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Monday, Jul 4, 2022

Multifamily Sales Strong

A 160-bed student housing property near UCLA with 31 units sold earlier this year.

Multifamily sales were strong during the first quarter of the year, hitting $3.6 billion in the greater L.A. area, according to data from brokerage CBRE Group Inc.
For the four quarters ending with the first quarter of 2022, that’s a 123% increase over the same time period of the previous year.

“There’s lots of demand still for multifamily, even in the rising interest rate environment. There’s still rent growth and demand,” said Dean Zander, an executive vice president at CBRE.
“Multifamily is still hot, hot, hot,” Eli Randel, chief strategy officer at Commercial Real Estate Exchange Inc., added. “We’ve seen tremendous interest. So much so that properties seem to be gobbled up as soon as they are listed, and in some instances don’t even hit the market and are transacted before.”

He added that many investors viewed multifamily properties as a “hedge against inflation” and a less risky asset type to park money in.
The $3.6 billion in transaction volume seen during the first quarter, despite being an increase from the previous year, is a decrease from previous quarters: sales hit $7.7 billion in the greater L.A. area in the fourth quarter of last year and $4.5 billion the quarter before, according to CBRE.

“We’re seeing a continued strong interest in the multifamily space,” said Peter Yorck, a managing director at Jones Lang LaSalle Inc. “Not surprisingly, with the interest rate hikes in March and then May, that created a bit of volatility in the market with uncertainty…and the cost of financing increased. There has been some downward pressure on pricing and interest but holistically we still see a lot of interest and multifamily is viewed as one of the safest and most predictable investment types.”

Douglas Emmett purchased a property at 1221 Ocean Ave. for $330 million.

Areas

One reason for interest in multifamily properties is the rent growth seen across L.A. During the first quarter, the average rental rate was $2,626.79 per unit, up 13.9% in a year, according to CBRE.
“It’s still surprising to most people that vacancy is extremely tight…rent growth and lease trade outs are in the 15-20% range in most markets. It’s been phenomenal. It’s a very tough rental market and well-amenitized buildings are commanding premiums,” Zander said.

Markets including Burbank/Glendale/Pasadena, Woodland Hills, Palms/Mar Vista, Santa Clarita Valley, downtown and South San Gabriel Valley saw even larger rent growth than the L.A. average.
Kimberly Stepp, principal at Stepp Commercial, said a prime location is still top of mind for investors.
“Well located, medium-range assets, small to medium-size assets are trading,” she said. “There’s a lot of strong activity. It’s still a robust market.”

Randel agreed, adding that trades below $20 million are very active now.
And experts say more suburban areas are seeing a lot of interest. Morgan Jackson, a senior director at Cushman & Wakefield, called the most in-demand areas now those “just outside of that real urban hub but still able to get to the job drivers.”

Jackson added that “newer vintage” properties, or ones built in the 2000s, have been doing well.
“Assets with heavy value-add have cooled a bit and part of that is due to the debt environment, and it being harder to get debt for those types of assets,” she said. “A lot of our buyers have switched to all-cash offers.”
Zander said some urban areas that “were overlooked during the pandemic” are “seeing a resurgence” as well.

A 107-unit apartment complex at 25935 Rolling Hills Rd. in Torrance sold for $49.5 million.

Future

Looking forward, experts expect to see continued interest in multifamily properties.
“What we’re hearing from clients is we have money to spend,” Jackson said.
And despite the amount of development underway now–roughly 1,000 units were completed in L.A. in the first quarter according to CBRE–investors still want to buy more product.

“Investors are confident of areas and submarkets where there’s a considerable amount of new development such as Koreatown, downtown L.A. and Hollywood,” Yorck said.
Randel added that the development could also be a boon for sales.

Development “brings more life to a neighborhood,” he said. “When there is some positive development in an area that hasn’t seen as much newer development or is a little tired, you see a lot of activity around that…There’s not enough supply being delivered to change the supply-demand curve.

Clovis-based Ideal Capital Group sold a 105-unit apartment complex in Redondo Beach for $74.5 million.
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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