Demand Up for Core Apartment Investment in OC
While there is interest from all capital sources in the Orange County multifamily market, there is a renewed interest in core deals as of late.
Investors are showing a renewed interest in core apartment deals at the start of the year in Orange County. The market, like much of Southern California, has fewer value-add opportunities. However, with strong multifamily demand, a tightening supply and rising rents, investors are looking to place capital in a broader swath of multifamily opportunities in the market.
“There is still a lot of capital targeting Southern California, including core capital, core-plus capital and value-add capital, but we are seeing a renewed interest in core deals,” Darcy Miramontes of JLL’s capital markets team tells GlobeSt.com. “We are seeing a more renewed interest in core because the returns have been so compressed in the value-add and core-plus space.”
Bob Patterson of JLL’s capital markets team agrees that the renewed interest in core product has come from limited opportunities in the value-add and core-plus space, as well as rising asset values. “It is a factor of returns in the value-add space. Folks are able to look at the risk-adjusted returns in value-add, core-plus and core, and arrive at the conclusion that core may be a better investment for their particular business strategy,” he tells GlobeSt.com.
While there are limited opportunities in general to purchase an apartment asset in Orange County, new construction activity has created some core product supply in the market. However, the strong market conditions have encouraged builders to hold for longer terms as well. “The majority of those deals in Orange County are built to core with an investor that intends to build and hold for an extended period of time,” adds Patterson. “So, prying those deals lose in Orange County can be challenging.”
In general, this trend is really the result of a supply demand imbalance between investment capital and acquisition opportunities. “Investors, when they come to California, have a tendency to widen their net,” Miramontes explains. “They learn very quickly that if they keep a small net, they won’t transact. They won’t be competitive and they won’t find deals. They really have to pivot, and that is something that we see all of the time.”
She notes, however, that this capital is chasing all deals in the market—not only core deals. “Make no mistake, there are investors across all types of multifamily deals,” she explains. “It is the difference between getting 25 offers and 15 offers. It is still a really competitive space when you compare the two, but it gets nuanced.”