Wednesday, September 9, 2009

Los Angeles Multifamily Has Robust Future: Low Homeownership Will Drive Down Vacancies; Echo Boom Generation (25 - 34) Will Drive Revenue

Although the U.S. commercial real estate market may be bleak, the Los Angeles multifamily market offers opportunities for investors, some of which are highlighted in the August 2009 Deutsche Bank Group RREEFF Research “US Property Cycle Monitor”:

Apartment building prices are down:

“…the US apartment market has finally begun to decline in earnest”
Multifamily will be at the forefront of the commercial real estate recovery:
“Short lease terms in the multifamily sector enable performance to reflect economic upticks quickly”
The ‘echo boom’ generation will drive rental demand:
“In the next 10 years, echo boomers will cause roughly two million household increases among the 25 – 34 year olds, traditionally a vital renter cohort”
Other forces favoring the Los Angeles multifamily market:
  • Traditional low vacancy rates
  • Low homeownership rate going forward
  • Low permit activity for multifamily in Los Angeles County
  • “Floor” established in residential market
  • Hedge against possible future inflationary environment
As the real estate adage goes, you make money not when you sell but when you buy. Timing is everything -- and getting the underlying asset on the cheap is the best way to lock in returns. Investors should not disregard the opportunities that present themselves today when negative sentiment is at an alltime high.