Builders heed call of city
Published: Wednesday, January 25, 2006 at 6:01 a.m.
Last Modified: Wednesday, January 25, 2006 at 12:00 a.m.
LOS ANGELES - Suburban home builders are beginning to follow the lead of suburbanites, who are returning to cities in increasing numbers.
Two of the nation's top subdivision builders have opened new units dedicated to building in urban cores. What suburban developers John Laing Homes and KB Home are quickly learning, however, is that building up isn't the same as building out.
"It isn't like building one house," said Jeffrey Gault, president of KB Home's new KB Urban division. "You've really got to do a lot of forward planning. Once you start, you can't change."
One new KB Home joint venture is a condo and retail high-rise across from Staples Center in downtown Los Angeles. Laing Homes' urban group has a handful of multi-use residential building projects pending in Hollywood.
Builders say they are following the market, responding to an increase in antigrowth sentiment in the 'burbs and informal surveys that show people want shorter commutes and access to downtown culture and entertainment.
"There's a pull from the attractiveness of city living, and there's a push from the traffic and congestion," said John McIlwain, senior resident fellow at the Urban Land Institute.
The move by subdivision builders into cities is contributing to booming downtown development in cities from Los Angeles to Las Vegas, Chicago to San Diego.
Although there are no national figures documenting the trend, in Los Angeles alone, the number of housing units in downtown could more than double to almost 40,000 in five years if all the projects now under development come to fruition, according to the Downtown Center Business Improvement District.
Suburban developers are finding that building in big cities is far different - the permitting process can be more complicated, the bureaucracies bigger.
On the national average, construction costs for a single-family, detached home runs an estimated $105.35 per square foot, compared to $129.65 per square foot for a garden-style (three- to four-story) multifamily home, according to Gopal Ahluwalia, staff vice president of research at the National Association of Home Builders.
While high-rise construction costs were not available, Ahluwalia estimated they would likely be 10 percent to 15 percent higher than the garden-apartment figures.
But the sale price also rises. Nationally, the price per square foot of a single-family home is approximately $140 for a single-family residence. But the median home price in Los Angeles County is $497,000, pushing that to $248.50 for an average 2,000-square-foot home.
By comparison, a 1,000-square foot loft can sell for $500,000 or more, making it $500 per square foot.
"It's a lot tougher a business, but the profits are a lot higher in the urban market," said McIlwain with the Urban Land Institute.
Instead of building 1,000 homes on 500 acres of land, 500 units may be packed inside a high-rise on a half-acre of land. Not only must every square inch of available space be maximized, but the land itself can present unanticipated problems.
"When you start digging in an urban area, you're rarely on virgin land," said Debbie Bassert of the National Association of Home Builders. "You don't know what you are going to find."
Some builders had to remove old foundations before setting new ones. One found debris from old docks. A multibillion-dollar development in Los Angeles unearthed delays along with American Indian remains.
"It's much more intensive. It takes longer to plan and longer to get approval," McIlwain said. "The kind of building is very different from what most suburban builders do."
The challenges of city building were the main reasons John Laing Homes and KB Home created wholly owned subsidiaries dedicated to urban developments. One goal of these new subsidiaries: Consolidate staff expertise in the area of high-rise development, considerably more complicated than suburban building.
"We have an opportunity here," said Phil Simmons, president of Laing Urban. "But we don't think it's appropriate having the same people building our suburban communities build our urban communities."
Not all builders have followed the path of KB Home and John Laing Homes.
Toll Brothers created its "City Living" brand to boost its presence in urban areas and increase multifamily projects. Not a distinct division, "City Living" has team members who work on urban projects in specific places across the nation, according to Doug Yearley, regional president of Toll Brothers.
The company, known for high-end subdivisions, opted not to create an urban division and instead focus on marketing. The goal? To boost its profile in the new arena and increase sales.
It's an interesting debate for builders who dotted the national landscape with subdivisions over the past 50 years. For consumers, it's a win situation.
R.J. Kas, a real estate broker who is moving out of his Beverly Hills condo, recently purchased a 1,400-square-foot loft for $515,000 in downtown Los Angeles.
"You can't touch anything like that, the square footage, in Beverly Hills," Kas said. "I love downtown."
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