Wednesday, October 27, 2010

On The Money: $4 - 12 million Los Angeles Multifamily Sells in Narrow Band of 9.65 - 9.85 GRM in mid 2010

What's happening in the mid-size apartment category in Los Angeles, those with 40 units or more, and priced in the $6 - 12 million range?

A few very apparent trends: 1) Opportunities are few, with thin inventory reaching market; 2) Demand is strong and buyers are willing to pay a remarkable 97.1% of asking price; 3) Returns for these assets are remarkably consistent with GRMs in the 9.65 to 9.85 GRM range; and, 4) The trend (excluding Beverly Hills, natch) was consistent from Palms, Sherman Oaks, Koreatown/Mid-Wilshire to Hollywood

Given the attractiveness of the returns on these buildings (cap rates above 6.0%) when compared to other "low risk" investments (like T-bills near 0%), the market dynamics are characterized by a moderate number of well-capitalized investors pursuing a small number of worthy investment properties.  The result: quick sales and finely-calibrated returns.

Buyers seeking distressed options in this market should turn their sights elsewhere.  Financially robust owners of these assets sell them to other sound buyers -- with an absence of short sales, loan work-outs, bankruptcies, etc.  This market segment is stable.
Palms is a perennial favorite for investors who love the Westside location, the proximity to the 405 and 10 freeways, and the below-average 3.8% vacancy rate10705 Rose Avenue with 60 units sold for $11,650,000 or $194,000/unit.  The building has 62,116 sq ft of living area and was constructed in 1962.  This complex has two buildings, is freeway adjacent, and is one of the few multifamily properties of this size to come to this desirable Westside market.  GRM was 9.71
Over the hill in Sherman Oaks, 14355 Huston Street, with 74 units sold for $9,400,000.  This amounts to $127,000/unit.  This 1969 complex is set on 1.38 acres, has a fitness center, swimming pool, and "park like" amenities, and was recently upgraded with $850,000 in improvements.  50 of the 74 units are renovated.  The complex has 48,186 sq ft of living area.  Unit mix is 72 (1) bedrooms plus (2) singles.  GRM was 9.85
530 S Catalina Street in the Koreatown/Mid-Wilshire neighborhood with 45 units sold for $6,200,000.  This amounts to $138,000/door.  The building has 36,929 sq ft, was built in 1971, and just had $1.1 million in renovations completed in 2007 - 2008.  This is on the high-end in terms of quality of upgrades in the Koreatown/Mid-Wilshire neighborhood.  GRM was 9.63
At the border of Hollywood and Los Feliz, 1616-1620 Normandie, a two building complex with 46 units, sold for $4,425,000.  The larger building is a 1920's "bricker" and the smaller one of mid-century vintage.  The sale is at $96,000/sq ft, although the average unit only amounts to 544 sq ft (total is 25,032 sq ft).  This multifamily property is adjacent to the high-end homes of Los Feliz as well as Griffith Park.  GRM was 9.65
There are exceptions to every rule, and in the Los Angeles market Beverly Hills is that case that breaks the mold.  133 N Almont Drive, near Wilshire and Doheny,  sold for $5,775,000 or $304,000/unit.  This was a court-ordered sale, the majority of the 19 units are unrenovated (and with below market rents), and average between 1,100 - 1,400 sq ft.  In total, the 1961 building has 26,291 sq ft.  This Beverly Hills property "tips the scales" in terms of cost per door.  The reality is, few assets of this sort are for sale, and like in all other property types, the "Beverly Hills premium" is very much alive and well today.