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How One Los Angeles Developer Uses a State Law in an Unusual Way To Add Apartments

LaTerra Gains Extra Units Through Measure Similar to Those Across the US

Los Angeles Developer

The 33-year-old 1121 N. La Cienega Blvd. apartment property now has six new apartment units for lease. (LaTerra Development)

By Jack Witthaus CoStar News

November 2, 2023 | 2:07 P.M.

In West Hollywood, California, industry professionals say something unusual has occurred at a three-decade-old residential complex along La Cienega Boulevard: Parking, laundry rooms and excess storage were overhauled to become a half-dozen new apartments.

LaTerra Development, a Los Angeles-based multifamily owner and developer, converted these non-living spaces at 1121 N. La Cienega Blvd. into studio apartments in what real estate professionals say could be the most expansive use of building more apartment units in a single building using California's Assembly Bill 68.

The law, signed in 2020, allows for more accessory dwelling unit construction in existing single-family and multifamily properties. The law was an attempt by the state to create incentives for more housing construction to ease an acute shortage of residential properties.

Other states and cities around the country, including Seattle, Chicago and Minneapolis, have adopted similar measures to permit these so-called ADUs in response to soaring housing costs.

In California, single-family homeowners have been the best-known adopters of the law, adding ADUs in their backyards and leasing out the space. However, some apartment owners have just begun looking at how to take advantage of the law, too, which could result in hundreds of new multifamily units added in greater Los Angeles, according to Chris Tourtellotte, managing director of LaTerra.

"We paved the way a little bit," Tourtellotte said of building the ADUs on the La Cienega Boulevard property.

Apartment Conversions Uncommon

It's still not common to see new ADUs built in existing apartment complexes, according to Jeremy Nova, founder of Louisville, Colorado-based Studio Shed, which makes and sells prefabricated ADUs across the United States.

"We're seeing more ADUs being integrated into new developments" such as so-called microcommunities, a relatively new term — something between urban and suburban living — for a cluster of small residences on the same block, Nova said, as opposed to putting ADUs into existing apartment buildings.

In Los Angeles, ADU construction is growing in popularity. The city issued 100 permits for ADUs in 2016, but by 2022, that number rose to roughly 7,000, according to the Bipartisan Policy Center, a Washington, D.C.-based nonprofit that promotes solutions to a variety of issues facing the United States. A breakdown of what percentage ADU construction has occurred so far at greater Los Angeles apartment complexes wasn't available to CoStar News.

Los Angeles Developer

New studio apartment kitchens at 1121 N. La Cienega Blvd. in West Hollywood, California, feature modern finishes and stainless steel appliances. (Jack Witthaus/CoStar)

Despite LaTerra's project being the firm's first ADU attempt, it's difficult to tell that the units weren't original to the 33-year-old property. An existing courtyard opens up to three of the studios, which have windows letting in natural light along with modern appliances, cabinets and finishes. A newly created hallway connecting to the courtyard leads to the other three units. Each unit has a doorbell and entryway sconce.

LaTerra created the new units in 15 months between getting plans approved with the city and wrapping up construction, Tourtellotte said. The state law allows apartment owners to skip the entitlement process, which hastens the timeline.

For ground-up apartment construction in West Hollywood, the planning, entitlement and building process would have taken years longer and cost at least $800,000 to build each unit, according to Tourtellotte. For the ADUs on La Cienega Boulevard, LaTerra spent roughly $300,000 for each unit.

The developer bought the property for $29.2 million in late 2021, according to CoStar data. Beyond adding ADUs, LaTerra has been renovating older apartments at the property, including adding washers and dryers after replacing the laundry rooms with living space. Despite the ADUs, the property still has adequate parking, including those serving the new units, Tourtellotte said.

New Type of Project

The ADU process wasn't without challenges. LaTerra needed to move residents' parking spaces around when construction started, and hooking up mechanical, electrical and plumbing to the new units proved difficult, according to Tourtellotte.

Plus, the developer and architect, Los Angeles-based Urban Architecture Lab, weren't using a previous design model because it was their first time involved in such a project. They had to work with West Hollywood officials, too, on explaining the state law, Tourtellotte said. The city hadn't encountered construction like this before.

The roughly 695-square-foot ADU studios have hit the market for $3,100 a month. While that seems pricey and not what affordable housing advocates would support, West Hollywood is among the most desirable apartment markets in greater Los Angeles due to its walkability, nightlife and restaurants and its Westside location, said Ryan Patap, senior director of market analytics for CoStar Group in Los Angeles. Further, few new apartments are built in West Hollywood, meaning that any new construction commands high pricing.

Patap said LaTerra's ADU pricing is below what a new studio would go for in West Hollywood due to the high demand for living there. The ADUs are the lowest-priced units in the complex, according to Tourtellotte.

Beyond the West Hollywood apartment building, it's not uncommon for new studios in greater Los Angeles to top $4,000 per month. Figueroa Eight, a newly built apartment tower in downtown Los Angeles, is marketing 625-square-foot studios for $4,105 per month.

Los Angeles Developer

This empty space at 1121 N. La Cienega Blvd. could one day be converted into an accessory dwelling unit, or ADU. (Jack Witthaus/CoStar)

California leads the nation with ADU construction after residential owners applied for more than 30,000 permits in 2022, according to San Francisco-based ADU digital marketplace Cottage, which tracks this data. In fact, one in six houses built in 2022 in California was an ADU.

Increased Density

Increasing housing density, especially in areas connected by mass transit, has emerged as a California strategy in recent years. Past policy has favored single-family zoning.

Lawmakers say high housing costs have undermined the state’s economic competitiveness and contributed to many companies and residents moving to more affordable places such as Arizona and Texas. Building ADUs, also known as casitas in California or granny flats elsewhere in the United States, is viewed as one way to address the issue.

However, other states and cities adopting ADU ordinances have seen a mixed amount of demand. Seattle saw 2,254 applications for ADU permits in 2022, which was a 25% year-over-year increase, according to Cottage. But in Minneapolis, only 176 building permits were issued for ADU structures between 2014-2022, according to the Star Tribune.

Looking ahead, LaTerra is interested in adding a few more ADU units at the La Cienega Boulevard property and some of its other California multifamily complexes. Tourtellotte said he looks at apartment properties differently now because of the ADU construction experience. When he tours multifamily sites, he said he finds himself thinking about where to add new ADUs.

Tourtellotte said that the best apartment candidates for ADUs are ones that are low-density, have ample parking and feature storage spaces or laundry rooms. Some California apartment brokers are starting to market multifamily properties with ADU potential, showing that the trend of building these apartment units is catching on, Tourtellotte said.

"It's a whole new way to add value," Tourtellotte said.

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