New York and Chicago have always been home to the highest level of high-rise condominium development in the United States. Their success is due to the buildings' close proximity to work, shopping, and restaurants. Miami and Honolulu also have been successful with this product type, because high-rises enable people to enjoy ocean views or beachfront living.
By embracing density in their urban cores, these cities have set the standard for luxury high-rise living. Today, Manhattan has 391 high-rise condominium projects, according to Miller Samuel Inc., a New York real estate appraisal company. And according to the Chicago-based Appraisal Research Counselors, Chicago has about 350 high-rise condo buildings. However, Los Angeles – the nation's second largest city – has only 20 high-rise residential projects, says Pamela Rich, a Los Angeles-based Realtor specializing in condominium sales.
All that is about to change. Los Angeles has become one of the hottest downtown multifamily markets in the country. About 50 multifamily projects – low-, mid-, and high-rise – have been completed recently or are underway in the city's central business district (CBD), and others are planned along light-rail transit routes that were nonexistent a decade ago.
Suffering from a housing shortage and a freeway system nearing gridlock, Angelenos – tired of grinding daily commutes – are beginning to rethink their objections to density and are addressing growth issues. The city rezoned its CBD to allow higher density development. With the Staples Center and Disney Concert Hall in place and other recreational attractions being added, downtown Los Angeles is experiencing a renaissance and in-migration of residents, primarily a hip, young crowd in search of an urban, 24-hour lifestyle and older professionals who already work there.
Tale of Two Cities It's interesting to draw comparisons between the emerging market in Los Angeles and the mature one in Chicago. The cities are similar in size, yet worlds apart demographically. Historically, Los Angeles residents have vehemently opposed high-density residential development, which has defined Chicago's downtown area for decades. With about half of Chicago's residents living in the urban core, its CBD is alive with activity 24-7. By contrast, downtown Los Angeles is virtually a ghost town after 6:00 p.m., thanks in part to four decades of urban flight.
Unlike Chicago, where in the last five years about 85 percent of residential development has been new high-rise condominium construction, most projects in downtown Los Angeles involve adaptive reuse of primarily low- to mid-rise historical and obsolete buildings – and only a few projects will be offered as for-sale units. One reason is land and labor costs are so high in Los Angeles that these projects can't pencil out without tax credits for preserving historic structures and creating affordable housing.
In addition, condo development in California has been risky business since the 1980s. Builders were hit with a barrage of lawsuits for defects that caused insurance companies to exit the market or raise premiums to such a high level that only upscale projects got built. Recent legislation (California S.B. 800) that established a time frame for builders to correct construction defects has lowered the risk, and developers of median-priced housing are beginning to contemplate entering the condo market again.