Big Deals
The demand for Los Angeles deals peaks with REITS and institutions, which have an abundance of inexpensive capital looking for places to land and are less shackled by high-yield requirements than individual investors.
REITS and institutions are looking for core product in the form of large, well-located, and well-kept properties, which are in much tighter supply than the 1960s- and 1970s-built, 30- to 50-unit complexes that pepper the Los Angeles landscape. However short the supply, the REITS and institutions are finding these properties and are moving quickly to acquire them.
According to CoStar, recent deals in the $20 million and up range have been on the market for less than 60 days before going into contract, with a number of qualified buyers bidding. Often, properties sell at more than list price.
“The entry of new, large players is one of the primary forces driving the market,” notes Matt Douglas, principal of Los Angeles-based Venture West Funding. “They’re coming to Southern California with capital, looking for volume and ready to invest with the thought that this is one of the nation’s most consistently safe investments and has been for at least 10 years.”
That contention is confirmed by Jim Alexander, senior vice president in transactions and acquisitions with Equity Residential, the largest publicly traded owner, operator, and developer of multifamily housing in the United States. “For some time, we have been recycling capital out of smaller-tier markets to concentrate on core infill, and Los Angeles is one of the markets we’ve focused on,” says Alexander. “We look for well-located newer assets throughout Los Angeles as well as rehab opportunities, both with a long-term hold horizon of five to 10 years.”
On the development front, Equity in Los Angeles is currently building the third phase of Bella Vista, located in Warner Center just north of the Santa Monica Mountains in Woodland Hills, Calif. Phase III will add 264 units to the property’s existing 315 units.
Many smaller investors are following the lead of companies like Equity by taking a long-term holding approach to Los Angeles multifamily investment opportunities. “The individual investor and smaller syndicated groups are still a big part of this market,” says Douglas. “Compared to alternative investments like putting their money in the bank or in the stock market, they are happy with their returns and are willing to pay in the 4 and 5 cap range in exchange for stability and some potential for upside in the long term.”