Real Estate Market Has Supply Shortage By SHELLY GARCIA Senior Reporter The only thing standing between 2003 and a record for real estate sales was 2002. That is, the descent of interest rates to record low levels was so steep and it lasted so long, that by the time 2003 rolled around much of the inventory was depleted. “2002 was just a record year for sales,” said Melissa M. Ertek, market research analyst for Los Angeles County at Grubb & Ellis Co. “so there wasn’t enough product out there for them to buy. Any product that came online, sellers were getting multiple offers before it made it to a listing service.” The story was the same whether it was residential or commercial real estate. And as supply depleted, prices climbed ever higher. In the residential arena, single family home sales through November in the San Fernando Valley totaled 12,690, compared with 12,756 for the same period in 2002, according to the Southland Regional Association of Realtors. But the real difference came in prices. Median home prices in the Valley reached $399,000 in November, 2003, up nearly 21 percent from $331,100 in November 2002. The supply crunch wasn’t much different in the commercial markets, where transactions were flat or down slightly, but prices soared between 2002 and 2003. In the Valley, 38 office buildings totaling 3,864,871 square feet changed hands through Dec. 16, 2003, compared to 26 properties totaling 4,908,288 square feet in the full year 2002, according to data provided by Grubb & Ellis. Prices jumped a whopping 30 percent to an average of $212.81 per square foot for the same period in 2003, compared to an average per square foot price of $164.10 in 2002, the Grubb & Ellis data revealed. On the industrial side, 106 properties totaling 3,380,025 square feet were sold in the Valley through Dec. 16, 2003, compared to 111 properties totaling 3,537,023 square feet in the full year 2002, Grubb & Ellis reported. The average price of an industrial building for the same period in 2003 was $87.92 per square foot, compared to $75.75 per square foot for the full year of 2002, according to Grubb & Ellis. In some cases, prices rose high enough in these commercial markets that many buyers found the profit from sales more attractive than the revenue streams these buildings were generating from leasing. In other cases, the availability of financing coupled with the low cost of money drove businesses to look for facilities to buy instead of renting. “With SBA programs, it’s cheaper to own than rent,” said Gary E. Mozer, CEO at George Smith Partners, a real estate financing and consulting firm in L.A. “Both in absolute dollar basis and when you look at the after-tax consequence it’s magnified.” Transactions in the multifamily market were down considerably in 12 of the 17 submarkets in the San Fernando Valley, according to a report just issued by Hanes Investment Realty Inc., but cost per square foot climbed anywhere from 6.3 percent (in Studio City) to more than 45 percent (in Chatsworth), the data revealed. “There’s definitely fewer sellers because the properties are doing so well,” said H. Bruce Hanes, president of the brokerage that specializes in multifamily properties.
