It used to be that Americans dreamed of moving to the idyllic suburbs. But cities are undergoing a major revival. Based on the Census Bureau’s estimates, from July 2011 to July 2012, cities with more than a half million residents grew faster than their suburbs. Meanwhile a 2012 residential trends report by the Environmental Protection Agency confirms that between 2000 and 2009, 21 percent of new residential construction occurred in previously developed areas.

To quote Casey Lynch, principal at Los Angeles real estate development company LocalConstruct, “Infill development is the ‘new normal’ in real estate.” With it comes the rise of small-scale development.

Over the years, this type of targeted development—enhanced by measures like LA’s Small Lot Subdivision Ordinance, which allows owners to divide larger lots into smaller parcels—has become an avenue for growth both in real estate and in architecture. What was once untested territory has even piqued the interest of larger developers, heating up competition for once-overlooked properties. Just ask brothers Hardy and Kevin Wronske, principals of architecture and development firm Heyday Partnership, which builds small lot homes in LA.

“We’re getting outbid more often on properties,” said Hardy. But they aren’t too worried. Despite increased competition, Heyday has honed a strategy founded on good design, close attention, and efficiency. “By becoming focused on one product type, you become the best at it,” said Hardy. With three small lot developments and seven entitled projects under its belt, Heyday has proven it can deliver.

Another small outfit, LA-based Linear City Development, concentrates on turning old industrial buildings in downtown into vibrant, mixed-use projects. With architect Aleks Istanbullu, they transformed a 180,000-square-foot warehouse into Biscuit Company Lofts, 104 live-work units over popular eatery Church & State. Linear City also turned, with Clive Wilkinson Architects and Donald Barany Architects, the Toy Factory Lofts, a 250,000-square-foot warehouse, into 110 live-work units atop 12 double-height commercial spaces. At 7+Bridge, three industrial buildings became living spaces with a nearby Italian restaurant, Bestia, and a speakeasy.

“Part of our goal is to bring people back to the center of the city to save them from being dependent on the car,” said Yuval Brenner, principal at Linear City and a downtown LA resident. “We’re trying to develop an urban core that can provide services you need within walking distance.”

While Linear City’s improvements are thoughtful but minimal (“It’s a canvas for future residents,” said Brenner), ambitious design works hand in hand with Heyday’s expertise. Heyday uses standard materials in new, creative ways, allowing them to build more cost effectively while delivering on decent profit margins. “Anybody can build a nice house if you have lots of money. The same goes for a crappy house, if you have no money,” said Hardy Wronske. “The challenge is to build homes at a decent cost, but to still provide high design.”

Their creativity is paying off with brisk sales. All six homes within their LEED-rated Buzz Court project in Silver Lake sold within a little over a month of its public introduction. The development was recently part of the exhibition “By Right/By Design,” at Woodbury University’s WUHO Gallery, showcasing residential projects that have pushed the envelope of multi-family residential design. At the height of the recent housing crisis, in 2010, all 15 homes in Heyday’s Rock Row development in Eagle Rock sold out within a month.

Efficiency and good design aren’t the only tools in the small developer’s arsenal. Often living in the same neighborhood as their projects, small developers become sensitive to the needs of the community. They act as curators, introducing elements that they as locals need and want to see in their neighborhoods.

Culver City–based real estate company Runyon Group brings in specialty brands and designers for its projects. Founder Joseph Miller is working with local firm Abramson Teiger Architects to transform a four-acre auto dealership site on the industrial lot-cum-creative office and arts haven Hayden Tract into eight spaces connected by gardens, populated by specialty retailers and room for seven creative lofts.

“For a long time this wasn’t a desirable neighborhood, but now you’ve got companies like Beats by Dr. Dre and galleries like Blum and Poe moving in,” said Miller, a Culver City resident. “What we were missing was a nexus. We’re in the middle of all these creative industries without a central gathering spot.” That’s what he hopes Platform would be for Culver City.

Rather than build malls for mass consumption, Miller is tailoring his development for a more nuanced market, requiring each retailer to bring something unique to the table. Two confirmed tenants are New York chef Michael White, who will be opening his first west coast restaurant, and Blue Bottle Coffee, which is making a foray into the LA market. “I feel like we’re not in the real estate business,” said Miller. “We’re in the business of eating great food and shopping in great stores and figuring out what makes great neighborhoods.”

Their proximity to their projects provides another competitive edge. They can more easily reach out to the community and work closely with the city. “Large developers aren’t able often to really send principals to develop meaningful relationships with community stakeholders. They’ll hire expediters to do that for them,” said Mott Smith, principal of Civic Enterprise Associations, a small development firm that works in emerging neighborhoods of Southern California.

Over the past two years, Civic Enterprises has been working with the Los Angeles County Health Department to iron out the regulatory requirements for an unprecedented multi-tenant, wholesale food manufacturing facility in Northeast LA. According to Smith, the facility is meant to be the equivalent of a co-working space, but geared toward local small- to medium-sized food producers. His firm is in negotiations to acquire the property, and Smith hopes to start construction by the end of the year. By exploring new development types and following them through to implementation, his firm has become a pioneer, reaping the highest benefit while paving the way for others to follow.

Civic Enterprise is only one example of a smaller developer’s nimbleness. Lynch’s LocalConstruct is another. “The biggest advantage we have as smaller developers is the ability to act quickly on investment opportunities and to recognize emerging trends in niche markets. We can also often take on entitlement risk that larger developers can’t or won’t because of acute local market knowledge,” said Lynch.

Since its inception, the company has transitioned from single-family to multi-family construction as market conditions have changed. Last year, LocalConstruct began working with Barbara Bestor Architects on Blackbirds, 18 small lot homes clustered around a living street. This year, the company is setting its sights on turning the oldest hotel in Idaho, Owyhee Plaza, into office, retail, and residential spaces with the help of Portland, Oregon–based architecture firm Bebee Skidmore and Idaho firm TAO.

While bigger developers may threaten to take some business from small developers, they aren’t competitors in all scenarios. “You do and don’t compete with big developers,” said Liz Faletta, curator of the By Right/By Design exhibit at WUHO. Civic Enterprises has sometimes worked with a larger developer on projects. In 2011, after securing the entitlement, Heyday Partnership sold what was to be a 19-house development in Eagle Rock to Pulte Homes, one of the nation’s largest homebuilders.

To ensure the continued success of smaller, local developers, Faletta recommends the city provide more tools to give them the flexibility they need to stay ahead of the trends including selectively allowing the densification of single family areas, addressing rent control, and reducing parking requirements. Small developers should also keep abreast of LA’s newly-re-launched comprehensive zoning code revision effort. “Planning and policy play a huge role in making this profitable or not.”

Changes in policy notwithstanding, what sets smaller developers apart from their larger counterparts is the amount of personal investment they make in each project. “Part of our motivation isn’t just economic opportunity,” said Smith. “It’s a chance to help make Los Angeles.”