Multifamily Sector Leads the Charge Back into the Investment Property Market; Buyer Confidence Rises By Leaps and Bounds; Market Hits Inflection Point: "Buy Now!"

We at Adner Realty Group have noted a strong uptick in multifamily investor interest in the past couple of months.

Up until this time, investor sentiment had been decidedly negative, with expectations being that the economy would worsen, cap rates would increase, inventory would improve, and seller distress would pervade the market.

The economy is doing no more than flat-lining, but with little apparent change in cap rates, inventory, or seller distress, investor activity has spiked, despite our being several years into the 'more of the same' market.

What is the cause of this change?  It could be buyer fatigue and impatience.  Loaded with cash, with no other attractive investments on the market, buyers are 'throwing in the towel' and accepting 5 and 6 caps (and on an exceptional day, for larger assets, 7 caps), rather than waiting for the mythical day when quality multifamily assets are trading at higher levels.

It could also be foresight that we are on the cusp of an economic recovery.  Unemployment and vacancy rates have leveled, and if market fundamentals are not deteriorating, then why not tiptoe into the market?

Lastly, it could be fear.  In a world of defaulting nations abroad and quantitative easing at home, bricks, mortar and fully rented assets in the always-in-demand Southern California region seems like an attractive place to sock away cash, especially when you can lever up to 75% of the purchase price.

Although our observations on the market are purely anecdotal, we've read press that supports our sentiment that investor confidence is on the rise.

Loopnet's Q3 2010 reports that investor activity has risen, with multifamily leading the charge:

In Q3, overall sales in Los Angeles increased 46% compared to the prior year. Over the last 12 months, the price per square foot for office property is down 1%, multifamily is up 10%, industrial is down 9% and retail is down 37%.

The multifamily sector in Los Angeles is the only sector to enjoy price increases, and a whopping 10%, at that.

The improving outlook in the multifamily sector has been echoed by Marcus & Millichap Real Estate Investment Services:

What a difference a year makes. Twelve months ago, real estate players with money in pocket were hesitant about making purchases, but now confidence is on the upswing and they have become increasingly acquisitive.

Approximately 55 percent of those surveyed for the report say the market is ripe for snapping up apartment properties, while only 32 percent believe now is the time to buy retail and 26 percent are keen on hotel and mixed-use assets.

The emergence of multifamily as the investor flavor of the year comes as no surprise to Marcus & Millichap. “Traditionally, you would expect apartments to see recovery first because the leases are short-term and as the economy picks up, people rent more; that has been the classic recovery pattern for many, many cycles."

While the apartment market is following typical patterns, there is one factor that is not so typical. “Not only did the market recover first, it recovered at breakneck speed.  It was the strongest upsurge pace we’ve seen in over 10 years.”

Has the market reached an inflection point?  We think it has.  Our advice to Sellers: consider which assets in your portfolio that you might want to exchange or cash out of now ... the Buyers are out and looking and you may be able to find superior multifamily investment alternatives on the market.  Our advice to Buyers: evaluate your cash reserves, and get ready to step up and make strong offers to acquire quality assets.  Now is the time, before the market heats up and any Buyer advantage is lost.

Exploring North Santa Monica Homes in Neighborhoods that Rival John Hughes' Suburban Paradises

This is a post by Luke G-Jones.  Santa Monica, famed the world over for its beaches, tourist attractions, pier, and bustling shopping centers, has a diverse and eclectic residential community ranging from enormous beachside architectural homes, to small run-down craftsmen cottages, high-rise condominiums, and modest apartment complexes. Surrounded on three sides by the city of Los Angeles, with Pacific Palisades to the northwest, Brentwood to the north, West LA to the northeast, Mar Vista to the east and Venice to the southeast, Santa Monica has a rich and diverse history that is exemplified in its varied and sometimes non-sensical real estate.

Today, I toured around an area of Santa Monica to the north, close to the border of the Palisades. This area is widely regarded as one of the more upscale and salubrious neighborhoods of the westside. Funnily enough, when I first moved to LA, I lived in this neighborhood in a small apartment building on the corner of 3rd and Montana. To me, it felt like a calm, suburban neighborhood and pretty much summed up my idea of what I thought beach living was meant to be like in Southern California. It feels safe. It's clean and it's the kind of area that could appeal to young professionals who want to live an urban lifestyle with all the benefits of being close to the beach, or to a well-heeled family that requires lots of space whilst having proximity to all the shops and some of the best schools in LA.

First up was 135 Palisades Avenue, just a couple of blocks north of trendy Montana Avenue and a mere half block away from the bluffs of Santa Monica and the beach. This sprawling, magnificently well-proportioned villa is a cross between Spanish, French and modernist architecture with large bright rooms that spill onto a spacious back yard that has been landscaped to include a large lawn area, a tiled patio, and a pool area with a garage / guest house. It has a hefty price tag at $5,961,000, but it's been reduced by around 10%. I really liked this property and with its proximity to the beach and shops on 3rd Street Promenade, I think it has a lot to offer. It features 6 bedrooms and 7.5 bathrooms. The interior design is really cool, with each room having its own distinct style. Whilst quite modernist inside, it seems to blend well with the more traditional Mediterranean architecture throughout.

Next up is 335 24th Street. Much further from the beach, this site feels like something out of a John Hughes movie with its tall conifers and wide, straight roads. The property itself is a Spanish-style home surrounded by lush landscaping, including a carp pond and fountains. There are 5 bedrooms and 4.5 baths with a large open plan kitchen / living room which would make an excellent space for entertaining. There is also a large wine cellar and a spacious family room adjoining the kitchen with French windows out to the yard featuring a stone pizza oven. This house has very particular decor and it’s a little hard to envisage what it would be like empty, but the space is certainly interesting. Whilst large and expansive, it also has a cozy family feel to it. It is on the market for $3,995,000.

After seeing two homes that have that 'lived-in' feel, I took in a couple of brand new constructions. First up was 342 12th Street, once again North of Montana in North Santa Monica. This Mediterranean-style, three-story home features 5 bedrooms and 6.5 bathrooms with a huge basement with a bedroom, game room, media room, craft room and two additional spaces that could be easily customized. The property was entirely staged, but it’s basically a blank canvas. All modern appliances throughout with a full bar in the living room, a gourmet equipped kitchen and fairly spacious back yard with a detached private two-car garage. The odd thing about these new builds is the feeling that they're all just a bit, well, generic. And, it is this real estate agent’s opinion that when one tries to dress mutton as lamb, you run the risk of coming off a bit cheap. Example: throughout the property there are old-fashioned style iron banisters, railings and lamp fixtures. Who are we trying to kid? For me, I'd rather just see an entirely blank space with options to choose the interior design upon purchase. But, I'm splitting hairs. It's still a solid property with lots of potential. Of course, you're paying for the location. $4,600,000 for a mock Spanish home is steep, but if you want something modern and sturdy in a class-A neighborhood, then this one could be for you.

Listed by the same agency and located just a few blocks away is another new build at 534 19th Street. Very similar in design (same bizarre wrought-iron fixtures throughout) and yet without the benefit of the spacious basement below, I'm trying to figure out why this property is $250k more at $4,850,000? Granted, the lot size is bigger and it benefits from an expansive yard that could accommodate a pool, but it’s not nearly as well proportioned and is also further away from the beach. I would say that the kitchen / dining room, facing onto the back yard is a nicer design and since it has not been staged and is completely empty, I think it will be easier for someone to envisage living there. But the same problem remains; it’s a brand new build with no real character. Why would someone pay close to $5 million for something so generic?

So, perhaps I'm not such a huge fan of new builds. Perhaps I'm more attracted to homes with a bit of character and that 'lived-in' feel, but plenty of people want a blank canvas and so there is plenty of that in North Santa Monica. But some people may want more privacy or seclusion, particularly when forking out such a lot of money for a fairly urban environment. I think this is where Santa Monica defines itself. It is a densely populated part of LA that has gone through a boom since the 1980's and is no longer the sleepy little beach community it once was. If you're looking for a secluded compound without feeling like you have neighbors around you, then North Santa Monica may not be for you. But if you're looking for a little bit of suburbia within the center of the city, then North Santa Monica has it all.

Beverly Hills Development Watch: Beverly Hilton Up for Sale, 1953 Hotel Preserved, But Make Way For Luxury Hotel and Residential, and "Last Straw" for Trader Vic's

When a neighbor is able to command a pretty penny for their real estate, an owner thinks it may be the right time to tiptoe into the market.

This is precisely what's happening with the Beverly Hilton, the 1953 hotel sited at the corner of Wilshire Boulevard and Santa Monica Boulevard in Beverly Hills.

Last month we reported that 9900 Wilshire, the adjacent parcel and home to the former Robinson May department store, sold for $148 million.  Prompted by unsolicited offers for his property, Beny Alagem, the current owner of the Beverly Hilton, has retained Cushman & Wakefield to market this prime wedge of real estate.

The idea is that either a new owner or the current owner will go ahead with a plan that was approved by Beverly Hills voters in 2008 to renovate the original 352 room hotel, and build 110 residential units and a 170 room luxury hotel.

How much will the site command?  The current owner paid $130 million in 2003 and then completed $80 million in renovations in 2006.  Is it possible that the hotel site will pierce the $200 million mark?  There are many hungry players with vaults of cash seeking the best global assets, and the Beverly Hilton is that sort of sweet plum, ripe for the picking.  Our hunch is that interest in this unique opportunity will be as strong as a Trader Vic's double Long Island Ice Tea.

The Beverly Hilton is a Los Angeles institution, not so much for its accommodations (its rooms are 4-star), but because of its size (an 8.9 acre parcel in the middle of Beverly Hills!), its prominent frontage at one of the most prominent intersections in the city, and because of its showbiz legacy.  Merv Griffin was the previous owner (interesting to note that he paid $100 million for the property in 1987), and the hotel's International Ballroom has been home to the Golden Globes since 1961 and is the site of the Academy Award's Governor's Ball.

Beverly Hilton hotel may get new owner [Los Angeles Times]

Hilton on the Market [Los Angeles Business Journal]