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Wednesday, May 18, 2022

Demand for LA-Area Multifamily Properties Skyrockets in 2021

Despite a slow 2020, demand for multifamily properties in 2021 skyrocketed with a number of eye-popping sales.

Dean Zander, an executive vice president at CBRE Group Inc., said there will be
$4.2 billion to $4.5 billion worth of multifamily sales this year, just below the volume in 2019 but far above the $1.4 billion in sales in 2020.

“The interest for multifamily properties is at an all-time high from all different types of investors,” Zander said. “A lot of it has to do with rising rents in almost all markets after difficulty in collections in ’20. Since then, people are getting back to work, and stimulus checks have helped, and there’s renewed confidence.”

He added that low interest rates are also leading to interest among inventors.
Marc Renard, an executive vice chairman at Cushman & Wakefield Inc., agreed that investors are very interested in the asset type now.

“There are two absolutely preferred product types as we have gone through the pandemic and (are) hopefully coming out of it: industrial and multifamily,” he said. “Because all of the capital is funneled to these two asset classes primarily, it has created enormous pressure on those products.”

He added that many markets have seen double-digit rent growth and low vacancy rates.

Middle-income conversions

But a lot of the biggest sales seen this year were not
market-rate transactions but middle-income conversion sales.

“This year, we are seeing a return to normal from a transaction standpoint, but it’s not just market-rate transactions,” said Peter Yorck, a managing director at Jones Lang LaSalle Inc. “We also have seen a deluge of middle-income buyers with (joint powers authority). So, that is part of the overall pie that is getting us back to this transaction normalcy.”

Take Waterford Property Co. and California Statewide Communities Development Authority, for example. Since April, the two have purchased the 507-unit Altana Apartments in Glendale for $300 million, Residences at Westgate Apartments in Pasadena for $237 million, the 357-unit Union South Bay in Carson for $220 million and 777 Place in Pomona for $149.4 million.

Other companies have been spending nine figures on middle-income housing deals as well.

“The elephant in the room is the workforce housing bond buyers are dominating the larger sales,” said Chris Benton, a senior managing director at Newmark Group Inc.
These assets are generally held for a long time and do not make their way back on the market a few years later like value-add properties do. The delay can have a big impact on an area.

“When one of these deals goes workforce, you’re taking newer product offline,” Benton said. “It’s actually going to have an increase in rents because essentially wherever you are looking … those are not market-rate properties anymore, so there’s going to be an uptick in rents in the other high-end properties in the area.”

Zander said middle-income deals made up about 40% of the 100-plus unit property sales this past year, and he anticipates these deals being a big part of the market going forward.

‘Safe bet’

The areas seeing the most interest now, experts agree, are suburban markets.
“Investors are being very careful with the submarkets that they are looking at,” Benton said.

He added that some markets that had a lot of product come online are having trouble, whereas markets like Culver City and Burbank with an influx of new jobs and a lack of new product are doing very well.

Rent collection, he said, did well in areas like the San Fernando Valley while there were some hiccups in dense urban areas.
Yorck added that investors were also interested in the suburbs because of the number of people who have relocated to those areas because they did not have to commute to an office as often, if at all, anymore.

And going forward, he expects to see apartments continue to be a favored asset class next year as well.
“We think that sales velocity is going to increase. … As operations at apartments continue to improve and people go back to work with some frequency, things will get better,” Yorck said.

Urban markets may see more interest, too.
“We’re going to continue to see very strong interest for multifamily,” Renard said. “You’re going to see more confidence in true urban multifamily as return to work accelerates.”

And Benton added that the lack of affordable housing would make apartments a “safe bet moving forward” for investors.

Altana Apartments
BuyerS: Waterford Property Co. and California Statewide Communities Development Authority
Seller: Brookfield Property Group
Units: 507
Address: 633 N. Central Ave., Glendale
Price: $300 million
The Altana Apartments will now be middle-income housing.

Playa Pacifica and The Gallery
Buyer: Prime Residential
Seller: Equity Residential
Units: 454
Address: 415 Herondo St. and 414 2nd St., Hermosa Beach
Price: $275 million
Playa Pacifica in Hermosa Beach has 285 units.

Residences at Westgate Apartments
BuyerS: Waterford Property Co. and California Statewide Communities Development Authority
Seller: Equity Residential
Units: 340
Address: 31 S. DeLacey Ave., Pasadena
Price: $237 million
The Residences at Westgate was built in 2015.

Kings Villages Apartments
Buyer: Jonathan Rose Cos.
Seller: Affordable Housing Development Corp.
Units: 313
Address: 1141 N. Fair Oaks Ave., Pasadena
Price: $223 million
The Kings Villages Apartments in Pasadena was built in 1971.

Union South Bay
BuyerS: Standard Cos. and California Statewide Communities Development Authority
Seller: Wolff Co.
Units: 357
Address: 615 E. Carson St., Carson
Price: $220 million
Union South Bay in Carson sits on more than 5 acres.

Bell Warner Center Buyer: Bell Partners Inc.
Seller: Hanover Co.
Units: 395
Address: 21050 Kittridge Ave., Canoga Park
Price: $216 million
Bell Warner Center was previously Hanover Warner Center.

Boulevard Apartments
Buyer: Acacia Capital Corp.
Seller: Sares-Regis Group
Units: 340
Address: 20600 Ventura Blvd., Woodland Hills
PricE: $174.5 million
The property has multiple bedroom options.

Empire Landing
BuyerS: Clarion Partners and Cityview
Seller: Nuveen
Units: 276
Address: 1901 N. Buena Vista St., Burbank
Price: $161 million
Empire Landing is the only rental property in Burbank with townhomes larger than 1,500 square feet.

777 Place
BuyerS: Waterford Property Co. and California Statewide Communities Development Authority
Seller: Picerne Residential
Units: 472
Address: 777 E. 3rd St., Pomona
Price: $149.4 million
The 777 Place property was purchased to be middle-income housing.

Monterey Station
BuyerS: Standard Cos. and Faring
Seller: Clear Capital
Units: 349
Address: 120-180 E. Monterey Ave., Pomona
Price: $130 million
Monterey Station has 14 floor plans.

Hannah Madans Welk
Hannah Madans Welk
Hannah Madans covers real estate for the Los Angeles Business Journal. A USC grad, Madans has done work with publications including The Orange County Register, The Real Deal and doityourself.com.

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