Thursday, September 8, 2011

Big Ticket Los Angeles Multifamily Sales Demonstrate LA Apartment Fundamentals Are Shining Brighter than Bonds and Blue Chips (but Maybe Not Gold)

In the past three months, some big-ticket apartment building sales in the Beverly Hills Adjacent area, West Hollywood, Hollywood and Koreatown have supported the idea that for investors, Los Angeles apartments are looking like a safe bet.

Whether a $4 million building purchased by a career apartment investor, or a $40 million apartment block bought by an institutional investor, apartment buildings are selling, with particular interest in those which are not rent controlled.

Financial information is not available for most of these sales, so the only measure of "trading values" is cost per unit ("door"), a vague metric, at best.  Our evaluaton is that most of these building are selling in the mid 6% cap range.

1745 and 1750 N Wilcox Avenue, Los Angeles 90038 -- Hollywood

You can't find better located buildings than these two non-rent controlled buildings in the center of Hollywood that sold as a package for $40.0 million and $17.1 million, respectively. 

1745 Wilcox Avenue, Hollywood



The buildings were built in 1987/8 and are not subject to Los Angeles Rent Stabilization Ordinance.  The properties were renovated in 2004, and have 243 units and 101 units, respectively, selling in total for $166,000/door.  The buildings sold in May 2006 and January 2007 to one owner for $183,000/door, indicating a price decline of 9.3% for this asset during the past five years.

1750 Wilcox Avenue, Hollywood
The near-$60 million purchase price for of 1745 and 1750 Wilcox is a vote of confidence for Los Angeles multifamily and for the burgeoning Hollywood neighborhood.

1342 N Highland Avenue, Los Angeles 90028 -- Hollywood

Anchoring the other end of Hollywood, 1342 N Highland Avenue is a 15 unit non-rent controlled building located between Sunset and Fountain and adjacent to West Hollywood that sold for $5,250,000 or $350,000/door

1342 N Highland Avenue, Hollywood
The high cost/door for this building can be attributed to the unit mix which consists of 2 and 3 bedroom multi-level townhomes.  This 2004 construction sold at a 9.7 GRM, which is an excellent return for this high-quality building in a high-demand rental corridor.

817 and 825 Wilcox Avenue, Los Angeles 90038 -- Hollywood

Located in the Hollywood Media District south of Santa Monica Boulevard, 817 and 825 Wilcox Avenue, a pair of non-rent controlled buildings built in 2004 and 2002, respectively, sold for $4,420,000 and $4,675,000.

817 Wilcox Avenue
Each buildings has 18 units, and collectively they sold for $253,000/door.

825 Wilcox Avenue
This "double header" was an all cash sale.  In our view what we're seeing is a "flight to quality" and parties rich in capital are investing in Los Angeles apartment buildings as an alternative to stocks, bonds, commodities, hedge funds and other investments.

321 S Berendo Street, Los Angeles 90020 -- Koreatown

Moving east into Koreatown, 321 S Berendo Street with 23 non-rent controlled units sold for $3,600,000 or $157,000/door.  Some financing information is available for this 1991 building located near 3rd and Wilshire, and the cap rate at sale price is in the mid-6% range.
321 S Berendo Street, Koreatown
526 North Orlando Avenue, West Hollywood 90048 -- West Hollywood

The West Hollywood sub-market, like other incoporated cities such as Beverly Hills and Santa Monica, has its own market forces, and cap rates here are lower here than in adjacent areas of Hollywood

526 N Orlando Avenue, West Hollywood

526 North Orlando Avenue is a 19-unit building dating from 1964 that sold for $4,695,000 or $247,000/door.

467 S Arnaz Drive, Los Angeles 9048 -- Beverly Hills Adjacent

We end with 467 S Arnaz Drive, a 100-unit building one block from Beverly Hills that sold for $39,350,000, or $393,500/door.  This 1980 building commanded a super-premium because of its location next to Beverly Hills and because it is not subject to Los Angeles Rent Stabilization Ordinance.

467 S Arnaz Drive, Beverly Hills
The strength of the multifamily market has been confirmed in the press. At Globest.com, a recent article, "Apartment Shine as Beacon of Hope", begins:
The nation’s apartment market continues to beat expectations as it speeds along to a full-scale recovery.
Over at Multi-Housing News Online, an article, "Amid Economic Gloom, Investors Keen For Multi-Housing Projects", the author writes:
Fannie Mae ... reported this week that U.S. multifamily investment sales have spiked thus far during 2011, reaching $13.9 billion during the second quarter of 2011, or more than half again as much as the first quarter 2011 total of $9 billion. The second quarter sales figure is also a whopping 132 percent increase compared with the same quarter in 2010.
In terms of sales, Los Angeles is the #2 market, behind Manhattan, and recorded over $1 billion in apartment sales during the first half of 2011.

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