Seven LA multifamily properties sell to a single purchaser in one of the few LA portfolio sales of 2023 so far.
Through a challenging market with sales volume down considerably, a thinning buyer pool and a tight credit environment, we were able to close a significant portfolio transaction consisting of 7 apartment properties totaling 94 units spread amongst four core LA submarkets – Mar Vista, Palms, Koreatown and Hollywood.
All 7 properties were subject to LA rent stabilization and were by all measures value-add properties, with current rents significantly below market and significant Capital Expenditures needed in the way of unit renovations, plumbing, roof, electrical and mandatory soft-story retrofits.
General Feedback From the Market
The general feedback from the diverse pool of purchasers was typical for a transaction such as this one, highlighted in few bullet points below:
- Systems Capex: Many prospective purchasers were skittish about the amount of systems capex needed (ie roof, plumbing, electrical and seismic) in addition to the standard unit renovations that would be necessary to achieve market rents. With the cost of construction, materials and labor still on the higher end, this was a legitimate concern for many prospects.
- Negative Leverage: With interest rates in the low 6s, much of the market pushback circled around the concept of negative leverage – ie the cost of debt for the acquisition loan exceeded the cap rate.
- Low Rents: As is customary with many value-add properties with legacy ownership, the current rents were significantly below market with upside of around 65% from current to market. Many were attracted to the upside, albeit harder to capture in today’s landscape.
- Attractive Basis: Many purchasers were attracted primarily to the blended ‘price-per-pound‘ basis of the portfolio, which was $186,170 per unit and $275 per SF. 46 units were located in Westside submarkets, while 48 units were located in Central/Eastside submarkets.
Healthy Buyer Interest
with Multiple Offers Generated
Through the marketing process of The LA 7 Portfolio, we attracted attention from the most active buyers in the LA market – both large and small. Most of the prospects were family offices and/or local syndicators.
- Throughout our competitive marketing process, we were able to attract attention from some of the most active names in the business. By our Call for Offers date, we had generated over 20 offers in various property combinations and price ranges – a few of the offers all cash.
- The properties were spread out over roughly an 11-mile distance (about an hour drive in LA traffic) from the western-most property to the eastern-most property. Some purchasers preferred only the Westside assets – while others preferred only the Eastside assets.
- The terminal buyer was a well-established operator with ~1,000 Units under management locally, who in the end acquired all 7 properties at the full asking price.
The Final Deal Metrics
Below are the final blended deal metrics for the LA 7 Portfolio:
- $17,500,000 Sale Price
- 7 Properties | 94 Total Units
- $186,170 blended price per unit
- $275 blended price per SF
- 12.4 GRM
- 4.5% blended cap rate
- Approximately 66% upside in rents from current to market
- Located in Mar Vista (2 properties – 20 Units), Palms (2 properties – 26 Units), Koreatown (2 properties – 36 Units), Hollywood (1 property – 12 Units)
We are currently evaluating similar Los Angeles properties and portfolios for local owners. If you would like more information on how we may assist, please reach out to me at ewong@greysteel.com
The LA 7 Portfolio
