Rental housing plan draws neighborhood criticism; industry experts say subsidy plan will hurt condo values.

A perceived dearth of retail and service outlets in downtown Los Angeles long has discouraged prospective condominium buyers and dampened condo values, but a government agency's idea for sparking growth is instead spurring controversy.

The Los Angeles Community Redevelopment Agency is mulling plans to subsidize rental units in downtown L.A., with a strategy of boosting the area's customer base in order to bring in more retail and services and make the area more attractive to condo buyers. But opposition to the scheme is swirling among developers and real estate consultants, who fear low-rent housing may hurt rather than help condo values.

Brokers and real estate analysts say condo values have dropped most in the southern end of downtown L.A., where they are down as much as 30 to 40 percent in the last seven years. They also contend that if the CRA follows through on plans to build subsidized apartments in the area, fewer people will buy condominiums and prices will fall even lower.

An estimated 220,000 people work in downtown L.A. but few live there. According to John McCoy, a CRA housing specialist, the agency is talking about spending more money to finance and help build subsidized apartments downtown. He said it would help bring workers closer to their jobs and provide a greater customer base for downtown restaurants and shops.

Market research shows how sluggish the market is. In the five major downtown zip codes, an area bounded roughly by the Los Angeles River and the 110 and 10 freeways, only five previously owned condominiums sold in the first three months of 1992, the same as in the same 1991 period. The sales figures are provided by Irvine-based DataQuick, a real estate and banking market research firm.

Real estate agents and appraisers say the market has not appreciated in the past seven years and they fear that values may soften further if people continue to be uninterested in moving into the area. On top of that, retailers tend to close up at 6 p.m. and state officials are reluctant to issue new liquor licenses to restaurateurs who want to open eateries/lounges that offer entertainment after work, said Don Spivack, CRA director of operations.

"Downtown needs a greater residential base. But it needs more entertainment, retail, parks and open space, a general improvement of the street scene, before people will buy homes there," Spivack said.

Developers should be encouraged to build apartment complexes first, to bring enough people downtown to supply customers for shops and restaurants, he said. With a core of rental units, downtown L.A. would develop more energy after work and people once again would buy condominiums there, Spivack said.

According to Spivack's estimates, downtown L.A. needs another 150 new rental units per year, one- and two-bedroom units that rent for $650 to $1,300.

With that in mind, Los Angeles-based Metropolitan Structures West Inc. is changing marketing strategy on its first 217-unit phase of condominiums at Museum Tower, 255 S. Olive St. The project is the first phase of an office-retail-condominium project that ultimately will include dwelling units. Depending on the market, future phases may be built as apartments or condos, said Metropolitan spokeswoman Susan Roberts.

Bunker Hill Towers at 800 W. First St. is faring better than condominiums further south, said Robert Nesbitt, owner-broker of Wilshire Metro Realty. Nesbitt has been listing and selling downtown L.A. condominiums for four years. Acknowledging only five downtown L.A. condos were sold in the first quarter, he said purchases are being finalized on another 22 units.

Nesbitt said he is disturbed that the CRA wants to build subsidized rental housing in the Skyline area, the southern half of the downtown L.A. corridor. He admits prices are soft but thinks there is a market for upscale as well as affordable condominiums in the area.

"Half of the downtown condominiums are bought by business owners who have a branch here and one on the west side of the Pacific Rim. Most of the other half is made up of corporate executives or highly paid professionals in the law, financial and consulting firms who live in West Los Angeles or Orange County and don't want to commute during the week," Nesbitt said.

He said he thinks there is a market for luxury condominiums that sell for $500,000 to $1 million. Nesbitt also disagrees with statements that downtown L.A. is dead as soon as the workers clear out each day.

Nevertheless, he admits the area historically hasn't rewarded investment in condominiums.

"Prices there have fallen from $150,000 to $280,000 when they were first built six years ago to $100,000 to $150,000 today," Nesbitt said. By contrast, the northern half of the area's residential strip, commonly called Bunker Hill, has seen a price stability at $200,000 for two-bedroom condominiums.

Nesbitt said downtown L.A. needs more market-rate (non-subsidized) housing. "Otherwise, they (CRA) will create an environment that disproportionately draws people who need subsidized housing," he said.

Presently, there are 900 unsubsidized condominiums, 1,673 unsubsidized apartments and about 1,000 subsidized apartments for seniors in downtown L.A., said Bill Turner, a partner with Los Angeles-based Robert Charles Lesser & Co., an investment analysis firm.

"It's still hard to get people to live downtown because there isn't a supermarket or a super drug store for them to shop at," said Bob Gardner, Lesser partner in charge of consulting in Los Angeles.

As more office space is leased and more jobs created, there should be more demand for downtown condominiums, Turner said, but he added that he does not expect downtown L.A. to support upscale condominium projects that sell for $500,000 to $2 million like some that have been developed in downtown San Diego and downtown San Francisco.