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Friday, May 27, 2022

Investor Interest in L.A. Increases in 2021

Investor interest in the Los Angeles real estate market was high in 2021 with an 83% year-over-year increase to $58 billion in sales volume for the year, according to data from CBRE Group Inc. It was the leading market in the U.S., followed by New York and Dallas.

The $58 billion in investments seen in 2021 was far above pre-pandemic levels. In 2019, only $47 billion of commercial real estate traded hands in L.A.
“There’s a lot to like about L.A.,” said Anthony DeLorenzo, a vice chairman at CBRE.

Mike Condon Jr., a vice chairman at Cushman & Wakefield Inc., agreed.
“With L.A. being a gateway city and one of the most desirable and stable markets in the world, we’re seeing continued investor interest in the market,” he said. “Even during Covid, investor appetite didn’t necessarily wane, it was more of a patient investigation on projects to find out where the world was going. At no point in time during the pandemic did investors stop looking at deals.”

He added that investor interest is now where it was pre-pandemic.
“There’s as much interest and appetite as there ever was,” Condon said.

Eli Randel, chief strategy officer at Commercial Real Estate Exchange Inc., or Crexi, agreed that “the market remains very attractive to buyers,” adding that “people who like buying in L.A. continue to like buying in L.A.”

Asset types

Last year the asset type that saw the most sales volume was industrial. Roughly $20.7 billion of industrial assets traded hands, compared with $18.5 billion of apartment buildings, $8.6 billion of office properties and $6.3 billion of retail properties, according to CBRE data.

“It’s industrial first and multifamily,” DeLorenzo said of current interest. “It’s no surprise industrial and multifamily are the darlings of the ball. Everyone wants to own it.”
Office sales last year were below pre-pandemic levels but other asset types saw more sales volume in 2021 compared with 2019.

“L.A. is one of the five national logistics hubs,” said Kevin Shannon, co-head of U.S. capital markets at Newmark Group Inc. “We’ve got the busiest ports in the country, the port of L.A. and the port of Long Beach, so industrial is on fire and the rent growth is incredible and the escalation in industrial value and land prices has been pretty spectacular. Industrial is really doing well. Retail continues to improve. It was a contrarian play but you are now seeing a lot more trade.”

Jeffrey Bramson, a senior managing director at Jones Lang LaSalle Inc., added that “industrial never slowed down.”
And apartment buildings are in high demand as well.
“Multifamily remains strong,” Shannon said. “We don’t have enough housing for the population and the barriers for getting entitlements remain strong.”

Bramson added that there has been rent growth in multifamily properties which was causing increased interest.
Shannon said that some retail that is trading now is a redevelopment opportunity with investors expecting to tear down the existing property to make room for a multifamily or industrial property.
Some retail, however, is doing well.

“Rodeo Drive is at absolute peak rents,” Bramson said.
Shannon said capital is also interested in L.A. because of the content creation, tech and life sciences jobs in the market.

Experts agree that while some may be a little hesitant to invest in office, the types of jobs in L.A. are leading other investors to be very bullish on L.A.’s office market.
“It’s hard to figure out. There are so many mixed messages right now in the office sector,” Condon said.

Future

And experts agree that 2022 is poised to be a busy year for sales.
“The next few months are really exciting,” Condon said. “There was a lot of capital on the sidelines, a lot was earmarked for distressed (properties) but that big wave of distress just isn’t going to hit.

They are retooling their investment strategies for a more traditional (investment strategy).”
“A lot of the deals that got shelled during the pandemic, stuff that was supposed to go on the market or had begun being marketed, it’s a combination of those projects that were backlogged and those that would be scheduled to be sold at this time already. That’s why we’re seeing more volume of sales and expecting to see more volume of sales. We’re double-dipping on the sales on the market now,” he added.

He expects multifamily and industrial assets to continue to do well while office demand increases.
Bramson added that the continuation of content wars is leading to high demand for studio space in markets like L.A. and he expects that to continue.

DeLorenzo said that as more people return to work “the tenant side of the equation for office buildings is going to become more clear,” causing capital to invest more.
He added that the U.S. has always been viewed as “a safe haven from a capital standpoint in real estate,” something that will help the market as people choose to invest here.

Investment in L.A. is “going to continue to grow for all the right reasons,” Shannon said. “You have a war going on right now. That helps a gateway market like Los Angeles. Capital likes to go to more bellwether markets and Los Angeles is one of those.”
And Bramson added that he expects to see more product hit the market leading to a “very busy summer and a busy fall.”

Joint venture purchased a leasehold interest in the W Hollywood hotel for $197 million.
Onni Group of Cos. purchased the leasehold interest at the Burbank Town Center at 201 E. Magnolia Blvd. for $136 million.
The 14.7-acre DreamWorks campus in Glendale sold for $327 million. Brookfield Real Estate Investment Trust purchased the property.
CenterPoint Properties bought 2550 Orange Ave. in Signal Hill with plans to redevelop the 9-acre property.
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Paola Mendez
Paola Mendez
Paola Mendez graduated from Los Angeles Valley College, then transferred to University of California, and now serves as a Receptionist and Office Assistant to the Los Angeles Business Journal. Paola wears many hats in different departments and is trilingual in English, Spanish and French.

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