Builders Driving a Boom in South L.A.

Aided by federal tax credits and booming demand in the region’s heated real estate market, housing developers have been buying South Los Angeles properties and razing old factories to make way for apartments, condos and even single-family homes in neighborhoods where some lots have stood vacant since the 1992 riots.

The amount of redevelopment south of the Santa Monica Freeway remains fairly small compared with the quantity of new housing projects in terrain more familiar to home builders in the San Fernando Valley and on the Westside. And the vast majority of new projects are affordable housing that is publicly subsidized through tax credits.

But the quickening pace of construction and the new interest in South L.A. among conventional developers may signal a turn for the area.

Businessman Alan Stahl, director of acquisitions for Agoura Hills-based Amcal Multi-Housing Inc., is typical of the small but growing number of for-profit developers driving the uptick in construction. He is upbeat about South-Central Los Angeles real estate but still removes his gold cuff links before visiting his company’s newest acquisitions.

“It used to be that other developers would say to me, ‘What are you doing down there?’ ” Stahl said. “But that’s passing.”

Developers like him are driving up property values, negotiating mini-truces with local gangs and erecting a new crop of large, ornate, brightly painted apartment complexes on major boulevards from Watts to Jefferson Park.

A sign on one of Amcal’s recently acquired properties south of Florence Avenue says it all. “Land wanted,” it proclaims, and gives Stahl’s number.

When property becomes available in South-Central L.A., he said, “you buy, and you buy as much as you can.”

Median home prices in eight South L.A. ZIP Codes grew 44% in 2004. That’s double the rate for Southern California as a whole during the same period, according to John Karevoll, chief analyst for real estate tracker DataQuick Information Systems.

Some of the new three-bedroom single-family homes that have been built in South Los Angeles near Western and Slauson avenues have sold for about $300,000, according to Sanders Ishishaka of the city Community Redevelopment Agency.

And the sheer volume of new construction visible on many of South L.A.’s major boulevards today is noteworthy, especially when contrasted with the construction doldrums that followed the riots.

Although the pace of new apartment permits in South L.A. appears to have tapered off in the last year, the Los Angeles Planning Department says there were three times more permits for new multi-family housing projects in South Los Angeles in 2003 and 2004 as in the previous two years. Citywide, the number of permits for multi-family housing projects increased too, but not as quickly.

Officials at the redevelopment agency confirm that construction is on the rise in South L.A., citing new duplexes, single-family homes and mixed-use apartment complexes.

Nearby, a large new development planned in Inglewood may eventually include about 375 homes. Several developers are involved, city officials said.

Nonetheless, the area remains a challenging market.

Developments financed by tax credits, still the norm, are subject to rigorous restrictions, require enormous amounts of paperwork and are limited by the supply of credits. Caps on rents in subsidized projects can remain in place as long as 55 years.

Neighborhood groups sometimes object to projects or challenge hiring practices.

The Los Angeles Police Department’s Southeast and 77th Street divisions, which cover Watts and much of South-Central, traditionally lead the city in violent crime. High crime rates require 24-hour security on construction sites, Stahl said.

Local gangs have reportedly threatened construction workers and demanded jobs from project foremen, who feel compelled to negotiate with them. A supervisor on a project at 52nd Street and Broadway being built by Fassberg Construction Co. was recently mugged.

“Some companies never work down there,” said Larry Hoffman of Fassberg, a for-profit company. “If the neighborhood is strong enough, they can shut your job down and make your guys afraid to go to work.”

But Jeff Lee, a Marina del Rey developer who has built market-rate housing in L.A.’s urban core for two decades, counters that “there are risks in any market, just different kinds of risk.”

Lee said he would break ground in the next six months on 150 single-family homes and 140 condos at Marlton Square on Martin Luther King Boulevard in Southwest Los Angeles. He has also built gated communities of market-rate, single-family houses in Willowbrook, an unincorporated neighborhood south of Watts.

Such developers who get through the barriers are rewarded by crushing demand.

“There are hundreds waiting. You can’t imagine,” Hoffman said. His company is constructing a 50-unit apartment building complete with day-care center.

High demand doesn’t guarantee developers the tenants they want. For-profit companies, especially, tend to be selective.

When Stahl’s firm opened 49 units in a new complex at 78th and Figueroa streets, for example, applications poured in by the hundreds for units that rented for $667 to $826 a month. But about six out of seven applicants were screened out by the company’s credit and criminal checks, according to the property manager.

Whether the building trend continues, and whether more market-rate projects enter the pipeline, depends on many factors, Stahl said.

Financially, even projects financed with tax credits strike a precarious balance: Land costs are rising, but demand in South L.A. remains concentrated among low-income groups.

If land and construction costs continue to climb, it may soon become difficult for investors to provide housing at rates that the market will bear, Stahl said.

But he is optimistic about long-term trends. Already, he said, values of nearby land tend to soar wherever new housing complexes rise in South L.A.

Bob Dunn, an agent at Cavanaugh Realtors, agreed. He is trying to sell a vacant lot a block from Fassberg’s construction site on Broadway. The lot had lain empty since the riots but now seems likely to sell, Dunn said, adding: “This area is under development. Things are happening.”

Most of the new construction projects are financed through state and federal tax credits or other local, state or federal programs aimed at easing the housing shortage for the working poor.

City and state officials in recent years have sought to encourage construction of this type. Tax credits have financed about 5,600 new units in Los Angeles in the last two years, said a spokesman for state Treasurer Phil Angelides.

But although the construction boom in South L.A. is still largely a creation of government rather than market forces, profit motives increasingly play a role.

Tax credits, for example, have grown more lucrative as corporations have come to recognize their value and become willing to pay more to buy them from developers. That, in turn, has boosted the appeal of the financing method to developers, who use the credits to raise cash and offset soaring construction costs.

“It’s definitely become more competitive,” said Dora Gallo, chief executive of A Community of Friends, a nonprofit company, referring to the state competitions for awarding tax credits to developers of affordable housing.

Nonprofit housing companies once dominated this arena, but no longer, she said.

What’s more, not all the new construction in South L.A. relies on government programs. As more for-profit developers enter the arena, a small amount of market-rate housing is emerging with them.

Stahl’s company, for example, which has also built luxury homes in far-off suburbs, sometimes places market-rate condos next to its affordable units in the city.

The company, which just completed a large project of apartments and condos in Lincoln Heights, northeast of downtown, has also proposed a development of market-rate, for-sale single-family homes in South-Central, just south of its new property on Broadway near Century Boulevard.

For now, the presence of these new buildings is lending a colorful twist to a part of the city long stigmatized by a reputation for crime and poverty.

Owners of the new buildings have an interest in selecting law-abiding tenants to minimize management costs, Stahl said. And because attention to decor helps developers compete for federal tax credits, the complexes are often visually striking; some are designed by well-known architects.

Not long ago, the City Council declared as pejorative the very name “South-Central.” But Stahl’s use of it suggests that council members may have acted prematurely:

“More likely than not, South-Central will emerge as part of the downtown corridor,” he said. “It will happen in five years, or 15 years, but it will happen. I say this as a businessman.”