Owner-operators churn downtown industrial property. (Up Front).

Despite the appeal of gleaming towers wrapped in glass and steel, the real downtown action is a lot closer to the street.

Industrial properties further east and south of the office core sport a remarkably tight 2.7 percent vacancy, compared with the 20 percent range for highrises. And in a market where buildings range from 10,000 to 70,000 square feet, 2.7 percent vacancy doesn't leave a lot of room for expansion.

As sales driven by low interest rates have been pushing up prices in other industrial pockets, many smaller companies, particularly produce, seafood and garment businesses, have been churning downtown property for the past year.

"People love an L.A. address," said Ken Jackson, director of sales at Dynamic Builders, which has developed a couple of hundred small industrial buildings in Central Los Angeles over the past 35 years. Jackson said that with mortgage rates at 7 percent for commercial properties, it has become less expensive to own than to lease.

As a result, any time a property comes on the market, real estate agents said, it is snapped up -- and the buildings aren't cheap.

"Demand has been there but the supply has been low, so whatever comes around transacts very quickly," said Dwight Hotchkiss, senior director at Cushman & Wakefield Inc. who has worked with Central L.A. industrial properties. for 13 years. "If a property comes on the market, it's usually in escrow within 30 to 60 days. In previous years, it could take three to five months to put something under contract."

With demand exceeding supply, prices have been driven up accordingly. Industrial buildings are ranging from $60 to $90 a foot depending on age and building quality, representing a jump of between 10 percent and 20 percent from a year ago, according to Bart Pucci, senior vice president at CB Richard Ellis.

Two typical deals in the area occurred during the summer, where one toy importer paid $2.6 million, or $73 a foot, for a 35,000-square-foot building near Central Avenue and 3rd Street while another toy company paid $3.4 million, or $57 a foot, for a 60-year old facility near Alameda and Palmetto streets.

Even with third quarter asking rents for Central Los Angeles averaging 46 cents a foot, among the lowest in the county, low interest rates and limited stock mean it still makes sense to buy, Hotchkiss said.

That combination has kept the deals small but plentiful.

"They tend to be SBA-sized deals -- under $4 million," said Pucci. "Companies in the produce, apparel, cash and carry and toy industries seem to be making more moves."

City role

Into this mix comes the city's Community Redevelopment Agency, which has proposed a Central Industrial Redevelopment Zone covering 744 acres just southeast of downtown's financial district.

"It's very important that we promote expansion of industry uses," said Donald Spivack, deputy administrator of the CRA. "They bring quality jobs and make it possible for the labor pool to work within the city."

But the success of the proposed zone, subject of a public CRA hearing on Nov. 6 and slated for city council approval as early as this week, is not certain.

Both economic and political forces could work against a plan that will use much of the $575 million generated by tax increment revenues to build nearly 10 million square feet of industrial and commercial, as well as 1,500 housing units throughout the 45-year plan that could take effect as early as 2004.

The zone would allow for direct funding by the CRA of individual industrial developments and adaptive reuses of old industrial buildings into affordable residential complexes as well as indirect funds for infrastrecture.

But the CRA would need to lure industrial developers that have stayed away from downtown. Potentially adding to the costs is State Bill 975, which mandates that developments receiving CRA funds qualify as "public works" and require payment of "prevailing wages," or essentially union wages for construction labor.

There is also opposition from the county, which on the day of the public hearing sent a 32-page "Statement of Opposition" letter to the CRA, saying it "failed to demonstrate project area blight."

Meanwhile, development activity continues in a hodgepodge fashion, with or without public assistance. A four-acre property owned by Reliant Steel & Aluminum near the Alameda Trade Center is being developed into 100,000-square feet of industrial buildings. Peterson & Tansey will finish a market rate loft project at 4th and San Pedro streets next spring. And three old hotels near the northern border of the zone are being redeveloped into two Skid Row Housing Trust projects and Single Room Occupancy project.

"Two or three years from now, you'll start seeing some stuff," said Jackson.

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