Los Angeles
Investors shy away from LA apartment market in doldrums
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Multifamily starts in LA County fall to lowest level in a decade
Developers broke ground on a little more than 8K market-rate apartments last year
Developers broke ground on a little more than 8,000 market-rate apartments last year in Los Angeles County — the fewest since 2012.
The number of apartments now under construction in the county stands at less than 24,000 units, down from 27,000 units at the beginning of last year, CoStar Analytics reported. Some 2,000 units broke ground in the fourth quarter.
Construction starts will likely decrease over the next several months.
The sluggish apartment starts come as a result of rising interest rates, with the increase hampering developers’ ability to secure financing that result in “targeted returns,” according to CoStar.
Lower demand from tenants last year led to rising apartment vacancies, contributing to builders’ hesitation to start projects.
Another crimp on construction is the Measure ULA real estate transfer taxes on residential and commercial property sales imposed in the city of Los Angeles last April. Sellers in the city now face an extra 4 percent transfer tax for any sale above $5 million, and 5.5 percent for any sale above $10 million.
The measures could potentially suppress development in the long term, according to CoStar.
Developers, who generally “realize” apartment complexes and hold onto them for a shorter period, now need to factor the so-called “mansion tax” into their underwriting.
If the slow pace of apartment construction continues, the L.A. market could see a shortage of new units by next year, according to CoStar. If the market is in recovery mode, landlords could quickly regain “the upper hand” over renters, according to the CoStar analysis.
The largest apartment complex to break ground in L.A. County last year was a mixed-use project by American Commercial Equities. It’s a 735-unit project at 5420 Sunset Boulevard in Hollywood. The 6.7-acre site, once home to a Food4Less-anchored shopping center, will
— Dana Bartholomew
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