For Sale: One Mostly Empty "Luxury" Building
The Citrine Hollywood received its certificate of occupancy on September 6, 2024.
Of the Citrine’s 21 “luxury” units, only six are occupied.
SIX.
That leaves 15 of the 21 units empty.
Let that sink in.
Some friends found the rent roll summary. As you can see, the average rent is around $3300 a month, with the most expensive unit going for $3950. Those are nice-looking apartments (even to this inveterate disliker of modern design), but YIKES.
The pro-development crowd loudly insists that adding more housing of all types, including adding to the glut of pricey “luxury” apartments, will magically solve the problem.
Unfortunately, it’s NOT that simple. The facts are more nuanced, and I’ve been wanting to explain one of them in particular for a while.
Developers typically have to take out loans to get things built, and many property buyers have to take on mortgages to buy buildings (my old boss had everything mortgaged - remember, I was a property manager). Financing terms can REQUIRE that rents not be below a certain amount. Did you know that? Most people don’t.
I don’t know if the Citrine is subject to such a requirement, but I’d be surprised if it wasn’t. (If you work there or own the place, feel free to enlighten me as to why 15 units are empty. With so many people displaced earlier this year and in dire need of housing, a mostly-vacant newer building is rather shocking.)
Lenders want to get their money back (with interest), and they want to make sure everything pencils out. I get that.
Now imagine that you want to add housing in your neighborhood by (for example) building a duplex in your backyard, or maybe even replacing your detached garage with a bigger one that has two studio apartments above it. You find lenders who are willing to give you the money, but they tell you that the rent on each unit has to be $3200, minimum (or even more). That’s going to be a problem for renters who just can’t bring in three times the rent, or $9600 a month - which, let’s be honest, is unrealistic for most of us.
The bottom line is that there will be vacant luxury units when property owners are required to charge rents that are too high for the market to support. There are only so many people who can afford them, and far more renters with low or middle incomes. And when tough financial times come to Los Angeles, preventing potential renters from even applying to live in “luxury” buildings, many lenders won’t care and may not be willing to renegotiate terms.
Now, if owners had the flexibility (and willingness) to lower rents when they can’t find enough high-income tenants to fill a “luxury” building, we might be seeing higher occupancy rates for those properties.
Hollywood was once a relatively affordable neighborhood for working Angelenos. That is changing - although the high rents on “luxury” apartments won’t make Hollywood any less plagued by trash, tagging, homeless encampments, parking problems, and a councilperson who doesn’t seem to care very much. (Prove me wrong, Hugo.)