Los Angeles apartments actually weathered the pandemic. Since the beginning of the pandemic CBRE Brokers have tracked apartment rental collections and found that rental collections consistently trended above 90%.
“When COVID-19 hit, we were afraid of the market, which upset many people. At that point, we started tracking rental income – we are now in the fifth month – and found that rental payments stayed above 90 percent month after month. " Dan Blackwell, EPP at CBRE, tells GlobeSt.com. "At this high level, bank credit confidence has returned, followed by investor interest."
While rental income has exceeded original expectations, investment in apartments has been disrupted. Capital is leaving the state faster than before the pandemic. "We always had a fair amount of the capital that flowed out of the state, but COVID-19 has accelerated that trend somewhat," Blackwell says. "Note that many more of our customers want to stay in the apartment building, while in the past some investors have chosen to move out of the multi-family business and move into non-state retail."
Additionally, owners of existing California assets trade in real estate outside of the state. “COVID has pushed the exit strategy of some investors quickly. We have seen an increase in quality goods under long-term ownership, ”says Blackwell. “Certain investors are staying in California. They understand future headwinds and look for assets that they could improve in sub-markets with good fundamentals. For example, it could be a Los Angeles property owner looking for something to trade in in a less restrictive Orange County market. "
However, there are fewer buyers for these options. “While the pool of buyers has likely halved, pricing isn't that far off due to the good rental collection and low interest rates. So far this year we have closed 17 transactions, which shows the continued activity in the multi-family space, ”says Blackwell.
That doesn't mean there isn't a demand for apartment buildings in Los Angeles. In fact, some recent laws have helped stimulate investment. “Many of those who want to invest in apartment buildings are looking for new ways to create value. Because of this, real estate for residential units has become increasingly attractive to many of our customers, ”says Blackwell. “This designation, which was introduced in California earlier this year, offers more flexibility when changing a property. For example, you can transform garages, common rooms and common rooms into apartments. "
Looking ahead, investors are focusing on real estate-related voting that could continue to affect the profitability of investments in the market. "What people are thinking now is not so much the presidential election as the local proposals and ballots," says Blackwell. “As we approach November, these issues are coming to the fore for investors. A large proportion of them are taking a wait-and-see approach while others are now able to act longer term. "