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Downtown Los Angeles, once disdained by Wall Street as a weak collection of office buildings with no pizazz, is drawing newfound fascination from New York firms, many of which are sinking money into the Southland’s resurging commercial district.

L.A. County has seen a 23% increase in the dollar volume of investment from the Empire State this year compared with 2013, real estate brokerage Cassidy Turley said.

New York investment in the county has surpassed $4.4 billion since the beginning of 2012, when local real estate experts noticed a surge in interest from New Yorkers. That’s equivalent to buying 12 U.S. Bank Towers, the tallest building in the West.

Buyers are picking up or developing all types of commercial properties, including office buildings, hotels, warehouses, apartments and raw land suitable for development. Among them is the July purchase of a long-vacant 1920s office building by a hotel developer and a new high-rise luxury apartment tower about to open on Bunker Hill.

Downtown reminds New York investors of what their neighborhoods looked like before redevelopment swept through Manhattan and into the other boroughs, analysts and longtime developers say.

“Los Angeles has hit critical mass in downtown,” said Greg Vilkin of New York real estate giant Related Cos. “Firms from New York show up and say, wow, I see the potential I saw in Hell’s Kitchen a decade ago. I watched TriBeCa, and the High Line, and I see what’s going to happen.”

While investors from China and South Korea have been grabbing attention with high-profile purchases of real estate, big New York players have been on their own Southland spending spree.

One particularly notable deal is the $130-million purchase in August of the former May Co. department store on Broadway. It was the first L.A. purchase for New York investors Waterbridge Capital and Jack Jangana, who vowed to make over the enormous building in the style of high-end Chelsea Market in Manhattan.

Chelsea Market was built in the husk of a sprawling brick 19th-century factory and is now a successful food sales hall, shopping mall, office building and television production facility. The nine-story May Co. building at Broadway and 8th Street is considered one of the largest properties available for a similar conversion on the West Coast.

But the building is a daunting candidate for a pricey makeover, given its sheer size, at 1.1 million square feet, and its location in a neighborhood that has been economically depressed for decades.

“Sometimes it takes an outsider to come in and see what can be done,” Vilkin said.

Firms based in New York have snatched up some of Southern California’s best-loved historic buildings, including the elaborate Fine Arts Building downtown, the Art Deco-style Clock Tower office building in Santa Monica and the glamorous El Royale apartment tower in Hancock Park.

Most New York money managers disdained downtown Los Angeles for years. They thought of it primarily as a big office park with persistently high vacancy, said L.A. developer Christopher Rising. Investors balked two years ago when Rising tried to obtain funding to buy an old office complex by Pershing Square and convert it to offices for tenants in creative businesses.

“We called 150 equity groups,” he said.

Most listened for a few minutes, then hung up. “The only one who believed in us was Mount Kellet,” he said.

Los Angeles is also at an earlier point in its real estate cycle than many other cities, industry observers said, and there is more time left to invest before it hits its peak.

“L.A. is one of the seventh- or eighth-largest and most dynamic metro areas in the U.S., but is a bit of a laggard in terms of its regional economic recovery,” said Dean Rostovsky, director of West Coast acquisitions for Clarion Partners, a New York firm that invests billions of dollars in real estate on behalf of its clients.

“Houston, Seattle and San Francisco have expanded much more quickly,” Rostovsky said, and are probably closer to what will be peak values in the current real estate cycle. L.A. might have more room ahead for real estate price growth.

The region also has certain markets, such as downtown, that have other growth factors working in their favor.

“Downtown has multiple dynamics: residential, hospitality, sports and entertainment,” Rostovsky said, “and a burgeoning retail and restaurant” scene.

When those growth factors are strong enough, he said, it’s apparent that those neighborhoods are becoming something different from what they were in the past.

“That excites real estate guys like us,” Rostovsky said. Downtown is experiencing that kind of dynamic change, he said, as are Hollywood, Culver City and Playa Vista.

Clarion Partners is heavily committed to the Los Angeles region, where it owns nearly 11 million square feet of office retail and industrial property, along with the massive Palazzo Westwood apartment and shopping complex.

One of the earliest to see downtown’s potential is Related, which recently hired Vilkin to head a new division in charge of building upscale residential projects in the state. Related is putting more than $2 billion worth of development in the company pipeline — not including a $350-million oceanfront condominium and apartment complex Related just finished in Santa Monica.

The company is deeply invested in downtown L.A., where it built sprawling Grand Park between City Hall and the Music Center along with a high-rise luxury apartment tower nearing completion on Bunker Hill. Both are prologue to the long-awaited hotel, residential and retail complex designed by architect Frank Gehry that Related has agreed to build across the street from Walt Disney Concert Hall.

Density will make downtown more vibrant, which will attract still more investment, Vilkin said.

“I think that more is better in Los Angeles,” he said. “People want to live in an urban market where they have services and can walk to things.”

courtesy of latimes