LOS ANGELES—At the annual Marcus & Millichap Southern California Multifamily Forum, developers on the “Anything But 90210” panel, which discussed emerging markets in California, explained that often, they looked for projects with a “story.” Jim Andersen, SVP at Trammell Crow Co.; Mark Crawford, principal at Crawford Park Financial; Bill Montgomery, president of acquisitions and investment at Sares-Regis Group; Chad Sanderson, principal of business development and acquisitions at Bascom Group; Kevin Wilch, business development executive at Sears Holding Co.; and Joel Zide, principal at Mashcole Property Management Inc. sat on the expert panel to discuss the up-an-coming geographic markets on which they are finding the most projects.
“We are always looking for the best institutional story,” said Andersen on the panel, noting that infrastructure, neighborhood and proximity to public transit are among the key characteristics. “Lenders are getting more sophisticated about what property characteristics drive higher rents.” He used the example of a recent lender asking about the walkability score of a property, and getting excited to hear that it was high.
The group of developers had projects in cities and submarkets throughout the West Coast, noting Woodland Hills, Downtown L.A., Baldwin Hills, Las Vegas and Phoenix as some of the major hubs; however, rather than focus on geographic location, each pointed out that the surrounding amenities were the most important in deciding if a project was a good investment. Among those listed, proximity to public transit and job centers was most key to pinpointing a successful investment.
“Baldwin Hills area has amazing story. Every fourth stoplight has video camera now, so big brother is watching,” said Zide, adding that the increase in safety makes it a great time to get in and redevelop the area. In his experience, clients are most interested in class-C and class-D property types that have a good value-add component. “To me the class-A and class-B market is drying up, but that is just in my world.”
In the end, of course, the key factor is price. When moderator Daniel Gehman, studio leader at Harley Ellis Devereaux, asked each panelists what would cause them to walk away from a deal, each said price would always be the greatest determining factor. Andersen added that the property’s full story includes the price. Currently, however, prices aren’t deterring many buyers evidenced by the steep competition in the market. Montgomery notes that sometimes 13 buyers will show up at a property ready to buy while yields are going up. “It is crushing deals,” he says.
Local governments are a big part of the rapid development throughout Southern California. Many cities have redeveloped their regulations and created a pro-growth environment that makes it easier for developers to come in an get entitlements and complete a project in a reasonable time frame. Andersen uses downtown as an example, saying, “That is not an accident. That is an example of city government encouraging and fostering growth.
This was Marcus & Millichap’s second-annual Multifamily Forum. In addition to these conferences, the company also hosts webcasts with thought leaders. At the beginning of the year, the released a 2014 outlook webcast, where leaders discussed the increased presence of CMBS loans this year.