Los Angeles Multifamily Insights September 2024

Recent Rate Interest Rate Cuts Means Light at the End of the Tunnel for Real Estate Investors

The September 17th interest rate cut of 50 basis points (or half of a percentage point) was the first time in two years where rates have not been increased and the first time in almost four years where there has interest rate cut; the Fed has signaled that at least one more rate cut is scheduled prior to the end of the year.

What this means for commercial real estate values:

The recent half a percent rate cut by itself will not cause a significant increase in property value by itself, however it does signal the Fed’s acknowledgement that inflation has cooled, after two years of rate increases and four years of no rate cuts. It is our opinion that investment sales activity will increase in the first quarter of 2025 after the Presidential election and holiday season following the projected additional rate cuts.

If you have been waiting on the sidelines to acquire more properties or potentially sell a property, 2025 will be your best opportunity in recent years to enter the market, as it is projected to be the first one where access to debt is easier.

What this means for you:

If you need access to capital to repair or renovate your properties to be in compliance with Section 8, SB 721 or your insurance company, accessing your properties equity will be more economically viable than previously.

If you are looking to buy more properties, debt will be less expensive and if you are interested in selling, there should be more investor demand (i.e. higher pricing) due to the lower costs of capital.

State of the LA County Apartment Sales Market

As of the writing of this letter, there have been 894? 5+ unit multifamily sales in Los Angeles MSA year to date sold (less than one percent of the total inventory); which is 14% less than last year’s sales velocity of 1,039+ units) during the same period.

While closings have not reflected a rebound in the investment sales market, buyer interest and activity are up for properties that are well priced; non RSO properties or properties in cities without local rent control restrictions while low in supply are still commanding higher premiums in pricing.

It is also important to note that many investors are awaiting the outcome of November’s election regarding the passing of Proposition 33, which would give individual cities the right to undo vacancy decontrol, meaning that owners would not be able to rent their units at market rate.

Next year should provide clarity regarding the viability of the Los Angeles multifamily market for investors looking to enter or expand their holdings.

Insurance Premiums

Insurance premiums are still causing problems for new and existing property owners; I recently had a client who premiums increased five-fold on his twenty-two-building portfolio. Even with shopping insurers, renewals come at higher rates for many and the requirement of improvements to me made to existing property (roofs, windows, electrical panels, etc.). Our team has been connecting property owners with insurance vendors to minimize the cost as much as possible.

?Reach out if you need an introduction to a good agent.

SB 1211

The recent passing of SB 1211, which allows property owners to add up to 8 detached ADUs (Accessory Dwelling Units), matching the number of existing units on the property. This could create significant opportunities for increased rental income and property value; for properties in rent-controlled markets, it could present a boon for those looking to increase cashflow beyond their existing units.

Our activity

Our team recently listed a two-acre redevelopment site zoned for 160 affordable units close to Inglewood, CA as well as a half-acre redevelopment site (which can be utilized for residential or medical office) in Paramount, CA.

If you have any real estate related needs, don’t hesitate to reach out; our team is helping property owners like you make sense of the uncertainty in the real estate market.