1342 Highland Avenue

In another encouraging trade for apartment investments in Los Angeles, the apartment complex at 1342 Highland Avenue in Hollywood recently sold for $5 million, or $333,333 per unit. The 15 unit building consists of 13 two-bedroom units and 2 three-bedroom units. Additionally, each of the 15 units have their own two-car garage. The deal closed in less than a week due to an all cash offer brought by the buyer. Grubb & Ellis represented the seller, Suaya Properties, while King Stone Properties represented the buyer.

Villa Venetia Sells for $44.8 Million

Archstone recently acquired the Villa Venetia apartment community in Marina del Rey from Lyon Management Group for $44.8 million, or $200,000 per unit. Back in June of 2004, the same property traded for $34.25 million, or $154,279 per unit. The new owner plans to invest approximately $25 million to renovate the entire property. The 224-unit, 326,364 square foot property is 100 percent occupied and offers a unit mix ranging from one to three bedrooms. Rents range between $1,600 and $4,000 per month. This acquisition is yet another example that the market is rebounding and there are great opportunities to invest in Multi Family in Los Angeles and throughout the entire greater Los Angeles area.

Los Angeles REITs

The simple fact that less people are choosing to buy and more are choosing to rent, combined with a growing population, has translated directly into opportunity for apartment REITs. According to Mike Salinksy, a VP with RBC Capital Markets that specializes in REITs, “You have a situation where people are fearful of buying a home because they don’t feel confident with valuations. That fear, along with stricter lending standards, is causing a lot of people to wait to buy a home.” This has resulted in apartment REITs, as of July 13th,2011, posting a year-to-date return of 18.32 percent. That number is compared with a 12.51 percent return for REITs in general, and a 5.86 and 7.9 percent return for the S&P and Dow, respectively. Furthermore, a report recently released by Harvard University’s Joint Center for Housing Studies (JCHS), indicated that “demographic trends favor continued growth in the number of renter households for at least the next decade.” With demand growing over the foreseeable future, and supply remaining low, apartment investments in Los Angeles are poised for high returns. Mike Salinsky confirms this, arguing that it is key for investors of all types to have some exposure in their portfolio to multifamily REITs.

Multifamily Investments: The Sale of Archstone

Recent reports regarding the sale of Archstone REIT indicate that Barclays and the estate of Lehman Brothers are in a dispute as to the best way to unwind the real estate investment trust. Archstone was made private in 2007, at the height of the real estate market, in a leveraged buyout for $22 Billion. Currently, the estate of Lehman Brothers owns 47 percent of the company, with Bank of America and Barclays owning 28 percent and 25 percent, respectively. According to the report, Barclays is pushing to sell the assets of Archstone privately and in the near future, saying that they “don’t want to wait anymore to see whether Archstone will continue to improve,” whereas the estate for Lehman Brothers would prefer to take the company public in the largest REIT public offering ever. The third partner in the deal, Bank of America, however, has yet to come to a consensus as which option they see as best. Whichever decision is reached, all three banks will see a steep loss on this deal, as most analysts believe Archstone is worth somewhere in the ballpark of $4 Billion to $6 Billion, a far cry from the $22 Billion paid back in 2007.

Improvement Across the Board

According to the latest quarterly survey regarding apartment investments in Los Angeles, apartment market conditions continue to improve across the board. This latest survey was recently released by the National Multi Housing Council. NMHC Chief Economist stated that “demand for apartment residences continues to rise, even as the overall economy remains hampered by the aftermath of the housing bubble.” The survey took four key indexes into consideration to measure market health: the Market Tightness Index, Debt Financing Index, Sales Volume Index, and the Equity Financing Index.

LA County Property Values Increase For First Time Since 2007

For the first time since 2007 the Los Angeles County tax rolls climbed as new construction and home sales boosted valuations. Assessments in LA County, which is home to almost 10 million people, rose 1.49 percent, or $16.2 billion, to an impressive $1.1 trillion. According to Assessor John Noguez, “valuations based on changes of ownership accounted for a $12.8 billion increase, while construction contributed $3.9 billion.” These gains, he explains, were slightly offset by reduced assessments on some properties including businesses. Noguez mentioned that although the market is not where it was at its peak, this is encouraging data that the market is slowly coming back.

Landlords and Free Utilities

There is fierce competition in LA amongst landlords trying to attract tenants and fill vacancies. Among other concessions, many landlords turn to “free utilities” as an incentive to attract prospective tenants. However, landlords should stay away from offering “free utilities” for these three reasons. First, it’s extremely difficult to forecast utility rates and costs. Even a seasoned landlord experienced in budgets could underestimate their utility expenses. The result? If you underestimate the utility bill you will end up footing the bill at the end of the month.

Woods Partners Plans Development

In another sign of a recovering real estate market, Woods Partners plans to begin construction of a $75 Million, 298 unit, luxury apartment community on a four-plus acre site in the San Fernando Valley. The project is scheduled to break ground within the next few weeks, and if completed on time, will be finished by early 2013. The 298 unit complex will be evenly split between one and two bedroom units. It  will be located at 6701 Eton Ave., approximately six miles west of the I-405 and two miles north of the 101 Freeway.

Phoenix Realty Group Has Strong Outlook

Phoenix Realty Group, who has been very active in the Greater Los Angeles real estate market over the last year, recently acquired yet another multifamily property. PRG acquired the 220-unit Pine Club Apartments in Pomona, CA for $23 Million. This acquisition is the 9th such acquisition PRG has completed in the last year within the Greater Los Angeles Area. Their 9 communities now total over 1,700 units.

Survey Shows Reason for Hope

A survey recently released, The Allen Matkins/UCLA Anderson Forecast, states that the L.A. commercial real estate market is in fact in recovery mode. The article points to the fact that prices have slowly continued to increase and vacancy rates have been slowly easing, as L.A. continues working itself out of the “Great Recession.” John Tipton, a partner at Allen Matkins, a law firm that specializes in real estate and that was involved in the survey, reiterates this point by saying “we’ve seen a consistent increase of both activity and product pricing over the last 12 months.” The consensus of many experts and researchers in the real estate field is that rental rates will be higher and vacancy rates lower by 2014. Jim Lindvall, a managing director at Jones Lang LaSalle, believes in a market shift as well. He says “we’ve been doing a lot of easing recently, most of it renewals. The market, in my mind, has kind of hit bottom and we’re poised for a recovery.” As the recovery starts to gain traction, many experts believe that investors will see great opportunities in the commercial real estate market, and more specifically, apartment investments in Los Angeles.