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The Real Deal Los Angeles

In LA, multifamily investment sales hit record level: report

But profit margins have tightened and rent growth is slowing
July 26, 2018 10:00AM

(Credit: Max Pixel, Pixabay, Wikimedia Commons)

In the last year, there has been more multifamily investment activity than in any period in Los Angeles history.

There were $10 billion in apartment building sales from June 2017 to June 2018, with average sale price for a unit hitting a record $275,000, according to a report by CoStar. Increased sales prices are also pushing cap rates lower.

Sales figures at mid-year 2017 were on pace to fall behind 2015’s record-setting levels of over $9 billion, but the fourth quarter more than made up for it with $3 billion in sales, making it one of the strongest quarters in history.

Meanwhile, rent growth is slowing.

L.A. has posted higher than average rents over the last few years, but that has since slowed to the national average of 3 percent, which CoStar pins to a lack of affordability amid higher vacancy rates.

But an influx of luxury units this year is expected to push rents higher. Marcus & Millichap expects rents to rise by 6.3 percent this year to an average of $2,200 per month.

Builders say they are facing pressure from other angles as well, and singled out Measure JJJ. The ballot measure put into effect last year requires builders to incorporate affordable housing into some projects and requires them to pay prevailing wages on projects seeking city incentives, which both contribute to higher construction costs. [CoStar] — Dennis Lynch