Category: Los Angeles Multifamily

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Los Angeles Multifamily

1980s 4-Plex – Just Closed Off Market | Virgil Village, Los Angeles

536 N. Commonwealth Avenue
Los Angeles, CA 90004
Stabilized 4-Plex | Just Closed

We just closed a renovated 4 unit property located on Commonwealth Avenue in the heart of Virgil Village just south of Silver Lake. The property was constructed in 1980 and therefore not subject to Los Angeles Rent Stabilization – only to California’s less restrictive statewide rent control as governed by AB 1482, whereby the allowable annual rent increase is 5% +CPI as opposed to the blanket 3-4% increase imposed by traditional LA rent control.

Over the past few years, and in particular since the Covid-19 pandemic, we have seen a flight to properties that were constructed after 1978 (non-LA rent controlled properties), as dealing with LA rent controlled properties constructed before 1978 has become increasingly problematic with various city, county and statewide renter protections.

This unique property was in excellent shape and featured spacious 2 and 3 bedroom units averaging over 1,000 SF each, with ample on-site parking and a sprawling backyard often used for concerts. The 1031 Exchange purchaser, who closed all cash with a 30 day escrow, was attracted to the growing dynamics of Virgil Village in addition to the property’s near-stabilized rents. The details of the transaction are below:

536 N. Commonwealth Avenue. Los Angeles, CA 90019

– $2,300,000 Final Sale Price
– 4 Units |4,400 SF
– Two and three-bedroom floor plans
– Year Built 1980
– $575,000/Unit
– $518/SF
– 16.2 GRM
– All Cash transaction sold off-market to 1031 Exchange Purchaser

Categories
Los Angeles Multifamily

16 Units – Just Closed Off Market | Mid-Wilshire, Los Angeles

1241-47 S. Dunsmuir Avenue. Los Angeles, CA 90019

1241 & 1247 S. Dunsmuir Avenue.
Los Angeles, CA 90019
16 Units | Just Closed

We just closed a 16 unit value-add multifamily transaction, sourced off-market, which was located on the border Mid-Wilshire and Wilshire Vista neighborhoods of Los Angeles – two of LA’s well-established yet seemingly fast-growing rental submarkets. The property was located on South Dunsmuir Avenue near San Vicente Boulevard, a quiet tree-lined side street with a mix of single-family residential, multifamily (old and new) as well as small lot sub-divisions.

I like this area for a variety of reasons. It is close to major thoroughfares such as San Vicente Boulevard, Pico, Olympic, Fairfax, La Brea and it is a straight shot into popular parts of town like Beverly Grove and West Hollywood. Additionally, the real estate in this area is as diverse as the residents who populate it. As mentioned above, the properties in the area feature everything from new construction, to 1930s Spanish Duplexes, to charming SFRs and 1960s apartment buildings – the list just goes on.

This particular property, originally constructed in 1947, consisted of all one-bedroom floor plans averaging approximately 800 square feet, situated on an R-3 zoned 17,407 SF lot. The property was held by a family operator for over 30 years who like many other LA owners were seeking to transition to a slightly more hands-off investment out-of-state via a 1031 Exchange due to the heightened regulatory environment locally.

The purchasers were attracted to the value-add potential of the property in addition to its central location and proximity to areas like Beverly Grove, Beverly Hills and West Hollywood. The property was delivered with 2 vacancies which the Purchaser plans to renovate and lease at market rent, along with other improvements to the property. The details of the transaction are below:

1241-1247 S. Dunsmuir Avenue. Los Angeles, CA 90019

– $4,605,000 Final Sale Price
– 16 Units | 12,364 SF
– All one-bedroom floor plans
– Year Built 1947
– $287,812/Unit
– $372/SF
– 15.3 GRM

Additional Photos:

Categories
Los Angeles Multifamily

What $2,750,000 per unit buys you in Santa Monica – 1221 Ocean Avenue.

Douglas Emmett pays a record price for 1221 Ocean Avenue in the heart of prime Santa Monica

I don’t typically write about institutional transactions but this is what I would call a WOW price. Douglas Emmett, a firm that is very near and dear to me, paid a record-price for a multifamily asset in prime Downtown Santa Monica with the purchase of 1221 Ocean Avenue – which is certainly one of the most prestigious multifamily assets on the West Coast with unbelievable ocean views. The Seller was The Irvine Company, who had owned and operated the Class-A property for years. 1221 Ocean was one of a few assets that they own in Los Angeles – outside of their core market of Orange County.

Here are the deal Metrics:

  • $330,000,000 Purchase Price
  • 120 Unit Multifamily Property
  • $2,750,000 per unit
  • $1,800 per SF
  • 98% leased at close
  • 1,500 SF Average Unit Size
  • Closed April 26, 2022
  • Purchased in the low 3% Cap range
  • DE plans to continue to significantly upgrade units and common areas

The deal was purchased via a new Joint Venture managed by Douglas Emmett in which they own a 55% interest. The property is a nice addition to the vast portfolio of Class-A office buildings which they own in the area, in addition to their sister multifamily assets also in Santa Monica – The Shores and Pacific Plaza. Congrats to my friends over at DE on this incredible acquisition!

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Los Angeles Multifamily Playa del Rey

Playa del Rey – LA’s Most Low-Key Beachside Community

An LA gem location hiding in plain sight

Playa del Rey is one of those small beach side pockets of Los Angeles that for the most part just flies under the radar.  If you don’t know where it is, chances are you have at least passed it going either to or from LAX or maybe you biked through on the beach path heading towards Manhattan Beach.  It’s not one of those areas like Venice or West Hollywood that people specifically seek out when they move to Los Angeles.  It’s one of those hidden gem locations that really is just hiding in plain sight – its where people move when they still want to be on the Westside but want something that’s a little more quiet and away from it all.

Location wise, Playa del Rey is sandwiched in between Marina del Rey to the north and El Segundo to the south.  And it’s right next to the Ballona Wetlands which is about 600 acres of protected saltwater marsh, just west of Lincoln Boulevard as you head towards the ocean.   It’s about a 30 minute car ride to Downtown LA with no traffic.

The area was established in the early 1920s but most of the homes and apartment buildings in the area weren’t built until the 1950s and 60s.  There’s only about 13,000 residents in Playa del Rey today.  It’s a small community.  Among the more famous residents was Jerry Buss, who owned the Los Angeles Lakers and lived in an area of Playa del Rey called the Bluffs which is perched on a hill and overlooks the Wetlands and the entire Westside.  Former Laker head coach Phil Jackson, also calls Playa del Rey home.  

One of the first things you’ll notice about Playa del Rey is that it’s not really like most beachside communities in LA County.  There’s no bougie aesthetic, there’s no chain restaurants or nationally-recognized coffee shops.  Its an area that has never really cared to be cool, But in a lot of ways it still is.  As somebody who grew up there, I can tell you that not a whole lot has changed in Playa del Rey over the years.  The residents are mostly easy going long-term locals who for the most part have a lot of pride being from the area. 

For such a small community, Playa del Rey has some pretty decent spots to eat.  Going down Culver Boulevard, you have restaurants like Cantelini’s which has been there for 50 years and has really good homestyle Italian food with a Dan Tana’s like vibe in the interior.  There’s Bacari PDR, which is a solid Mediterranean spot – who also has locations in Silverlake and West Adams.  There are also local watering holes like Prince of Whales and Mo’s Place which have been there for decades.  And The Shack, a kind of grimy yet delicious burger joint that will serve you a cheeseburger with a Louisiana Sausage inside of it.  My favorite place is probably the most low key of low key spots – Senor G’s…its a hole in the wall Mexican joint which serves up pretty fantastic Burritos.  

Like most communities near the water, real estate values in Playa del rey have soared over the years.  In the last year alone, there were 73 single family homes which sold in the area with an average price per square foot of $820.  The median home price in that same data set is right around $2 Million dollars.  This is not a geography where you will find $30 Million dollar homes, but make no mistake, it is certainly not cheap to live in Playa del Rey.

If you are renting an apartment, you can expect to pay anywhere from $1,800 – $2,500 a month for a one-bedroom and anywhere from $2,700 to over $4,000 a month for a two bedroom.  

A lot of what is driving the demand for real estate in Playa del Rey is the influx of the tech and media companies which have dominated Playa Vista just on the other side of Lincoln Boulevard.  To name a few, you have companies like Google, Youtube, Facebook, Electronic Arts and so many others that populate those office buildings.  Playa del Rey has in a lot of ways been the beneficiary of the high rent spill over from Playa Vista.  For instance, it is tough to find a one-bedroom for rent in Playa Vista right now that is under $3,000 per month.  So Playa del Rey is positioned as the nearby and more affordable option.

The multifamily investment sales market in Playa del Rey is really no different than single family…the prices are high and there seems to be more demand than available supply.  There’s only about 200 multifamily buildings in the area that are 5 units or larger.  Of those 200 buildings, only four of them are over 50 units.  In other words, this is not an institutional submarket as far as multifamily properties are concerned.  It’s mostly small properties that are 5-15 units with Mom and Pop owners.  And as far as multifamily sales, it’s pretty low velocity.  There were only 3 multifamily properties which traded hands in Playa del Rey in the last 12 months.  Those sales metrics averaged right around $500,000 per unit with cap rates just under 4%.  If you are not in the multifamily space, that is an expensive deal.  Like most Westside buyers, the people buying multifamily in Playa del Rey aren’t really buying for cash flow. They’re buying for appreciation and rent growth – not to mention a stellar location.

As far as development is concerned, there’s really not a lot of it happening in Playa del rey, simply because it’s just hard to do.   In 2018, the LA City Council voted unanimously to block the construction of Legado 138.  Legado 138 is a mixed-use development which proposed 72 apartment units and 7,500 square feet of commercial space right on Culver Boulevard near the water. Local advocates argued that it would trigger a development rush and endanger the culture of Playa del Rey.  

I spent the first 18 years of my life in Playa del Rey and even though I live on the opposite side of town now, I still love going there.  It has a rich history and the fabric of the community is tight knit and well-established.   Location-wise, I like that it’s close enough yet far enough from everything at the same time.  And if you’re a beach person, the ocean is right there.   Let’s be honest, Playa del rey is never going to be Santa Monica or Venice.  And it will it almost certainly never be Malibu.  And that’s what I love about it.  It’s an area that never tries to be anything that it’s not – Playa del Rey just flies under the radar – unassuming and uniquely itself.  

Categories
Los Angeles Multifamily

Just Closed – 1540 S. Orange Grove | 8 Units

Mid-City Los Angeles Continues to Stay Hot

Congratulations to the Buyer and Seller of this incredibly well-located 8 unit value-add property located in the heart of Mid-City Los Angeles’ Picfair Village (near the intersection of Pico and Fairfax). This pocket of Mid-City continues to stay strong in terms of multifamily investment sales and overall rental demand. Renovated 1960s-vintage one-bedrooms can easily achieve $2,000+/mo and two-bedrooms $2,800+/mo. For this property – there was approximately 45% upside in rents from current to market.

The Seller, as is the case with many local Sellers, was a generational owner who was fatigued by the ongoing stricter rent control laws and overall government regulation that is typical in the Los Angeles apartment business. They had recently allocated significant capital expenditures towards the completion of their mandatory seismic retrofit – a mandate bestowed on about 15,000 other local LA property owners who own 1960s properties with tuck-under parking spaces).

The marketing of this property saw a competitive process with multiple offers generated for the Seller, and ultimately went to a Buyer with an extensive real estate background. The Buyer was attracted to the overall growth of the area, which includes a 28-Unit new construction project on the two adjacent parcels. Among other things, he plans on immediately renovating the two vacant units – as well as building two additional Accessory Dwelling Units (ADUs) in the tuck-under garage spaces to generate additional income. The purchaser utilized short-term bridge financing to acquire the property.

Transaction Details:

  • $2,200,000 Sale Price
  • $275,000/Unit
  • $364/SF
  • One 2-Bedroom and one Bachelor unit Vacant at closing
  • Financed with private bridge loan
  • 45 day total Escrow
Categories
Los Angeles Multifamily

I.D.E.A.L. Benefits of Real Estate Investing

Among the many benefits of real estate investments are Income, Depreciation, Equity, Appreciation and Leverage.

One thing for certain in real estate investing is that different investors have different investment criteria in terms of what they are looking for in a real estate investment. There are investors that buy for cash flow. There are investors that are looking to park money for appreciation and bank on rent growth. There are investors that are looking to buy, renovate and quickly flip out of that investment.

If you are starting out, a great (and simple) place to start when evaluating the benefits of real estate investing is to refer to the old real estate acronym I.D.E.A.L.

Income

If you are buying investment property, at the very least that investment should produce some income in the way of cash flow. On a very basic level, here is how that works. Let’s take the following example for a multifamily property.

$1,000,000 Purchase Price
$80,000 Annual Gross Rents
($32,000) Annual Expenses

$48,000 Net Operating Income
($36,000) Annual Mortgage Payments

$12,000 Annual Cash Flow. Assuming you put down 30% and financed 70% that is about a 4% cash-on-cash return.

Depreciation

Real estate has many incredible tax benefits, but one of the best tax benefits is depreciation. Simply put, depreciation is a non-cash expense (effectively a tax shield) whereby an investor can shield from taxes most or even all of the rental income generated by this particular real estate investment.

Depreciation allows investors to spread out most of the cost of real estate purchases over a period of 27.5 years (for residential buildings). If you own a multifamily property and you have been utilizing the depreciation tax shield for over 27.5 years, you may consider selling as you will likely be paying significant taxes on your rental income. Once your property is fully depreciated, it may be tax-inefficient to own this particular investment property.

Equity

As you continue to make mortgage payments towards your investment property, you will continue to pay down the principal balance of your loan. As a result, the longer you own investment property, the more equity you will continue to accumulate both from the principal reduction and appreciation of the property itself.

Appreciation

Over the long run, real estate prices and rent tend to appreciate (i.e. increase in value) at a rate somewhat akin to inflation (~3-4% per year) – sometimes greater in core markets like Los Angeles. This is known as passive appreciation. And while it might not sound like much, when combined with the other benefits and when compounded over long periods, passive appreciation can build enormous wealth.

On the other side of the appreciation coin, is active appreciation. Active appreciation is achieved by actively putting a plan in place to increase the value of your property. In Los Angeles, and in particular with Rent-Controlled properties, this may come in the form of offering cash-for-keys (aka tenant buyouts) for lower paying tenants. Once those units are vacated, many investors will allocate capital towards renovating these units in order to achieve at or above market rents.

Leverage

Most real estate transactions are acquired using leverage (or loans). The power of leverage cannot be understated in real estate. Taking the example above, you can put 30% down and control a $1M asset. Leverage can significantly amplify the returns on your cash invested. But on the flipside, leverage can also magnify your losses significantly should the market go south.

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Accessory Dwelling Units Los Angeles Multifamily

California Housing Bills SB 9 and SB 10 Explained

Duplex Zoning Coming to a Single Family Neighborhood Near You

CA Governor Gavin Newsom this week signed a pair of bills into law that effectively put an end to traditional single-family zoning restrictions in most neighborhoods statewide.

Senate Bills 9 and 10, which take effect Jan. 1, 2022, will make it easier for Californians to build more than one housing unit on many properties that for decades have been reserved exclusively for single-family homes and will give cities greater flexibility to place small apartment complexes in neighborhoods near public transit.

Although the laws represent two new approaches toward alleviating the state’s housing crisis, experts say neither is likely to produce the number of units needed to fully resolve it.

Here are answers to some questions you may have about these new laws.

What is Senate Bill 9?

Senate Bill 9 is the most controversial of the two new laws. It allows property owners to split a single-family lot into two lots, add a second home to their lot or split their lot into two and place duplexes on each. The last option would create four housing units on a property currently limited to a single-family house.

The new law will mark a shift from current policies that allow only two large units — a stand-alone house and an accessory dwelling unit — on single-family lots, as well as an attached junior unit no larger than 500 square feet.

Under the new law, cities and counties across California will be required to approve development proposals that meet specified size and design standards.

What are the caveats?

The law is designed to create additional housing while also preserving low-income, affordable units.

A proposed project under this new law cannot result in the demolition or alteration of affordable or rent-controlled housing or market-rate housing that has been occupied by a tenant in the past three years. Properties listed as historic landmarks or those located within a historic district are off-limits for new development. Wetlands, farmland and properties at high risk of fire or flooding are also exempt.

If someone chooses to split their property in two, each new lot must be at least 1,200 square feet, according to the new law.

Any unit created as a result of the law cannot be used for short-term rentals. They must be rented for a term longer than 30 days.

Who can do this?

Homeowners or landlords can apply to upzone their properties through their local jurisdiction, but only if they plan to live on the property for a while.

Property owners must sign an affidavit stating they will occupy one of the housing units as their primary residence for at least three years after splitting their property or adding additional units.

Does this law allow for offices and new housing units on single-family properties?

No. Any new units created under SB 9 must only be used for residential purposes.

Do cities and counties have to abide by this new law?

Under SB 9, local government officials may only deny a development application if they find that the proposed project would have a “specific, adverse impact” on “public health and safety or the physical environment” and there are no feasible and satisfactory mitigation options.

Will local rules about maximum square footage, building height and parking apply?

Proposals under this new law must adhere to objective zoning and design review standards established by local cities and counties. Developments must still follow local zoning rules such as those governing height and yard size requirements.

No parking is required for additional units if the property is within a half-mile of a major public transit stop. However, a local agency can require up to one parking space per unit if there are no frequent transit stops nearby.

Will this law put a dent in California’s housing shortage?

A recent study by the Terner Center for Housing Innovation at UC Berkeley estimated that just 5.4% of the state’s current single-family lots has the potential to be developed under SB 9, making construction of up to 714,000 new housing units financially feasible. That’s only a fraction of the 3.5 million new housing units Gov. Newsom wants to see built by 2025.

What is Senate Bill 10? 

Senate Bill 10 eases the process for local governments to rezone neighborhoods near mass transit or in urban areas to increase density with apartment complexes of up to 10 units per property. The new legislation also allows cities to bypass lengthy review requirements under the California Environmental Quality Act in an attempt to help reduce costs and the time it takes for projects to be approved.

Originally authored by Maggie Angst of Mercury News on September 17, 2021

Categories
Los Angeles Multifamily

Why I love Highland Park, Los Angeles

A lifelong Westsider moves to the Eastside.

I finally did it.  As of February 2021, I moved to North East Los Angeles or “NELA” as the cool kids call it.  You can officially call me an Eastsider.  Specifically, I moved to Highland Park.  If you are in the real estate world locally, you have probably seen deals in Highland Park – or at least you have heard of the area.  And if you already own property in the area, you might be thinking that it is already too late to be buying in Highland Park, let alone writing this post.  But for those that don’t know, Highland Park is an old part of Los Angeles. In fact, it’s among the oldest – one of the very first subdivisions of Los Angeles to be exact. It is located just West of Pasadena, adjacent to Eagle Rock and just north of DTLA.  I spent virtually my entire life on the Westside of Los Angeles. Living east of the 405 was a foreign concept to me. But when it came time to purchase a home, staying on the Westside and paying $2 Million for a 2-Bedroom teardown simply wasn’t an option, so my fiance and I packed up from the Westside and headed East.


Now that I’m here, I can honestly say that I love Highland Park.  Here’s why….


1) Highland Park is Very Accessible 

Highland Park is very accessible to areas such as Pasadena, Glendale, Downtown Los Angeles and the San Gabriel Valley.  I never thought I would hear myself say what a benefit it is to live close to Pasadena, but the fact is that Pasadena is absolutely stunning and has every major high-end retailer you would find in any foremost part of Los Angeles.  From a transportation standpoint, Highland Park is serviced by three freeways (the 110, 134 and the 2 which takes you directly into Echo Park/Silverlake).  The L.A. Metro Gold Line has a station just north of Figueroa Street, and can get commuters downtown in about 35 minutes. My place is approximately a 7 minute drive to Dodger Stadium with no traffic.  


2) The Restaurants and Bars are Amazing in Highland Park 

Drive through Highland Park and you will find some of the best and most unique restaurants and bars in all of Los Angeles.  There are very few chain operators in Highland Park.  Instead you will find spots like Hippo, Homestate, Joy, Donut Friend, Goldburger, Pocha, Gold Line, Good Housekeeping and so many others.  The entire area feels uniquely homegrown and very entrepreneurial.  


3) The Real Estate is Unique And Getting Better by the Day 

From a multifamily standpoint, Highland Park is not the biggest market, but if you own a multifamily property in the area, you can achieve very attractive rents.  For properties 5+ units, there are less than 500 properties in the entire zip code of 90042 totaling just shy of 6,000 apartment dwelling units.  Most of these properties were constructed prior to 1960 – in other words, the housing stock is old.  That said, the average rent for a one-bedroom in Highland Park now is $1,873.  By way of comparison, I am leasing a small renovated one-bedroom in West Los Angeles for $1,895.  A multitude of historic restrictions make it tough to develop in Highland Park, but if you are turning an old multifamily property, you can expect to get very high rents.  From a Single Family Residential standpoint, new homebuyers in Highland Park are folks who are generally priced out of areas like Silver Lake and Echo Park (or in my case, The Westside). It is not uncommon for houses to go for as high as $800 per square foot – which is comparable to some houses you would find in areas like Sherman Oaks, Culver City or Mar Vista.  From a retail standpoint, the main streets in Highland Park (particularly Figueroa and York) are teeming with very cool independent shops and restaurants.  It feels like you are walking down Rose or Abbot Kinney in Venice, although Highland Park seems to have less of a homelessness issue.

4) The People Are Great

The Highland Park crowd is an incredibly diverse mix of established locals and newer transplants alike. There is a strong sense of community and generally speaking people do not seem to take themselves too seriously. You can come as you are and you can be yourself.

Long story short, Highland Park is clearly no secret at this point. Simply put, it is an incredible Eastside Los Angeles submarket where from an investment property standpoint, you can achieve rental rates that are comparable to other high-rent areas around town.  Where Highland Park goes from here, only time will tell.  But I have a feeling that direction is up.

  • Hippo Restaurant – Highland Park
  • Highland Park Bowl
  • Donut Friend – Highland Park
Categories
1031 Exchange Los Angeles Multifamily

Mid City LA 8-Unit Sells to All Cash 1031 Exchange Buyer

8 Units Closed in Up-and-Coming Mid-City Los Angeles

We recently represented both the Buyer and Seller of 4606 St. Charles Avenue. Los Angeles, CA 90019. This was an off-market transaction sold by a long-term family owner on the Seller-side to a 1031 Exchange Purchaser. The value-add property consisted of 8 units constructed in the early 1960s located in the heart of Mid-City Los Angeles nestled in between Washington Blvd and Venice Blvd just east of La Brea, which is a very up-and-coming rental submarket.

I have always been a big fan of this particular pocket of Mid-City Los Angeles for many reasons, not the least of which is the location. It is close to major arteries (in this case La Brea, Washington and Venice) and is a short distance to the 10 Freeway and Expo Line which bridges Santa Monica to DTLA. In the immediate surrounding area of this property you will find numerous multifamily properties which have been vastly improved by value-add investors, as well as a spate of newly constructed units and small-lot subdivisions either recently completed or under construction, which target a tenant-base consisting of highly qualified renters who are priced out of areas to the north and west like Mid-Wilshire, Beverly Grove, Culver City, Palms and Pico Robertson.

The purchaser was a local investor who owns a few similar properties locally and was looking to reinvest the proceeds from a sale of another property via a 1031 tax-deferred exchange. 1031 Exchange laws are such that an exchange Buyer has to transact within a certain timeframe or risk paying what could be tremendous capital gains taxes on the gains from the property that they sold. The purchaser plans to slowly renovate the units as tenancies turn and hold long term.

Transaction Details

  • $1,775,000 Sale Price
  • 8 Units
  • 6,508 SF
  • $221,000/Unit
  • $272/SF
  • One 2-Bedroom vacancy at closing
  • All Cash Transaction
  • 21 day total Escrow

See additional photos below:

Categories
Los Angeles Multifamily

Closed Transaction – 1264 South Spaulding Avenue. 6 Units

6 Units Closed in Wilshire Vista

We recently represented a Seller of 1264 S. Spaulding.  Los Angeles, CA 90019,  a 6-unit property located in the coveted Wilshire Vista neighborhood of Los Angeles, which is East of Fairfax, North of Pico Boulevard, around San Vicente Boulevard.  I like the Wilshire Vista area for many reasons.  At the forefront of those reasons is the overall aesthetic and charm of the surrounding neighborhood. The tree-lined streets in the immediate vicinity (Orange Grove Ave, Genesee, Ogden, Stanley etc) are very single-family residential (SFR) in nature. This area is not densely populated with apartments, so if you own a multifamily building in this area, there is not a lot of competition in the neighborhood when it comes time to lease units.  

The unit mix of 1264 S. Spaulding consisted of all one-bedroom floor plans averaging close to 1,000 SF per unit – each unit with a dining room which is a characteristic indicative of 1930s construction, which is when this particular property was built.   The Buyer, who is a local family office with close to 1,000 units under management, plans to potentially convert these one-bedroom units into two-bedroom units – the thought process being that a one-bedroom unit in this area could fetch about $2,000/month whereas a two-bedroom unit could fetch closer to $2,700 – $3,000.  This small incremental difference in monthly (and annual) rent ends up amounting to major dollars when it comes time for the property to be valued for either a sale or a refinance.  In addition to these conversions, the Buyer plans to construct and Accessory Dwelling Unit (ADU) in the parking garage thereby creating an additional unit and income for the property.

While in fairly good condition, this property was un-renovated and lacked most of the features that today’s renter is looking for. The Buyer was attracted to the quality of the neighborhood and the fact that the building was delivered with 3 vacancies allowing them to go to work immediately on renovating those units without having to deal with existing tenancies.

The Seller was a long-term owner/operator who like many property owners was fatigued by anti-landlord legislation in California and Los Angeles and figured it was time to move on, a story that I hear quite frequently in the LA multifamily market.

Transaction Details:

  • $2,000,000 Sale Price
  • 6 Units
  • 5,794 SF
  • $333,333/Unit
  • $345/SF

View additional photos of 1264 S. Spaulding below: 

Categories
Los Angeles Multifamily

Beware of ‘Cap Rates’ as advertised

If you have seen an advertisement for an investment property, chances are you have come across a term called a “Cap Rate.” Simply put, a Cap Rate is an annual return on a real estate investment without taking your loan payments into consideration. It is arguably one of the most common metrics that real estate investors use when evaluating a small (or large) real estate investment.

A very basic example of how a Cap Rate is calculated is as follows on a $1,300,000 Purchase of an Investment Property:

$100,000 Gross Rents Annually

($35,000) Expenses Annually

$65,000 Net Operating Income (Gross Rents Minus Annual Expenses)

5.0% Cap Rate (Net Operating Income/Purchase Price)

Seems easy enough, right? Be careful. One of the problems with evaluating a multifamily investment strictly on Cap Rate is that Cap Rates can be manipulated simply by manipulating expenses. Take the example above for instance – let’s say whoever is advertising this deal published “Utility” expenses that were $10,000 less than they actually were on an annual basis. That would make the annual expenses for this deal $45,000 (instead of $35,000) and thus make the Cap Rate 4.2% instead of 5.0%. By way of comparison, the “Price per Unit” metric cannot be manipulated – that is simply the purchase price divided by the number of units.

A common mistake that some folks make when calculating a Cap Rate (at least in LA) is not accounting for reassessed property taxes for the Buyer. A Buyer who is purchasing a property from a Seller who has owned the property for 30 years is going to pay vastly more property taxes than what the Seller was paying – because in LA County, property taxes are assessed at roughly 1.25% of the Purchase Price upon sale. Property taxes can account for as much as 50% of a Buyer’s total annual expenses. So whatever amount the Seller was paying for property taxes is virtually meaningless to the Buyer. Some do not account for this adjustment and use the Seller’s current property taxes in their underwriting which can swing a Cap Rate astronomically and ultimately be very misleading.

While a Cap Rate is certainly an important metric, you should be wary of relying on the cap rate that is advertised.

Categories
Los Angeles Multifamily

Stunning Features of the Los Angeles Spanish Duplex

Simply put, Los Angeles is home to some of the most stunning duplexes that exist.  Whether you are in Los Angeles, Beverly Hills, West Hollywood, Carthay or West Adams you are bound to come across the multiple styles of stunning duplexes the city has to offer.  Perhaps the most coveted is the two-story, stucco, red-tiled roof with an upstairs and downstairs unit.  These structures were originally designed to mimic single family homes largely to accommodate population growth in LA.

We are currently marketing 1087 S. Genesee Avenue. Los Angeles, CA 90019 – a gorgeous 1930s built Spanish Revival Style Duplex.  These types of duplexes can be found in select pockets of Los Angeles (this one in the heart of Wilshire Vista).  The unique design sensibilities of this duplex include features like a red-tiled roof, exterior stairways, verandas, decorative edging around windows, and stunning archways throughout.

Many tenants in the market for rental housing love the charm and design features of units such as these, many of which are large in nature – this one boasts units which are 2,000 SF each, the upper unit of which will be delivered vacant.  Would-be homebuyers like them for the owner-occupancy potential…live in one and rent out the other to subsidize the mortgage.  Either way, their beauty is undeniable. 

1087 S. Genesee Avenue. Los Angeles, CA 90019

Listed at: $2,095,000
Building Size: 4,136 SF
Unit Mix: Two Units – Each 3-Bedroom, 2-Bathroom. Delivered with upper unit vacant.

See additional photos below.  Contact me at ewong@greysteel.com for further details.

Categories
Development Los Angeles Multifamily

3 Los Angeles Real Estate Developments You Should Know About

Take a look at these 3 major real estate developments happening around town right now. If there is one thing for certain in Los Angeles, it is that the skyline is changing.

The Landmark, Brentwood

The Landmark

  • Developer: Douglas Emmett
  • Type: Multifamily
  • Area: Brentwood
  • Status: Near completion
  • The Deal: 34-story building built on the former Pavillions lot, consisting of 376 apartments – which includes 19 affordable units – above a 1,000-car garage.
Television City Campus – Beverly Grove

TELEVISION CITY CAMPUS

  • Developer: Hackman Capital
  • Type: Office and Studio Space
  • Area: Beverly Grove (Fairfax and Beverly)
  • Status: Planning
  • The Deal: The reimagined 25-acre studio complex will feature more than 1.1 million square feet of new office space and production facilities, The plan also calls for the construction of a new mobility hub, above- and below-ground parking, the implementation of a a transportation demand management program, and public realm improvements along the exterior of the campus.
The Grand – Downtown LA

THE GRAND

  • Developer: Related
  • Type: Multifamily/Hotel
  • Area: Downtown Los Angeles
  • Status: Under Construction
  • The Deal: Two towers (39-story and 20-story) totaling 436 rental apartments which includes 80 units of affordable housing – as well as a 309-room Equinox Hotel.
Categories
Los Angeles Multifamily

Mom & Pop Owners Are Being Squeezed Out of the Apartment Business

Many people have the misconception that owners of Los Angeles Multifamily properties are huge, faceless corporations that will stop at nothing to squeeze tenants for every dollar. The reality is that the Los Angeles multifamily market is largely a small property owners’ market consisting primarily of ‘Mom & Pops’ who have owned and operated their properties for in many cases many decades upon decades. For many reasons, this group of small investors are sadly getting squeezed out of the business entirely. Here are a few reasons why:

Increased Government Regulation
California (and in particular Los Angeles) happens to be one of the most highly-regulated regions when it comes to the business of rental housing. State Bills and Propositions all proposed or passed in the last handful of years such as AB 3088, SB 91, AB 1482, Proposition 10, Proposition 15, Proposition 19 and now AB 854 – all have imposed stricter rent control, moratoriums on evictions, and have created an atmosphere that is largely pro-tenant at the expense of landlords.

Increased Operating Expenses
If you operate a multifamily property in the city of Los Angeles, you have almost certainly experienced a handful of expense increases over the past few years. The RecycleLA program, which created trash pick-up zones and eliminated a property owner’s choice of Trash companies caused waste bills to increase as high as 3x what they originally were. Government-imposed capital expenditures such as seismic retrofitting which can run upwards of $100,000 have forced many owners to sell their properties. Other expenditures imposed by insurance companies on their annual inspections have become all too rampant. The cost to operate for some has just become too high.

Barrier to Entry is Very High
As these smaller owners exit the real estate business, I am seeing less and less actually enter the business to replace them. Instead, smaller owners are being replaced by larger, middle-market and even institutional owners with deep pockets and ample capital to deploy. From a returns standpoint, it’s virtually impossible for a young couple nowadays to purchase a property with a 20% down payment and have that deal actually pencil. Where apartment buildings are priced with respect to their rents today, you would have to come in with a minimum 50% down payment to barely cash flow. On a $2,500,000 it is difficult for an average investor to scrape together $1,250,000 as a down payment. On many of our small listings, the buyers who show up on even a 5-unit deal own 500+ units.

All of these things are forcing ‘Mom and Pops’ to retire out of the business and they are not being replaced by younger ‘Mom and Pops.’ For better or for worse, the multifamily market is slowly but surely shifting towards more institutionalized ownership.

Categories
Los Angeles Multifamily Renovation

Renovation Update from a Multifamily Property We Sold in Mid Los Angeles

A quick renovation update on a 6-unit property we sold last year in Mid Los Angeles.  We delivered the property to the Buyer with 4 of 6 units vacant units.  Generally speaking there are pros and cons to purchasing a rent-controlled property with vacancy such as this.  On the positive side, it allows a Purchaser to begin renovating the units immediately upon closing escrow to achieve at or above market rents without having to deal with existing tenants.  On the negative side, deals with vacancy are generally tougher to finance and many times they are priced with the juice already squeezed out of the deal.

That said the buyer of this property did a fantastic job with their renovations.  They laid down new flooring, installed new European style cabinets with Caesarstone countertops, modern tile backsplashes and stainless steel appliances – most of the attributes that today’s renter pool looks for in a unit.

They are beginning the lease up process asking just under $3,000/month for each of the 4 two-bedroom units – which is top of the market rent for the area.  Upon fully leasing the units, their plan is to refinance their current bridge loan which they used to acquire the property with permanent debt.  All in all this was a solid execution. See before and after photos below:

“Before” Photos

“After” Photos

Categories
Los Angeles Multifamily Renovation Vacancy

Tips For Leasing Your Vacant Apartment Unit During Covid-19

Apartment vacancy is high in Los Angeles right now as a result of the effects of Covid-19.  As a result many landlords are left with vacant units that are collecting dust due to current residents moving out for various reasons which include things like exiting Los Angeles entirely, consolidating from say a 2BR unit to a 1BR unit to save money or even moving back in with their parents.

18 months ago if you had a vacancy in a prime area, you might only have had to put out a ‘For Rent’ sign and you would have applications in within a few days.  Times have changed during the global pandemic and in order to lease your vacancy, you may have to do some things that you otherwise would not have had to do.

Here are a few tips for leasing your vacant apartment unit during a period of high vacancy such as this one:

Freshen Up Your Unit – Keep in mind that you are competing with nicer buildings who also have vacancies and whose rents are likely falling as a result. Your product has to look good. I’m not saying that you need to fully renovate your vacancy but there are various low cost improvements you can make to make it look a little bit fresher such as painting the unit, putting in new blinds, reglazing the bathtub and changing out old light fixtures, kitchen and/or bathroom fixtures. These minor improvements can make a difference in terms of attracting prospects.

Take Good Photos – I can’t tell you how sad it is to search apartments.com to find tired looking units with even worse photos. The first thing the average millennial renter will do when searching for an apartment is go online and search listings. If your unit does not show well on screen, you will likely not get inquiries. You do not have to hire a professional photographer for every vacancy. The new iphones have excellent wide-angle lenses which will do just fine in terms of capturing what you need to capture.

Utilize All Online Listing Platforms Available to You – Although putting up a For-Rent sign may have been your only source of leads in the past, if you are not using online listing sites like apartments.com, Zillow, or even Craigslist, you will not get the volume of inquiries you are looking for.

Answer The Phone and Respond to Inquiries Promptly – This should go without saying but I speak to many rental prospects on the phone who are so happy to get a warm body who actually answers the call and responds to their inquiries quickly. A lot of times with renters, the first person they can get on the phone is the first place they will tour and often times the place they will lease. You should create a template response that goes out to all text and email leads which you can just copy and paste to each prospect without having to write a new one every time!

Be Realistic With Pricing and Even Offer a Concession – Let’s face it, with high vacancy comes the flattening and even decline of apartment rental rates. In some major metropolitan areas, some large apartment landlords are reporting rents being down as much as 20%. Price your unit accordingly and if you are offering say a one month concession, try to negotiate a 13-month lease.

Categories
Los Angeles Multifamily Vacancy

Apartment Vacancy Continues to Rise in Major Metropolitan Areas

If you own a multifamily property in Los Angeles, chances are that in the last 12 months (during the global pandemic), you have dealt with some component of vacancy at your property.  We expect this trend to continue at least through 2021.   

Here is why:

Why vacancy rates are expected to rise in 2021:

1. New Supply Being Delivered to Market:  More than 396,000 apartment units were delivered in 2020, a peak year for deliveries, according to Dodge Data & Analytics Supply Track. Another 506,637 are anticipated to be delivered in 2021. However, it is possible given labor and material shortages that not all of those apartments will be completed this year. The cities with the highest levels of apartment construction underway now include New York, Washington, Dallas, Houston, Los Angeles and Seattle, according to Dodge.

2. Demand is Down:  Demand, particularly for Class A apartments in prime urban locations, dropped precipitously early in the pandemic as young adults left to move in with their parents and tenants moved to the suburbs in search of more living space, less density and lower rent. Working remotely and the lack of availability of urban amenities during the pandemic meant renters were more likely to move away from expensive downtown locations. Those renters are not anticipated to return to their offices – at least not full-time – until later in 2021 or perhaps 2022.

3. Disconnect Between Demand and Supply:  While demand is expected to remain strong for Class B and Class C apartments, especially in markets with relatively steady employment, new supply is primarily Class A apartments in already saturated markets where demand is down.

4. Uneven Performance by Market: Vacancy rates also vary by market. Class A apartments in prime urban markets, particularly in gateway cities, are not expected to recover until 2022, according to market analysis by CBRE. But markets in the Midwest and South, which didn’t deteriorate as much in 2020, are anticipated to have lower vacancy rates in 2021.

5. Job Growth Won’t Replace 2020 Job Losses:  Fannie Mae’s economic forecast expects job growth of 5.5% by the end of 2021, but even that estimated 7.9 million new jobs won’t make up for the estimated 9.3 million jobs lost in 2020. Fannie Mae expects it will be 2022 before those jobs are replaced and before demand will increase substantially for apartments.

Why vacancy rates will improve in 2022

The U.S. economy will begin rebounding in 2021, particularly as vaccinations become more widespread. That rebound is anticipated to accelerate in 2022. By late 2021 and into 2022, job growth is anticipated by Moody’s Analytics to increase in Austin, Dallas and Phoenix, which should increase multifamily demand. All three cities have a significant amount of supply, but demand is strong enough to absorb that supply. Other cities where employment recovery levels by the fourth quarter of 2021 are expected to be strong include Salt Lake City, Indianapolis, Houston, Denver, Atlanta, San Antonio and Jacksonville. Cities with lower expected employment recovery include Pittsburgh, Chicago, Los Angeles, New York, Orlando, Providence, San Francisco, Cleveland, Detroit and Las Vegas.