Conversion diversion. (Real Estate).

Add one more to the list of historic downtown buildings being converted into residential units.

The 195,000-square-foot Arcade Building, between 5th and 6th streets and running the full block between Broadway and Spring Street, will be redeveloped into 142 loft-style apartments. The building, which also has 35,000 square feet of retail space on the ground floor, is owned by Fifth Street Funding Inc.

The Fifth Street Funding principals, who would only speak on condition their names not be used, have owned the property for about a decade.

"There seems to be a market for this, and we wanted to take advantage of it," said one of the principals. The person said the firm would spend $15 million on the project. There are about 3,500 downtown lofts either complete or under construction.

Known as the Mercantile Arcade Building when built in 1924, the building is made up of two six-story structures linked by a three-story arcade. Aside from retail businesses on the ground floor, the building is vacant.

Santa Monica-based Killefer Flammang Architects, which is designing two other loft projects on Spring Street, will be working with independent architect David Denton on the build-out. The market-rate apartments will be completed in late 2003 or early 2004.