August 23, 2016
By Dennis Kaiser
Stepp Commercial continues to record high volumes of multifamily transaction activity in the Santa Monica market. Three recently completed sales involve a $2-million, 6-unit asset on 17th St., a $2.7-million, 6-unit property on 20th St., and a $2.45-million, 7-unit asset on Yale St. These representative transactions range from value-add investment plays to 1031 exchanges, and reflect just how insatiable demand is for high-quality apartments in the Santa Monica market. Stepp Commercial’s Kimberly Roberts Stepp shared insights into what’s fueling that activity in the latest installment of Connect Media’s 3 CRE Q&A.
Q: Are you seeing more or less offers on Santa Monica multifamily properties now, as compared to earlier this year?
A: We are seeing a marked decrease in the number of offers that are presented with our new inventory compared to six months ago. Sellers are still eager to get elevated peak pricing, but a looming fear is that they might have missed the boat. Santa Monica has a lot of older product with generational tenants in place, and the suppressed capitalization rates are hard to swallow for many buyers. With that said, although there may be less offers, we are still seeing strong offers from savvy investors who understand the market. They are still able to make incredibly aggressive returns even when buying at sub 3% capitalization rates.
Q: Are you seeing mostly cash buyers, or are deals being financed?
A: Most of the deals we have done over the past two years have been financed. With rates where they are, it is almost silly not to take advantage of the historically low cost of money that is available currently. There are still cash buyers in the marketplace, however, and they are the most competitive in getting the best deals with sellers that want to be assured of a quick close of escrow.
Q: Are there a lot of off-market deals happening here?
A: In this competitive market with limited inventory, we are seeing a marked increase in off-market deals. Brokers, and even buyers themselves, are on the phones and aggressively pushing offers to sellers who are “on the fence” about selling or are not quite ready to list on the open market. The price levels being offered are peak pricing, and there is a large percentage of sellers agreeing to these off-market offers, closing transactions without formal marketing and exposure.
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For comments, questions or concerns, please contact Dennis Kaiser