Wednesday, February 10, 2010

2010 Apartment Report: "Sales Velocity Gaining Momentum as Cap Rates Tick Higher; Worst over for Operations", Marcus & Millichap

Marcus & Millichap's "2010 National Apartment Report" shows improvements in the Los Angeles multifamily market. In 2009, collapsing rents, plunging values, and unavailable credit shocked the system sending transaction levels to all-time lows. In 2010, the apartment market looks towards recovery.

  1. Los Angeles employment is forecast to improve in 2010: "Following a loss of 115,000 jobs in 2009, payrolls are forecast to expand by 0.3 percent this year, with the addition of 13,000 positions."
  2. New Los Angeles rental inventory remains slim: "Rental completions will slow to 1,550 units in 2010, a 0.2 percent addition to inventory."
  3. Los Angeles rents are down: "Asking rents are expected to fall to $1,335 per month in 2010, [a] decline of 2.8 percent."
  4. National ranking: Los Angeles rises two positions to rank #13 of 41 national markets, "due to forecasts for continued low vacancy and slight job gains."
  5. Westside rental market: "Space demand will stay relatively steady in the Westside Cities, although owners will likely have to trim rents further to retain tenants."
  6. Purchases increase: "Investment activity in Los Angeles County gained momentum during the fourth quarter of last year as buyers sought to acquire institutional grade assets that rarely change hands."
  7. Local cap rates: "Cap rates range between 6 percent and as high as 7.5 percent for older Class C assets or properties in less desirable locations."
  8. Los Angeles -- upside potential: "Assets in the area could present attractive long-term upside potential as metro-leading population growth over the next five years ultimately will support renter demand and revenue gains."
  9. Financing favors multifamily: "Apartments will maintain a financing advantage over other property types in 2010 due to the availability of debt from Fannie Mae and Freddie Mac."
  10. "Bright" apartment fundamentals: "The extended forecast for apartments remains bright, supported by a pullback in construction and permitting, burn-off of excess housing inventory, receding homeownership rates, and favorable demographics.
The "Los Angeles" referred to in this memo is wide and diverse area. Neighboring areas like Los Angeles Westside and the San Fernando Valley will differing prospects (deeply discounted rents and low vacancies on the Westside; moderately lower rents and very high vacancy in the Valley.)

The deep distress in the residential market has not (at least yet) spilled over to the multifamily market as long-term, well-capitalized investors weather the storm.