Investors Scout Hollywood Locations
Snubbed by most investors until a few years ago, the historical apartment buildings of Hollywood and surrounding neighborhoods have become increasingly popular with landlords, who are updating the aging dowagers into au courant ingenues.
Prices are rising fast on historical apartment complexes, many of which date from the Golden Age of Hollywood, and feature such Mediterranean touches as white walls, red tiles, courtyards and gardens. Last year, investors in Hollywood and West Hollywood bought about 102 apartment complexes dating from 1920 to 1939, compared with 91 complexes the previous year, according to Charles Dunn Co., a Los Angeles real estate brokerage.
Investors paid an average $45,146 per unit, Charles Dunn said, up from $21,025 in 1996.
Vintage apartment properties in Hollywood have become so popular that investors in search of affordable properties have broadened their hunts to such central Los Angeles neighborhoods as Echo Park, Silver Lake and the Wilshire district.
Many of the “character buildings,” as investors call the older properties, are courtyard complexes. Described by architectural historians as one of the signature housing types of L.A., the courtyard model features apartments with individual doorways arranged around a central open space.
“These buildings are absolutely beautiful,” said Janet Neman, senior managing director of the Westside office of Charles Dunn. “The units are huge, have hardwood floors and many architectural features. They are not just three rooms and a window.”
Economics, not nostalgia, is what brings investors to these heirlooms. Landlords who renovate their buildings can raise rents from about $700 a month for a two-bedroom unit to about $1,100 a month. Older buildings in good condition can command rents 15% to 25% higher than those in buildings from the 1960s and ‘70s in the same area, said Paul C. Krikorian, director of investment properties at Dunn’s Westside office.
In the early 1990s, “when rent was low and when nobody wanted to buy real estate, I was smart enough to buy in Hollywood,” said apartment owner Jacob Kleinman, who owns about 170 apartment units in the area. “Even five years ago, I knew Hollywood would turn around and would be a really good place to invest.”
The investor, who formerly worked as a building contractor, said he was unafraid of buying aging apartment houses with deferred maintenance or even structural damage. “Personally, I love these old buildings, even if they are falling apart or falling off the foundation,” he said. “I love challenges.”
Another investor, who asked not to be named, said he was willing to pay more for his 20-unit building in Hollywood than its appraised value, and is now renovating the building unit by unit. “The ceilings were falling in,” he said. “It was just disgusting. But I saw what I could do with it.”
He is spending about $10,000 per unit and raising the rent on two-bedroom apartments from $400 to $1,000 monthly. When he advertised the complex as having “Old-World charm,” he said, “I was astonished at the response I got.”
During the recession of the early 1990s, few investors appeared interested in the older properties. At that time, said Neman, “people could not give them away.”
Since then, many tenants have come to favor historical apartments. In the late 1990s, “when the Westside rents went up,” Neman said, “renters noticed these beautiful old buildings.”
Historical preservation, formerly limited to a few specialists, has become commonplace among Hollywood apartment owners, according to Neman. Until recently, many investors would either tear down the buildings or remove picturesque but costly to maintain features such as bay windows.
Nowadays, investors are taking pains to restore their historical properties. “They are going out of their way to keep the integrity of the buildings,” said Neman, “‘because that’s what renters want.”
Renters for whom older apartments hold the most appeal tend to be young singles and childless couples, many of whom work in the entertainment industry in Hollywood. Another group, Krikorian said, are older “empty nesters” who want to live in a comfortable apartment after selling off the family home.
Older apartments have a number of amenities that make them more attractive to some people than more recently built units, such as private entrances at the front and rear, large dining rooms, pantries, balconies and patios. The apartments are often up to 15% larger than newer units, Krikorian said. And the quiet atmosphere of courtyard buildings may appeal to those who work at home.
One tenant who appreciates older apartment buildings is Stephen Silver, a musician who moonlights as the manager of a 29-unit complex on Ivar Avenue in Hollywood. Silver said he appreciates the historical features of the 1928 building, including 9-foot-high ceilings, picture molding and French windows.
“There is a certain level of craftsmanship that you don’t see nowadays,” said Silver, who has also worked as a building renovator.
Older apartment complexes, of course, have their drawbacks. They often lack such modern amenities as pools, clubhouses, gyms or concierge services. And many older buildings have only one parking space per unit--or none at all.
On the other hand, “apartments in a lot of the newer buildings are built like a postage stamp,” said Krikorian disapprovingly, “and their closet space and pantries are rather limited.”
Now that upscale renters have “discovered” Hollywood, investors are finding the market is almost shopped out, and opportunities to add value through improvements are hard to find.
“All of a sudden, things have changed,” Kleinman said. “I am looking for more deals, [but] I can see nothing that makes sense, as far as prices go.”
Some investors are turning their attention to surrounding areas, including the Wilshire district, Silver Lake and Echo Park, according to Andrew A. Perris, senior associate in the Encino office of Marcus & Millichap, a real estate brokerage.
In terms of investor activity and interest, he added, “Echo Park is now where Hollywood was two years ago.”
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Vintage Apartment Sales
Classic apartment structures built in Hollywood and West Hollywood during the 1920s and 1930s are in high demand among investors. The average price per unit has more than doubled in the last four years, driving bargain seekers into surrounding neighborhoods.
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1996 1999 2000 Total sales 99 91 102 Total units 2,517 2,295 2,075 Avg. price per sq. ft. $30.67 $47.42 $61.19 Avg. price per unit $21,025 $29,257 $45,146
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Sources: Charles Dunn Research Services Department, CoStar Group Inc.
