Los Angeles – This sprawling city is beginning to find its heart.

Los Angeles developers have returned to its center, with renewed interest in downtown, an area that had been known to shut down after office hours.

About 6,500 housing units have been built in the area since 1999, and another 5,700 units are under construction, according to Carol E. Schatz, president and CEO of the Downtown Center Business Improvement District (DCBID).

Looking deeper into the pipeline, there are about another 1,000 units that have been permitted and another 2,700 that have begun the entitlement process.

Schatz attributes much of the building boom to the city’s adaptive reuse ordinance, which was adopted in 1999 and helps developers to convert older office and commercial buildings into residential units.

The opening of the Staples Center arena, restaurants and other businesses has also been a big boost, and there’s much more on the way. In 2005, AEG broke ground on L.A. Live, a more than $1 billion, 4 million-square-foot sports and entertainment complex that’s near Staples Center. Another huge development in the works is the $1.8 billion Grand Avenue multi-use development, which will have an array of housing, retail and public space that’s spearheaded by The Related Cos. These projects will further redefine an area that’s already changing.

“We’re seeing more nightlife, which was lacking before,” Schatz said.

A growing number of people are interested in living downtown. When DCBID teamed with area developers to offer tours of some of the new residential developments, the event attracted an amazing 7,300 people, far more than expected.

The event was so popular that the second annual Downtown Living Weekend is scheduled for March 25-26, 2006, and will offer tours of about 14 residential developments. Information is available at www.downtownla.com.

“I think people are tired of commuting,” Schatz said. “It’s tapping family life and bad for the environment.”

A perennial top 10 apartment market, L.A. will continue to be strong in 2006, according to Marcus & Millichap Real Estate Investment Brokerage Co.’s national apartment report, which ranked the city ninth in its national index. That’s a drop of four spots from the year before.

The firm forecasts that owners will raise asking rents 5.2% to $1,350 per month. Effective rents will increase about 6.2%.

Marcus & Millichap noted that while private investors will remain the dominant figures in the market this year, institutional activity is picking up.

One of the notable apartment projects to open recently is Metro 417 by Forest City Residential. It features 277 units. The structure was formerly the Subway Terminal Building.

The area vacancy rate is “about as close to zero as you can get,” said Ted Kolchier, board member of the Apartment Association of Greater Los Angeles. Citywide, it’s approximately 3%, and it’s particularly tight downtown, he said.

Concentration of condos

Although there are a few developers building apartments downtown, much of the focus has turned to condominiums.

Developers are getting from about $550 to $1,100 per square foot for a new or newly renovated condo, estimated Kolchier.

He attributes the condo boom to a combination of factors, including the rapidly rising cost of building materials and the market’s desire for homeownership.

Trammell Crow Residential (TCR) started out building its 303-unit Savoy project as an apartment development. But, in a sign of the heated market, the firm sold the building when it was completed to Intracorp Los Angeles. The deal closed Jan. 12, and Intracorp has turned the Savoy into a condominium development.

“The condo market in downtown L.A. is very strong,” said Kevin Andrade, senior managing director for TCR in Los Angeles, which is developing Artisan on Second, a 118-unit condo project in the area. It’s a new construction project in the arts district, which is rare.

The company has gone into downtown because there has been a big imbalance between jobs and housing in the area, Andrade said, estimating that there are 350,000 jobs in the district, but a small amount of housing. He thinks the downtown L.A. movement is just “hitting its stride.”

One of the interesting trends that he has noticed is that a good number of inquiries are coming from people who want to live downtown and then commute to their jobs in other parts of the region. That’s likely a nod to the increased nightlife and activity in the area.

Several years ago, TCR was exclusively developing rental units, but the company has moved to developing both condos and apartments. In Southern California, its current mix is roughly 90% condos and 10% rental, estimated Andrade.

The South Group – a partnership of two Portland, Ore.-based developers, Gerding/Edlen and Williams & Dame – is another firm that’s active downtown, with three notable projects.

“The South Group saw in Los Angeles an unprecedented opportunity to develop and build housing and neighborhoods in an underserved market in the early stages of revitalization,” said Tom Cody, principal. “We had the resources and experience to create an urban lifestyle that many people are embracing – they’re ready to rethink their lengthy daily commutes from the suburbs.”

The firm is also building from the ground up rather than converting apartments or doing adaptive reuse projects. It has a trio of condominium projects in the same neighborhood that together will provide more than 700 residences.

Its Elleven project, which will include 176 loft-style living units, is almost completed, with residents expected to begin moving in around April. Luma is scheduled to be completed in the summer of 2007, and sold out in about seven hours. The firm recently broke ground on its third project, Evo, and other developments are in the pipeline.

The South Group said its buildings are expected to be the first residential towers to receive Leadership in Energy & Environmental Design certification.

CIM Group and the Lee Group are also working on several significant downtown projects, including one that features not only condominiums but a Ralphs grocery store, which is seen as another sign of downtown’s revitalization.

Downtown isn’t the only neighborhood that’s been changing.

Caruso Affiliated developed The Grove, a big retail and entertainment center near the Farmers Market, in 2002. The award-winning project, with its town square feeling and upscale shopping, has redefined L.A.’s Fairfax district. There’s been some recent speculation that The Grove has helped boost property prices in this area.

Housing bond proposed

In other recent news, Los Angeles Mayor Antonio Villaraigosa appointed S. Gail Goldberg to serve as the city planning director. She held a similar post in San Diego and is credited with its “city of villages” strategy.

Villaraigosa, who was elected in 2005, has also said he will push a $1 billion bond to help pay for more affordable housing. The funds would substantially increase the amount of funds that the city has to build housing for low-income residents. It has not been determined whether a proposal might go before voters.

In a recent speech, Villaraigosa noted that just 12% of the county residents can afford a median-priced home.