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Tuesday, Aug 9, 2022

Apartments Regain Investment Appeal

 Multifamily investment properties are moving well.

After a slight pause in the early stages of the coronavirus pandemic, the sector has logged a lot of activity lately, from a 294-unit residential tower created in Glendale to the sale of Waterstone, a 354-unit apartment complex in Chatsworth for nearly $102 million, not to mention the $190 million sale in September of 504 units in Simi Valley at The Villas. In September, the Retreat, 148-unit apartment complex in Santa Clarita, sold for $54.1 million.

Properties coming on the market for sale in the San Fernando Valley submarket have seen all time high prices since the end of 2020 and all through 2021, according to Janette Monfared, senior director of National Multi Housing Group at Marcus & Millichap Inc. in Calabasas.

“A lot of property owners who were previously opposed to selling have decided to market their properties for sale, although at very high prices, which has caused the length of marketing for most high-priced assets to go four to five months on average,” Monfared said.

“The investors feel the rental market is going to pop,” said Robin Ossenbeck, senior vice president at Kidder Mathews. “Vacancies have reduced; people have started to pay rent.” 

Despite an expected slowdown in rents last year, they increased 8.5 percent, according to Ossenbeck, who said that investors are borrowing to purchase apartment buildings.

“There’s so much money chasing deals,” said Ossenbeck, who has specialized in multifamily since 1987. Investors who borrowed money “don’t want to give it back. They can pay cash.”

For multifamily, suburban areas such as Chatsworth, Simi Valley and Santa Clarita have the advantage as the pandemic and remote work has allowed people to live outside of Los Angeles proper.

“Sherman Oaks, Studio City, Valley Village, Toluca Lake, NoHo Arts District have always seen consistent demand despite high prices,” Monfared said.

Added Ossenbeck: “Santa Clarita has a lot of entertainment industry sites. Industrial is strong up there. It’s a good place for people to live. That’s pushing the values there.”

From Monfared’s perspective, the San Fernando Valley market held up strongly regarding occupancies and rent collections during this stage of the COVID-19 pandemic.  

“Owners of C properties saw a higher degree of delinquencies in rent payments than those in A and B areas,” she said. “Vacancies increased slightly during the first few months of the 2020 lockdown, causing about a 10 percent drop in rental rates for about six months.”  

Toward the end of 2020, occupancies of apartment units in the North Los Angeles market were back to pre-COVID levels with rents bouncing back.

“The Valley saw much less inventory coming on the market due to strong occupancy and rental payments,” Monfared said, “as opposed to cities such as Santa Monica, which had a very high degree of vacancies, causing a significant number of properties being marketed for sale.”

Many buyers from the Hollywood market are considering investing in the Valley due to cleaner streets, fewer homeless issues and less crime, Monfared added.

Meanwhile, the number of first-time apartment buyers in the market has diminished significantly due to concerns about rent collections and high property prices.   

“There has been … strong trading activity mostly by seasoned buyers due to historically low interest rates,” Monfared said.

Michael Aushenker
Michael Aushenker
A graduate of Cornell University, Michael covers commercial real estate for the San Fernando Valley Business Journal. Prior to the Business Journal, Michael covered the community and entertainment beats as a staff writer for various newspapers, including the Jewish Journal of Greater Los Angeles, The Palisadian-Post, The Argonaut and Acorn Newspapers. He has also freelanced for the Santa Barbara Independent, VC Reporter, Malibu Times and Los Feliz Ledger.

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