Multifamily Sales Volume Is Declining in Santa Barbara
Because most owners hold buildings for generations, there are limited opportunities to invest in Santa Barbara multifamily product.
“Santa Barbara has always been a market where people truly understand the value of investment in real estate, especially multifamily,” Paul Gamberdella of Radius principal, tells GlobeSt.com. “We see properties held through generations and the typical practice has been that you do not sell unless you need to. That pattern is slowly changing as investors become more educated about the opportunities of exchanging properties and leveraging your equity to increase your returns.”
Santa Barbara is home to a significant rental market with strong demand for rental housing, and that has fueled long-term hold business models. Additionally, there is limited new construction, which helps to put pressure on rents. “We have a lifestyle that is very desirable and we also have a strong renter base here,” Gamberdella says. “More than 60% of the housing in our area is rental housing and with natural barriers to entry such as limited land for development combined with local governments that can make it difficult to develop new housing units, we see a real lack of supply that pushes rents and property values upward. This makes our market very attractive to local and out of area investors.”
That could all be changing, however. New legislation could erode the benefits of long-term apartment ownership. “We see some issues on the horizon that could alter the perceived benefits of long term holding of real estate in California,” says Gamberdella. “There are discussions at the state level of removing the exemptions on assessment for intergenerational transfers and that could impact a lot of 2nd and 3rd generation owners of investment real estate. The limited supply definitely impacts pricing and competition as we regularly see multiple offers on quality properties when they come to market. Investors have always felt that the Santa Barbara area, high among other communities, was a safe harbor for multifamily investment.”
While sales activity has been slow for both apartments and multifamily product this year, Gamberdella expects activity in 2019 to resemble that of 2018. “I expect the volume of total sales transactions by yearend will resemble more what we experienced last year than 2016-2017 commercial sales volume numbers,” he says. “Looking closer at the numbers this should not be a big surprise. Case in point, if you do not include total sales transactions from the recession years of 2008 through 2010, total sales transactions numbers from the periods of 2004-2007 and 2011-2018 have averaged 83 total sales per year. From where I sit that’s about right where we should be.”