Multifamily investors don’t only look for properties that are, or will soon be, in walking distance to a Blue Bottle. Case in point: Tarzana, in the San Fernando Valley.
Rent in the residential neighborhood, which has long served as a hideaway for celebrities (Chris Brown, with his manse in recent headlines, among them), grew 6.2 percent from the second quarter of 2015 to the second quarter of 2016, according to a report by Steve Basham of CoStar. Its growth far exceeded the L.A. metro average of 4.2 percent.
“Tarzana has enjoyed record-low vacancies in recent years, helping to spur some of the strongest rental gains in the [L.A] metro,” Basham said.
Meanwhile, the corner of Tarzana north of Ventura Boulevard — where its apartment properties are sequestered off, away from its higher-end homes — has seen an uptick in investment and development interest in recent months.
Lion Real Estate, a firm with properties in hip areas like Echo Park and the Arts District, has been on a buying spree in the much-less-hyped neighborhood, as well as in the area where Tarzana meets its northern neighbor Reseda. Lion is about to close on an $11 million off-market transaction for 48 units on 1.5 acres at 5911-5917 Reseda Boulevard, The Real Deal has learned. The property sits next to the 112 units it bought for $19 million earlier in the year at 5919-5939 Reseda. Counting another property it acquired on the Reseda border, it now owns 160 units in the area.
“I think that people are being pushed out of the city center as rents rise, and they are seeing that [Tarzana] is just a few stops off the highway,” said Jeff Weller, who co-owns Lion with Mory Barak, adding that renters can get more for their money in Tarzana and Reseda than they can in Warner Center, with a shorter commute to L.A.
He said the firm is getting $1,600 to $1,800 a month for fixed-up one-bedroom units in Valley neighborhoods that were topping out at $1,200 only recently. Rents at 5911-2917 Reseda are 20 percent below market rate, Weller said. Lion plans to invest $800,000 in renovations and to increase rents as soon as current leases expire, he said.
Vacancy has reached record lows in Tarzana, hitting 2.3 percent in the second quarter, according to CoStar. The neighborhood’s population has increased by more than 6 percent over the past five years, topping the L.A. metro rate of 4 percent. Apartment inventory, on the other hand, has not grown to meet it. The only new construction that has taken place in Tarzana in the past five years is the 50-unit complex at 17720 Magnolia, which delivered in July 2015, according to Basham’s CoStar report.
“Tarzana has been a dead zone for multifamily development in recent years,” he said, noting that 95 percent of its inventory is over 20 years old, making the neighborhood’s supply some of the oldest in L.A. It is also a small supply, totaling roughly 6,700 units.
The pace of development, however, could soon change. Los Angeles-based development firm Gelt has also been making moves in Tarzana. It recently submitted plans to the city for its second apartment complex, a 170-unit building at 5521 North Reseda Boulevard. The project sits just a block away from its first proposed development in the area, The Watermark, which would have 15 studio apartments, 112 one-bedroom units, 114 two-bedroom units and 13 three-bedroom units.
The surrounding areas are also seeing some action. Northridge has also seen project proposals from the likes of Harridge Development as rents increase across several San Fernando Valley submarkets. Woodland Hills, the West San Fernando Valley and Sherman Oaks have all seen steep increases, as renters are priced out of city centers like Downtown and Koreatown, Basham said.
Seeing this trend, Lion is attempting to acquire a couple thousand units in the Valley over the next few years, Weller previously told TRD.
“The whole area is changing with more development along Reseda, including [Harridge CEO] David Schwartzman’s development at 8400 Reseda [in Northridge],” he said.
Rent growth in Tarzana and other “secondary markets” fits into the trend of L.A. rents rising fastest at the lower end of the market. Tarzana rents average around $1,650 a month, about 10 percent lower than the Metro as a whole, according to Basham’s report.
The low — albeit swiftly rising — rents show a neighborhood divided. While Tarzana’s average income tops $100,000 in the swanky residential areas in the Santa Monica Mountains, where celeb manse’s trade for $3 and $4 million, the multifamily corner to the northeast is more in line with the San Fernando Valley’s $50,000 average.