax-deferred exchange proceeds from dispositions of apartment communities and the assumption of $52.3 million of variable rate, tax-exempt bonds with an estimated all-in interest rate of 4.4 percent. The property, built in 2003, has one-, two-, and three-bedroom apartments.
Davlyn Investments in San Diego bought Courtyard Apartments, to be renamed Bacara, for $18.9 million. Courtyard Apartments, a 141-unit project located in Pico Rivera, Calif., is the fourth significant acquisition that Davlyn has made since it opened its acquisition office in Irvine, Calif., a year ago. Re/Max Commercial Brokerage and Southern California Commercial Brokerage brokered the deal.
FF Realty in San Diego bought The Greenery Apartments in San Diego for $14 million. The property, built in 1973, comprises 240 units totaling approximately 184,752 square feet. The property is located within two miles of Arizona State University and a proposed light rail. Cushman & Wakefield Arizona's Southwest Apartment Group negotiated the transaction.
Guardian Management Corp., a tenant-in-common borrower and third-party property management firm based in Portland, Ore., bought Heatherbrae Apartments, a 174-unit multifamily community in suburban Portland, Ore. The 1994 complex has 14 buildings with one-, two-, and three-bedroom units averaging 904 square feet. The Portland office of Holliday Fenoglio Fowler arranged the financing.
An affiliate of Norfolk, Va.-based Harbor Group International acquired the 624-unit Lakes of Bellevue apartment community in Nashville, Tenn., for approximately $41 million. HGI is investing $1.4 million in interior, exterior, and amenity upgrades to the property. This is the company's second purchase in the Nashville area.
Phoenix Property Co. and Lincoln Property Co. acquired Grand Marc Minneapolis, a 370-bed student housing complex next to the University of Minnesota in Minneapolis. The building offers ground-floor retail stores and underground parking.
Park East in colorado-springs-co/employment.aspx" title="See 15 charts and data on Colorado Springs, CO" target="_blank">Colorado Springs, Colo., bought the Treehouse Apartments in Colorado Springs, Colo., for $2.4 million. The five-building property, built in 1971, is situated on nearly two acres with two- and three-bedroom units. Sperry Van Ness brokered the transaction.
–Listings compiled by Les Shaver