Do You Really Get a Better Deal Outside of California?

Office investors are heading en masse to Seattle, Denver and Phoenix looking for yield, but the exodus of capital out of the state has driven up prices and compressed cap rates in those markets. Olive Hill Group, an active Los Angeles-based investor, says that they are seeing the same competition and bidding wars in those markets. The firm is specifically seeing strong competition in Seattle, and says that other investors looking in the market should expect competition similar to what we are seeing in Los Angeles.

“We are continuing to look outside of L.A. because a number of other markets have continued to heat up and show resilience,” Tim Lee, VP of corporate development and legal affairs at Olive Hill Group, tells GlobeSt.com. “These other markets, however, are not any less competitive than L.A. We were looking at some deals in Seattle, and we were seeing dozens of bids on the properties that we bid on. There is an idea that if you go to these other markets, the deals are less competitive. We haven’t found that at all. They are just as competitive as in L.A.”

While the competition has driven pricing up, the yields are still better than what you will get in the Los Angeles market—but that may be changing. “The yields area little better, but they are starting to trend toward the lower cap rates that you find in L.A. because of the competitive pressure and because investors are seeking opportunities outside of the core markets,” says Lee. “We are seeing capital being very strong for debt and equity in those markets, and we are not seeing a signs for a slow down because investor capital is so strong.”

The Seattle market is also experiencing a talent shortage, making it difficult for some companies to expand. As a result, companies are now looking to move or open additional offices in Austin or Denver. “Seattle is a very interesting market because Amazon is there, and they are continuing to hire like crazy,” says Lee. “The amount of people that they are hiring is significant, especially compared to what we are hiring in L.A.’s entire tech sector. One company is hiring thousands of employees, and that is putting a lot of pressure on being able to find talent in Seattle. Because of that, we are seeing companies looking outside of Seattle and looking inland at Austin or Denver for tech talent.”

While capital is competitive in markets throughout the Western US, Olive Hill Group has no plans to leave the region. “We are focused on the West Coast, but we are keeping an eye on it,” says Lee. “Those markets might not be ready for us now, but those could be markets that we want to look at in the next few years.”