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Friday, Feb 23, 2024

APARTMENTS—Apartment Renovators Look to Low-Income Districts

Waiting outside his Pico Rivera apartment building for a ride to work, Jose Olloa says he isn’t thrilled about the neighborhood where he lives. But he’s there because the day-care center across the street is affordable, and once he buzzes himself into the apartment complex, “inside, it’s safe,” he says. It’s not just Olloa who feels safe at Courtyard Apartments. Bascom Group LLC, based in Irvine, felt secure enough to buy the complex in 1998 and launch a massive renovation that involved spending $1,200 on upgrades for each of the 141 units. (About $170,000 total.) Bascom is one of a growing number of companies that are renovating marginal L.A. residential properties and filling them up with a better class of tenants at higher rents. “We’re seeing a renaissance in the renovation of apartments,” said Jerry Fink, a managing director at Bascom. “Today, the real buzzword is value-added. Everybody is saying they did something better than the other guy did to raise rents or reduce costs.” Rehabilitation of old Los Angeles structures actually has been in vogue for several years, but as more and more such buildings in the most desirable areas are scooped up, the trend is spreading farther afield. Investors are now more willing than ever to look outside prime neighborhoods and undertake projects in places like Pico Rivera, Palms, Koreatown and Canoga Park, said Laurie Lustig-Bower, senior vice president for CB Richard Ellis. “It’s kind of like the shared mentality,” Lustig-Bower said. “Now there’s a rush into those neighborhoods.” The push has been fueled by strong job growth, which has drawn new arrivals to L.A. and returned L.A.’s housing market to its pre-recession level. Big rent hikes In renovating its Pico Rivera complex, Bascom put a new layer of stucco on the outside of the building while installing new lighting, repainting the hallways and replacing the green shag carpeting that dated back to the building’s construction in 1971. The company also instituted new policies on noise and timely rent payments, and reached out to sheriff’s deputies to increase security. Two years ago, a “rent reduction” sign hung outside what was then known as the La Paz Apartments. But at the renamed Courtyard, monthly rents have increased from $585 to $725 for a one-bedroom apartment, and from $750 to $900 for the largest two-bedroom units. Though that might seem pricey for the area, occupancy has climbed from 52 percent to 96 percent, while gang activity in the complex has dropped. The result is that net operating income is expected to nearly double this year, to more than $800,000 for the entire complex. Developers face different challenges in other reemerging neighborhoods. Hollywood, for example, is filled with beautiful, old apartments that have the roominess and features that people want, said Greg Schem, managing partner of Elkor Realty Corp. But many of the buildings are trapped in another time. “We’re finding building that have barbed wire and bulletproof glass on the entryways,” Schem said. “That’s not needed anymore. The areas are safe and desirable.” More than just the tight market is driving the renovations, according to Sean Baker, who owns more than 1,400 apartment units throughout the region. “Los Angeles was built in the 1960s, and it’s time for everything to be improved,” Baker said. “Everyone was looking for A-quality properties, and those are just becoming fewer and farther between, so people have refocused their attention on C-quality properties, in maybe C or B areas.” Dislocated tenants Sean Deasy, a senior vice president with CB Richard Ellis, said undertaking renovations involves less risk than building new apartments. Among other things, there are seldom neighboring residents who will oppose the work, and the turnaround time is quicker. The payoff can be big, too. Adding $100 a month to the rent for just one apartment can increase the value of the building by $17,000, Lustig-Bower estimates. But that doesn’t necessarily bode well for low-income tenants. “Slowly, if people can’t afford to pay the increase in rent, they’re moving farther (into worse neighborhoods,)” Lustig-Bower said. The competition to find renovation projects that pencil out has local investors looking in new directions. Sean Baker, owner of Upside Investments Inc., is now buying rundown complexes in North Hollywood, Reseda and Canoga Park. “That’s where the economics make sense now,” said Baker, who recently bought a 180-unit building near a new business park in Northridge. “Rather than fight everybody, we’re staying on the fringe where the growth is coming to. “That’s the only place to make a good investment now.” But private investors are only willing to take on so much risk, which leaves some of the most rundown inner-city housing with little hope of being renovated. “There’s been a lot of rehab, but in areas that really need the housing, it’s probably not happening,” said Jack Kyser, chief economist with the Los Angeles Economic Development Corp. The D-quality neighborhoods are not attracting institutional capital, and never will, added David Kim, managing director at Bascom. “The potential for upgrading the property in a war zone becomes very poor,” Kim said. “That’s not going to change.”

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