Alan Scales – Demand for LA Condos Sends Prices Climbing

Los Angeles Business Journal

August 30, 2021

L.A.’s condo market is heating up.

After a lull early in the pandemic, demand for condos — which are typically cheaper and require less maintenance than single-family homes — is increasing though bargains are hard to come by anywhere in the increasingly pricey and frenzied Los Angeles real estate market.

“Last year at the start of the pandemic, you were probably going to get a deal on a condo,” said Anna Marie Simpliciano, an agent at Hilton & Hyland. “Right now, that’s changed. You’re competing just like you are in the single-family market.”

The number of condo units sold in June, according to Redfin Corp. data, shot up nearly 88% year over year to 1,941.

That’s led to a jump in prices. The median condo sales price was up 22.5% year over year to $625,000. The median single-family home sale price in June, meanwhile, was up 29.6% year over year to $875,000.

The comparatively cheaper prices of condos are giving locals the opportunity to add “homeowner” to their resume, while more out-of-town buyers are swooping in to secure L.A. pieds-a-terre.

Condos equipped with the types of amenities that have traditionally drawn Los Angeles buyers to detached single-family homes, like outdoor space and in-unit laundry, are selling especially well, while the top-end of the condo market is shattering records.

Eye-popping sales include two units at the newly opened Pendry West Hollywood, where unit No. 706 fetched $13 million, or $4,800 a square foot, and No. 804 nabbed $13.3 million, or $4,500 a square foot.

“Friends” star Matthew Perry’s Century City penthouse sold in June for $21.6 million — reportedly the priciest Southern California condo sale since 2015.

“You have a general economy that is incredibly strong and especially on the higher-end market, the people looking to acquire those properties, most of them have had massive success in the investment market, and there was a lot of wealth built during the pandemic,” Don Heller, an agent at Compass, said.

Location matters

When it comes to condos, the old real estate adage rings true: location, location, location.
Tina Necrason, executive vice president of residential at Montage International, said Pendry’s West Hollywood location is a major part of its draw. Pendry is a Montage brand.

“When we look at the location, it’s very iconic on the Sunset Strip, and proving a lifestyle that is very much akin to living at a resort, but you are in an urban oasis,” she said.

Hilton & Hyland’s Simpliciano said the Sunset Strip and Hollywood Hills areas are some of the most in-demand condo markets right now.

Kerry Ann Sullivan, a partner at Pardee Properties, specializes in the Westside and said submarkets there are faring differently.

In Brentwood, she said, condo prices are easy to predict based on square footage, bathroom and bedroom count. Buyers, she said, are not willing to go over a certain price.

But in areas like Mar Vista with less inventory, the situation can be a bit different.

“If it’s a unique enough property where maybe it has lofted ceilings or a pretty outdoor space, buyers will pay more than the last sale. There’s a competitive market, and buyers don’t want to experience the fear of loss,” Sullivan said.

She called Santa Monica a more “high-end market.”

Heller agreed. In Santa Monica, he said, the market has low inventory and high absorption for anything priced under $3 million. He is also seeing a lot of absorption in Brentwood and great activity for condos priced under $1.5 million anywhere.

“The need outstrips the supply,” he said, adding that when you get above the $1.5 million price point, some buyers chose to look at single-family homes instead of condos.

Meanwhile, downtown’s condo market is starting to take off.

While the neighborhood has given rise to the development of multifamily rental properties, condos for sale have been in shorter supply.

According to Nick Griffin, executive director of the Downtown Center Business Improvement District, downtown has 7,210 condo units compared to 30,000 rental units.

“That is a function of two basic things,” he said. “The first is just financial: Development finances favor rentals because the delta between what you can sell condos for individually, the delta of how much more you get for that versus developing residential property and leasing it up, and selling the whole property to an institutional investor, there’s not much difference in the sales price. The risk is much lower to do a rental project, and the reward is very close to what you would get selling it individually, so the risk is lower.”

Still, Griffin said, the condo market growing.

Last quarter, he said, there were 160 condo sales in the area, a nearly 140% increase from the same time in 2020 and higher than 2018 and 2019 by 82% and 100%, respectively.

Instagram worthy

The top amenity on buyers’ wishlists right now is outdoor space, real estate experts said.
Alan Scales, a principal at KTGY Architecture and Planning, focuses on condo and small-lot subdivision developments in L.A. He said outdoor spaces, especially rooftops, “have become quite popular. They allow you to maximize outdoor space.”

“The rooftop decks seem to have been on a good majority of the communities we’re doing in the city of L.A.,” he added.

Heller said pre-pandemic, clients wanted outdoor space, and “the pandemic created a greater focus on that.”

The record-setting Pendry sales are examples of outdoor space selling for a premium. The Terrace Estate 706, for example, had 2,681 square feet of interior space and 3,461 square feet of exterior space, more than doubling the unit’s living space.

Sullivan said that, in addition to outdoor space, buyers are also looking for turnkey properties where they can move in right away.

“They expect every property they walk into to look just like Instagram, and if it’s not, they’ll pass and wait for the next one, and it’s really important to have good staging,” she said.

Hilton & Hyland’s Simpliciano said a home office and space for a Peloton were among other frequent requests from buyers.

And in-unit laundry, she said, has become key to buyers.

“If it’s a good unit, and it checks off all the boxes … they are sold just as quickly as a single-
family house,” Simpliciano said.

New buyer pool

Increasingly, agents said they’re working with condo buyers coming from New York and abroad and who want a place to stay when they are in L.A.

“I’m seeing a lot of buyers from out of town,” Simpliciano added. “I’ve shown properties to buyers from New York, from San Francisco, all relocating for various reasons, be it school or for a job. I’m seeing a lot of relocating and just upgrading. You aren’t just seeing first-time buyers.”

Heller said in the early days of the Covid-19 pandemic, 90% of his buyers were local. Now he’s seeing more interest from out-of-town buyers.

“Those buyers weren’t getting here, and they weren’t buying sight unseen unless it was an exceptional situation,” he said. “Now, you’re starting to see at least more national movement and more buyers from New York, San Francisco, etc., who are looking here.”

Some developers in Los Angeles are taking note and planning more condos.

Kitty Wallace, an executive vice president and multifamily expert with Colliers International Group Inc., said that in the past, it has made more financial sense for developers to create rental units. Now, however, they’re looking at “deals as condominiums.”

“We’ve gone back to some of these projects and looked, and it has penciled (to build condos) while in the past it really only penciled to do rentals,” Wallace said.