Apartment sales in Los Angeles plunge by nearly 50%

Report: “Investors have retreated from the market due to tight credit conditions”

Apartment Sales in Los Angeles Plunge by Nearly 50%

Apartment sales in Los Angeles have plunged in the wake of high interest rates and Measure ULA.

The sale of multifamily buildings across the city fell by nearly 49 percent in the first half of the year, compared to the same period in 2022, the Commercial Observer reported, citing NAI Capital.

A report from NAI said the drop in sales was a result of a market adjustment to higher borrowing costs, pricier transaction costs and weaker demand. 

It said higher interest rates and other region-specific obstacles will continue to dent the market.

“Investors have retreated from the market due to tight credit conditions and a disparity in prices between sellers and buyers, resulting in a transactional standoff,” the brokerage’s report states. 

Measure ULA, also known as the city’s “mansion tax,” also impacted sales. The legally challenged tax adds a 4 percent tax on sales or transfers of more than $5 million, and 5.5 percent on deals of more than $10 million.

Sales volume for apartment buildings under the $5 million threshold was up 40.5 percent in the second quarter of 2023 compared with the first, while sales for apartment buildings over $5 million plummeted by 75.2 percent. 

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“To avoid the tax burden, investors, developers and sellers rushed to close deals before the tax took effect on April 1,” according to NAI Capital. “In the post-Measure ULA landscape, sellers will be hesitant to sell unless compelled to do so, and investors will avoid the market area due to the additional tax burden.

“However, some investors may still take a gamble, hoping for the repeal of Measure ULA in the future,” it said.

In Los Angeles County, the vacancy rate for apartments was 4.7 percent in the second quarter, a 1-percent rise from January, February and March, largely because of newly completed complexes and the end of tenant eviction protections, according to the Observer.

The number of completed apartments grew 65.2 percent year-to-date from the same time last year, while the units under construction dropped 8.3 percent.

The overall number of vacant units fell 11.9 percent, or 7,500 units, compared to the second quarter of 2020, while 45,733 completed apartments were added over the same period.

— Dana Bartholomew

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