Koreatown's largest landlord pairs with Arc Capital Partners for latest conversion

CoStar News

November 1, 2024 | 2:53 P.M.

Amid record-high office vacancy rates and strong demand for housing in Los Angeles, one developer has started work to convert a 13-story office building in Koreatown into 236 apartments.

Supported by $60 million in public financing and private financing from Arc Capital Partners, longtime Koreatown investor Jamison Properties is converting the 233,000-square-foot Wilshire Catalina Plaza office building at 3325 Wilshire Boulevard into an apartment building with 15,000 square feet of street-level retail.

“The best, most efficient way to bring more units to L.A. is through breathing new life into underutilized office buildings,” CEO Jaime Lee said in a statement.

Electrical, mechanical, plumbing and seismic upgrades are already underway at the 1956-era property, with developers aiming for a 2026 opening date.

Developers have been converting underutilized properties as a source for new homes as the office sector slogs through a slow pandemic recovery, and as states like California look to increase their housing stock.

Los Angeles office market fundamentals are at their weakest point in decades, according to CoStar data; the current 16.4% office vacancy rate has climbed steadily from 10% in early 2020. Meanwhile, multifamily is experiencing demand, with the region's 4.9% vacancy rate down from 5.1% last year and below the 7.9% national apartment vacancy rate.

There were about 100 office-to-residential conversion projects underway across major cities in the United States at the end of 2023, according to CoStar News. Many require some kind of public sector involvement — similar to Jamison's bond financing — to turn a profit.

Converting through challenges

Los Angeles is one of the top markets where office owners are planning to convert their buildings to apartments, according to data from RentCafe and other industry websites. There are about 2,442 apartment units being created out of office space in Los Angeles this year, up 6% from last year, according to the data firm. Washington, D.C. has the most number of apartments underway from conversions at 5,820 units.

Few local developers have been willing to tackle conversions due to financing challenges and the new ULA transfer tax, nicknamed the Mansion Tax, that's served as an additional headwind to investment sales of multifamily properties, according to Ryan Patap, CoStar Group's senior director of market analytics. The cost of converting empty offices into housing can run up to a prohibitive $2,000 per square foot, due to the expense of retrofitting windowless floorplans and upgrading outdated infrastructure, Patap said.