Asian Investors Aren’t Active in the DTLA Condo Market

Asian capital—from commercial real estate investment and development to investment in single-family assets—has been highly active in Los Angeles this cycle; however, Asian investors haven’t been as active in the Downtown Los Angeles condo market. Mike , managing partner at the Agency Development Group who is heading sales at Metropolis Tower II and has a long history in the condo market in Downtown Los Angeles, says that there has been little interest and activity from Asian buyers or foreign buyers in general on the project.

“We see some of that, but that is very prevalent in Miami and New York City and less so in San Francisco and Los Angeles,” Leipart tells GlobeSt.com. “California laws are such that we are not really set up for a lot of foreign investment. That being said, condo developments are always going to be a very attractive safe-spot for international currency. Because you don’t have a lot of maintenance and because condos are generally lock-and-leave, there has always been international money looking to park money in condo projects. That is part of the industry.”

One reason that foreign investors are less active on condo properties in Los Angeles is because California’s buyer protection regulations that make it more difficult to make a speculative investment on a condo project. For example, condo deposits during construction are limited to 3% of the sales cost. “In California, developers can not use the deposit checks written during construction,” says Leipart. “They must wait until the project is complete and the buyer closes on the unit to use the check. In other cities, like Miami, developers can use half of the check to help build the building. As a result, buyers are encouraged to buy units in a property because they think that they are going to make money by being to the property first and the developer is more willing to give them a discount because they can use the money. That is less money the developer needs to raise.”

Contract regulations also limit foreign investment in the condo market, according to Leipart. “In other cities, condo contracts are also transferable,” he says. “So, if a buyer is early into a building and the prices increase, they can sell it before it gets finished. That is not allowed in California. We have far less speculation that goes into selling our buildings.”

Sales at Metropolis Tower II have already started, and despite the lack of foreign investment, Leipart says that there has been strong interest in the highly amenitized building. Tower I is already 80% sold.