Los Angeles Multifamily Market Report as of January 15, 2024

[Manuel Angeles]

Greetings,

This is Manuel Angeles with Exp Commercial.

Here is an update on the current Commercial Multifamily Real Estate Market in Los Angeles County:

Recent multifamily sales activity in Greater Los Angeles has been muted. The fourth quarter witnessed $1.3 billion worth of multifamily assets transact. This follows the $877 million of properties that traded in the third quarter. Recent activity is well below the $2.2 billion worth of multifamily sales that traded quarterly, on average, during the past decade in the L.A. metro.

The increase in debt costs since early 2022 has led to declining sales volumes during the past year. Several local brokers have said many buyers in many deals now expect a 10-20% discount relative to early 2022 pricing. Average market pricing, $370,000/unit, is down 15% from a recent high of around $430,000/unit in 22Q1.

Starting April 1, the market has had to face an additional headwind to transaction activity. Sellers in the City of Los Angeles now face an extra 4% transfer tax for any sale above $5 million and 5.5% for any sale above $10 million. The new transfer taxes are on top of the 0.45% transfer tax the city had in place before April. The impact of the tax was clear on sales activity within the city.

Around 130 properties worth just over $600 million, transacted in the City of Los Angeles during the fourth quarter. Activity represents around a third of the dollar volumes witnessed quarterly, on average, during 2022. Of the properties that traded in the city in 23Q4, only 15 closed with a sale price above $5 million, around a quarter of the 58 properties that traded above that threshold quarterly, on average, in 2022. Activity in the fourth quarter follows a more tepid third quarter, which saw around $380 million of properties transacted. Only nine properties traded in 23Q3 for more than $5 million.

Going forward, the transfer tax could continue to suppress transaction activity, as buyers, especially developers and value-add buyers, who typically hold properties for shorter periods, need to incorporate this cost into their underwriting. The measures also have the potential to shift investment to other cities in L.A. County and other markets across the nation, where transfer taxes are much lower or not imposed.

Properties that have recently traded often see pricing below what would have been achieved before the rise in debt costs. In October, R.W. Selby & Company acquired Tower at Hollywood Hills, an 80-unit building at 1800 N Normandie Ave. in Los Feliz, from institutional investor Clarion for $27.47 million ($343,000/unit). The buyer financed the purchase with a $15.64 loan (57% loan to value). Clarion is selling the asset for a loss, having purchased the property for $30.1 million ($376,000/unit) in September 2018. Given the property was located in the City of Los Angeles, Clarion paid a transfer tax of 5.95%, or just over $1.6 million.

In September, Winstar Properties purchased William on Sunset, a 79-unit building in Hollywood at 5837 W Sunset Blvd., for $27.3 million ($346,000/unit) at a 5.5% in-place cap rate. Given the building was built in 2016, it is not subject to the Los Angeles Rent Stabilization Ordinance. Winstar financed the acquisition with a $17.5 million loan (64% loan to value). The seller, Cypress Real Estate Advisors, is selling the property for a loss. It acquired the property in 2019 for $38 million ($481,000/unit) at a 3.5% cap rate. With the building located in the City of Los Angeles, the seller paid a transfer tax of 5.95%, or just over $1.6 million.

In November, a private family trust purchased 945 Locust Ave., a 16-unit building in Long Beach, from H.G. Fenton Company for $3.9 million ($244,000/unit) at a 5.8% cap rate. The property sold for 6% less than the initial asking price of $4.15 million. The buyer financed the acquisition with a $2.6 million loan (67% loan to value) from J.P. Morgan. The property last sold for $3.525 million ($220,000). The cap rate at the time of the 2017 sale, 4.5%, was 130 basis points below the 2023 cap rate, demonstrating the impact of rising debt costs on area transactions.

The outlook calls for continued price erosion through 2024. As interest rates are anticipated to remain elevated through 2024, debt will remain more costly. Additionally, market conditions are expected to remain softer, with limited rent growth and modest renter demand in the near term.

 

Here are several graphs illustrating the current multifamily market in Los Angeles County:

Full Los Angeles County Commercial Multifamily Market Report Here: https://d2saw6je89goi1.cloudfront.net/uploads/digital_asset/file/11... 

Access Exclusive Commercial Real Estate Market Reports in Los Angeles County Here: http://lacre.manuelangeles.com/

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Thank you.

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Best Regards,

Manuel Angeles
Broker Associate
CalDRE #01985856
Mobile: [phone]
Email: [e-mail]
Website: www.manuelangeles.com
Address: 155 N. Lake Avenue, 8th Floor, Pasadena 91101

Exp Commercial of California, Inc.
CalDRE #02134436  
Office: [phone], ext 300
Website: www.expcommercial.com
Address: 2603 Camino Ramon, Ste 200, San Ramon, CA 94583
  
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