Everyone wants real estate by the beach. In the coastal Los Angeles apartment building market, investor enthusiasm remains high, with more buyers active in the market than sellers. The results? Assets near the coast can command first-year returns in the low-4% range, with mostly cash-heavy buyers in the pool. Further inland, where first-year returns strengthen, closer to 6%. Thanks to Quantitative Easing, the spread between cap rates and interest rates remains workable for most investors, even first-time buyers.
Everyone is getting into the pictures. From 2Q 2012-2Q 2013, deal flow in the Westside Cities ticked up 3% compared with the previous year-long period, according to the Marcus & Millichap Third Quarter Apartment Research Report. On the Westside, the median price jumped 10% during the past year to $236,100 per unit. Prices are expected to rise close to $300,000 per unit by year’s end.
Have you noticed that there are a lot more apartments for lease lately? Builders completed 4,200 units during the past year, with an additional 12,600 apartment under construction including the soon-to-be-completed 544-unit Shores apartments in Marina del Rey.
The Van Nuys/Northeast San Fernando Valley, Santa Monica/Marina del Rey, Downtown Los Angeles and Tri-Cities submarkets are expected to absorb excessive inventory growth in the coming months,. Recent gains in home prices and interest rates are expected to mitigate the renter to buyer transition in the coming months…and this is on top of a year of excessive instruction.
Between 2Q 2012-2Q 2013 builders finished 940 rentals in the Westside Cities, with more than more than 640 units in the Santa Monica/Marina del Rey submarket. This increased local rental stock by 0.7%. Despite the increase in volume, vacancy rates in the region declined to 2.4%..
In 2Q 2013, rents at professionally managed apartments were $2,390 per month, up an impressive 7.9% from the same period last year – and raising cap rates for owners. Palms/Mar Vista recorded a year-over-year rent increase 6.7% to $1,817 per month.
On the Westside, Brentwood/Westwood/Beverly Hills was the most impressive of all, rising 10.4% in the past year.
Upward pressure on cap rates is percolating, which may finally signal to owners with plans to dissolve their portfolios within the next three years to put properties on the market.
Pundits predict that rising interest rates fueled by speculation that the Fed will begin to evaporate the third round of quantitative easing by year end. This should even out the imbalance between the number of buyers, while is forcing some leveraged buyers to the sidelines or inland in search of higher yields.
For more information please contact Jodi Summers and the SoCal Investment Real Estate Group @ Sotheby’s International Realty – firstname.lastname@example.org or 310.392.1211, and let us move forward together.
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