LA Multifamily Market Insights August 2024

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I hope your summer is going well. Mine has been filled with travel; while I had a few stalled real estate transactions last month, I am happy to say that I was able to help my wife successfully negotiate her recent acquisition of a new vehicle. I was able to help her secure a ten percent off sticker price and discounted a couple of add-on services.

While I can confirm that the car sales industry is still active, when the SoCal Multifamily sales will market rebound is still anyone’s guess; the Presidential election has many sellers sitting on the sidelines, and Proposition 33 has buyers waiting until November’s election.

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SALES TRANSACTIONS

Interest rates have decreased, but transaction volume is still low; since January 832, 5+ unit sales year to date in Los Angeles County, ten lower than this time last year; recent interest rates reflect a cooling due to lowered inflation; however, it is yet to increase investor demand; many investors are still on the sidelines due to the higher

costs of capital rising insurance costs, and stagnant rental amounts.

What has changed since last year is some institutional owners’ willingness to transact despite Measure ULA transfer tax; non-distressed property sales above the 5m threshold came to a standstill after April of last year. There is one consistent theme, which is that the buyers of these properties have often been affordable housing investors, while the sellers of Los Angeles-based properties are sometimes exempt from paying a transfer tax; they also tend to have lending capital that can provide loans at higher leverage than for-profit investors can acquire.

August’s most notable (as of the writing of this article was Red Tail Acquisitions purchase of the 240-unit Arrive Wakaba Apartments located in Little Tokyo for 86.1m from California Capital and Investment Group; the sale equated to $358,750 per unit, lower than replacement cost for the 2016 construction property.

August’s second most significant sale was the Historic Castle Green Hotel and Apartments in Pasadena, which was sold by Goldrich Kest for 54m to Orange County Affordable Housing Investor Community Preservation Partners for 54m or $388k per unit.

July’s most notable multifamily transaction was the Paragon Apartments at Monrovia, which was sold for 87.3m by Sequoia Equities to affordable housing investor Santa Clara Development Company; the sale of the 163-unit property equated to $535,276 per unit, the highest price for a noncoastal based apartment building in recent years.

See charts on page 3.

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INSUR ANCE PREMIUMS

Property insurance premiums threaten to be the most significant continuing obstacle for property owners in California more than pending regulations on the November ballot and high interest rates, as they will be an issue for the foreseeable future; in the past year, premiums have as much as doubled for multifamily property owners, and while there has been some cooling of rates in recent months, renewals are still significantly higher than previous years as insurers factor in risk for old and underinsured properties; according to a recent study by CBRE, property insurance premiums affect California property values to the tune of three percent, and in the past five years, have increased to become the second largest operating expense, second only to property taxes.

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PROPERTY TAXES

If you have inherited a piece of real estate in the past three years and it’s not owner- occupied, you’ve seen a significant increase in your property taxes thanks to Prop 19; if you need help with appealing them, contact us, and we can connect you with our vetted vendors.

RECENT AND PENDING REGUL ATION

Effective July 1st, property owners are limited to requesting one month of rent for security deposits; the limit of security deposit amounts and the lengthy eviction process have made landlords and property management companies more thorough in their vetting process of prospective tenants.

AB 1482 Allowable rent increases (8.9 percent effective August 1st) for properties built after October 1978 (with limited exceptions) in Los Angeles and LA county cities not subject to rent control.

On November’s ballot, Proposition 33, or the Justice for Renters Act, threatens to give individual cities the right to undo vacancy decontrol or limit property owners’ abilities to charge market rate rents on vacant units. Previous attempts have been made in 2018 (Prop 10) and 2020 (Prop 21) by Housing is a Human

Right and the AIDS Foundation; passing Prop 33 would potentially lower property values and limit property owners’ ability to renovate vacant units.

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UPCOMING EVENTS

Next month, I am partnering with Inland Securities in host Proposition 33: How to avoid government regulating and increase your Real Estate Income at the Proud Bird Restaurant located on Aviation Blvd by LAX on September 27th; lunch is provided. If you are a multifamily housing provider, please sign up for the event here.

If you have any questions regarding the Southern California Commercial Real Estate Market or CRE-related needs, don’t hesitate to contact a member of our team.

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INTEREST R ATE INDEXES

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Index

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8/13/2024

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7/13/2024

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8/13/2023

3-Yr Treasury

3.83%

4.22%

4.59%

5-Yr Treasury

3.75%

4.10%

4.31%

7-Yr Treasury

3.80%

4.12%

4.26%

10-Yr Treasury

3.86%

4.18%

4.17%

1-Mo SOFR

5.33%

5.33%

5.31%

10-Yr SOFR

3.49%

3.74%

3.87%

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CURRENT LOAN R ATES

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Spread

Index

Rate

Life Company

135-220 BPS

10-Yr T

5.21-6.06%

CMBS

300-400 BPS

10-Yr SOFR

6.49-7.49%

Apt. Agency

150-300 BPS

10-Yr T

6.06-6.86%

Bank/Credit Union

5-Yr Rate

N/A

6.25-7.50%

Private Bridge

275-775 BPS

1-Mo SOFR

8.08-13.08%

SBA - Bank

2.00-3.25%

Varied

6.50-7.00%

SBA - SBA

N/A

N/A

6.04%

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