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Friday, Mar 29, 2024

Buyers Homed In on Valley Multifamily Market

Apartment vacancies dropped in the San Fernando Valley through most of last year while rents rose to historically high levels, creating a climate that drove sales of multifamily buildings, according to a recent industry report. Calabasas commercial real estate brokerage firm Marcus & Millichap Inc.’s apartment market report on Los Angeles County and the San Fernando Valley covered the 12 months between the third quarters of 2014 and last year. The report found that a 5.2 percent jump in home prices continues to fuel demand for apartments from tenants and investors. The L.A. area’s average home prices rose to about $462,000 over the year, so with an average monthly mortgage payment of $2,370 for homeowners who’ve put down 20 percent, an average apartment rent of just under $1,900 a month is still lower, according to the report. That demand has pushed the Valley apartment vacancy rate down to 2.2 percent, the report said. Every submarket in the Valley has seen vacancy rates fall, except the Van Nuys-Northeast area, where rates stayed flat compared with the prior year period. That steadiness has allowed landlords to raise rents, pushing tenants to outlying Valley submarkets. “Apartments still are the darling investment product and that’s closely tied to the fact that there’s much more demand than supply,” said Jim Markel, associate regional manager for Marcus & Millichap’s Encino office. Apartment rents on average in the overall Valley rose 8.8 percent, according to Marcus & Millichap. But in the Van Nuys-Northeast area, rates surged 15.1 percent to $1,438 per month. Rents in Sherman Oaks-North Hollywood-Encino and Northridge-Northwest Valley rose about 9.5 percent to $1,503 and 9.4 percent to $2,006, respectively. In the Burbank-Glendale-Pasadena area, apartment rents rose 6.8 percent to $2,016 per month on average. Some of those increases are historical highs, Markel said. “15.1 percent (increase) – I’ve not seen that in my career; it’s a remarkable surge,” Markel said. “Tenants are largely being priced out from a lot of options with these rent increases.” The Valley, with a 14 percent increase in the number of apartment building deals, topped the overall L.A.-area market as investors are getting a healthier return on investment than in L.A.’s urban core, according to the report. Through most of 2015, investors paid 4.2 percent more a unit than the previous year, with top deals as high as $225,000 a unit. Some deals in Studio City, Encino and Pasadena reached more than $340,000 a unit, while transactions in Van Nuys, Sun Valley and Northridge were just under $200,000. Return on investment for those deals is around 5 percent, said the report. For apartment properties where investors can add value through upgrades and refurbishments, they’re getting rates of return of more than 5 percent. “Investors are chasing yields whenever they can find it, but they still want quality – and the San Fernando Valley still offers that,” Markel said. For Name’s Sake To gain greater cachet in a growing real estate market, an independent brokerage has become a franchise of Berkshire Hathaway Inc.’s national real estate network. In December, Berkshire Hathaway HomeServices California Properties joined the network after operating since 2009 as Intero Real Estate Services of Santa Clarita, a franchise of Cupertino-based Intero Real Estate Services. Intero is also a recent Berkshire Hathaway affiliate but doesn’t use the Berkshire Hathaway name in its title. Michael Rescigno, co-owner of California Properties with Alex Woltman, said the pair decided to franchise with Berkshire Hathaway HomeServices because the name is highly recognized and well respected, and the network provides their brokers with greater resources than the firm previously had. “We felt it would give us a much greater presence,” Rescigno said. “The area is growing and there are more jobs and that’s a very good avenue. The brand really resonates with people.” About 70 real estate agents have expressed interest in joining the new franchise, he said. Expanding from the current 50 staff of mostly brokers will help the firm focus on new developments coming to the Santa Clarita Valley by D.R. Horton, Lennar Corp., Kaufman Homes Inc. and L.A.-based KB Home. Berkshire Hathaway will also help it expand its commercial real estate services, he said. The brokerage renovated and moved into a 6,000-square-foot space at 25060 Avenue Stanford in Valencia with the option to lease more space as needed, Rescigno said. Berkshire Hathaway owns HomeServices of America Inc., the nation’s second-largest residential real estate brokerage company, and is the majority owner of Irvine-based Berkshire Hathaway HomeServices. Staff Reporter Carol Lawrence can be reached at (818) 316-3123 or at [email protected].

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