Local Sales of Multi-Family Properties
Posted by Techyscouts | Posted on 04/08/2023
Multifamily transaction activity in the Greater Los Angeles apartment market has moderated since the rise in debt costs last year and year-to-date activity has been restrained. The first quarter of this year saw around 280 properties worth $1.7 billion trade, below the 640 properties and $2.3 billion the market saw transact, on average, each quarter during the past decade.
Some sellers continue to hold out for the elevated pricing seen in early 2022. On the other hand, many buyers expect a discount to recent peak pricing, given that the rise in debt costs makes it harder to obtain targeted investment returns. Several local brokers have said many buyers in many deals expect a 10-20% discount relative to early 2022 pricing. Broker sentiment aligns with the L.A. market’s average transaction price movements, down from a recent peak in 22Q2 of over $380,000/unit to around $330,000/unit in 23Q1. Properties that trade often see pricing below what would have been achieved in early 2022. Two larger transactions recently closed for less than previous sale prices. In March, Olympus Property purchased Angelene Apartments in Central Los Angeles from JPMorgan Chase for $112.5 million ($628,000/unit) at a 4.75% in-place cap rate. Olympus has been an active buyer of properties nationwide, having acquired over 25 communities during the past two years. Most of their purchases have been higher-end communities in other Southeast and Southwest markets, where many other investors have shifted capital in recent years. The acquisition is their first in Los Angeles County.
The 179-unit, 2016-vintage property sold for 10% below the December 2020 sale price of $124.65 million ($696,000/unit). At the 2020 sale price, pricing equated to a 4% in-place cap rate. Olympus financed the deal at 50% loan-to-value. The property trading for below the 2020 sale price is also notable, given average rents at the community increased by almost 25% during JPMorgan Chase’s hold. In April, Advanced Real Estate Services purchased The Edison, a 156-unit community in Downtown Long Beach, from a private seller for $58 million ($372,000/unit). Advanced Real Estate Services financed the transaction with a $32 million loan (55% loan to value). The price is below the $65.4 million ($419,000/unit) the seller paid for the property in December 2017. The property was formerly an office building converted into a residential by Waterton Residential in 2016. Upon closing, Advanced Real Estate Services said it was not projecting any rent growth for the next two years, demonstrating caution in the uncertain economic environment. Also that month, Southland Real Estate Consultants acquired 1847 N Cherokee Ave. in Hollywood for $3.6 million ($189,000/unit). The previous owner, a private individual, defaulted on its loan at the 19-unit property, and as a result, the property was sold via an auction. The previous owner purchased the building in December 2017 for $4 million ($211,000/unit), $500,000 more, at a 3.74% in-place cap rate.
On top of pressures from elevated debt costs and economic uncertainty, in November 2022, the City of Los Angeles and Santa Monica passed measures to add a transfer tax on any residential or commercial property above a specific price. Sellers in Los Angeles now face a 4% transfer tax for any sale above $5 million and 5.5% for any sale above $10 million. In Santa Monica, any transaction above $8 million faces a 5.7% transfer tax. The measures could potentially suppress pricing in the future, as buyers, especially developers and value-add buyers that typically hold properties for shorter periods, now 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. Contact Michael Millea today to know more.
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