June 16, 2017
Hunt Mortgage Group’s Vic Clark discusses the outlook for the multifamily sector in the U.S. and Los Angeles in advance of Connect Los Angeles coming up next week (June 21). Clark will be part of a finance panel that will share how they’re funding some of the city’s most timely projects, as well as discuss the money sources and their intended deals, both large and small.
Q: What are the biggest finance trends impacting the multifamily sector in the U.S.?
A: The big trend today is that multifamily continues to be the best, and most robust, asset class within commercial real estate. Valuations are strong and the opportunity to make solid investments with sensational returns continues. The multifamily forecast is strong across the United States.
Affordable and green housing goals continue to be an ever growing focus for both Freddie Mac and Fannie Mae. Incentives for borrowers to help meet these demands are greater than ever.
Q: How are these trends playing out or impacting the multifamily market in Los Angeles?
A: The Los Angeles market is on fire. Individuals continue to seek out properties to purchase. 2016 was a record year for Los Angeles apartment sales. Roughly $10 billion was invested in Los Angeles apartments over the past four quarters, and demographics show an enormous renter population largely comprised of the young and affluent. A recent Harvard housing study shows Los Angeles to have the highest rate of renter ship in the metro United States; 52% of Los Angeles households are renters, well above the national average at 36%.
There’s a strong demand, a growing demographic, and limited supply.
Regarding the rental market, downtown is grabbing most of the attention but the fact is all over metro Los Angeles one can see new construction emerging. Over the past few years, we have witnessed new construction and the crest of current wave is about to hit metro Los Angeles. More than 10,000 units are expected to be completed in 2017 and 2018. Downtown construction constitutes more than 25% of current “market rate” inventory.
The influence of tech companies has developers trying to attract young, affluent renters in submarkets like Venice Beach and Greater Culver City. Record low vacancies have ignited building booms in Glendale and Pasadena. Even Koreatown and Westlake are seeing an increased demand for apartments.
Q: What and where are the best opportunities in Los Angeles?
A: Virtually every area within metro Los Angeles is hot. In 2016, deals exceeding $30 million were recorded in places as diverse as: downtown and southeast Los Angeles, San Gabriel Valley, the Beach communities, Santa Clarita Valley and Long Beach. The average price per unit is nearing $200,000, and buyers are willing to pay for well-located properties.
Last year, new construction outpaced demand. More than 6,000 new units were developed for each of the past three years. However, rental demand is expected to remain high as the high price to purchase single family homes forces most people to remain in rental housing. As long as the economy remains on a positive path, fundamentals should stay healthy and continue to drive rent growth above historical averages for most of the submarkets.
For comments, questions or concerns, please contact Dennis Kaiser