LOS ANGELES—The Los Angeles market is seeing more competition for class-B and class-C product than ever before, according to Sagiv Rosano, the founder and president of Rosano Partners, an L.A.-based brokerage firm. Rosano is one of the speakers on the brokerage leadership panel at the upcoming RealShare Los Angeles on March 19, and sat down to talk to us about his take on the market for a sneak peek at what we can expect at the conference.

“It is very interesting, there is a lot of movement right now toward B and C product,” Rosano tells GlobeSt.com. “The A product has almost topped out, and the yields are better on lower-quality property types. More people want to take a chance on properties in neighborhoods like Highland Park, and deals like that never would have happened two or three years ago.”

Although he notes that there is plenty of competition—even for overpriced product, he also sees that properties are starting to stay on the market for longer. “I think buyers are becoming a little more cautious,” he said. For the B and C properties, buyers are making a redevelopment play, buying properties with all cash and adding value through redevelopment and reposition to augment their yields. In this space, multifamily products are averaging 5% cap rates and retail products are averaging 6% cap rates (these are the two property types on which his company focuses), and Rosano expects that to continue through the next year.

“In 2015, we don't believe that interest rates will move much,” he says. “There is going to be some movement, but it is going only be like 20 to 30 basis points, and it is not going to happen any time before the election. Because of the supply and the liquidity in the market, we should actually be in the negative interest rates, but because there is no such thing as a negative interest rate, the rates will remain low at least for 2015 and probably 2016.”

Although there is an excess of capital in the market and low interest rates, which he expects to continue well into the future, there are still some challenges in the market, namely an over enthusiasm because of the healthy market conditions. “There is a lot of buzz right now about how the real estate market is doing so great, and I think it creates a false perception,” says Rosano. “Everybody has an exaggerated valuation. For us as brokers, we need to cover the gap between unrealistic sellers and buyers, as well as lessors and tenants, and their expectations. The tremendous buzz in the market to push sellers and lessor to ignore the economics such as sold comps, rent analysis, highest and best use analysis to push value via higher rents. These are attempts for near term value creation, but the result is we see vacancies and very high tenant velocity.”

To hear more about the market, brokerage trends and Rosano's thoughts, join us for RealShare Los Angeles on March 19.

Instant Insights /

Competition Increases on B and C Product

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