Orange County apartments have actually held up through the pandemic. Since the start of the pandemic, CBRE brokers have been tracking apartment rent collections, and they have found that rent collections have consistently trended above 90%.
“When COVID-19 hit we did experience market anxiety that sidelined a lot of people. At that point, we started tracking rent collections– we’re now in the fifth month of doing so—and realized rent payments remained at 90-plus percent month over month over month,” Dan Blackwell, EVP in CBRE’s Newport Beach office, tells GlobeSt.com. “At these high levels, we have seen bank lending confidence come back, followed by investor interest.”
While rent collections have outperformed initial expectations, apartment investment activity has been disrupted. Capital is moving out of the state at a faster rate than before the pandemic. “We have always had a good portion of capital flowing out of state, but COVID-19 has accelerated that trend somewhat,” says Blackwell. “Something to note is that many more of our clients want to stay in multifamily whereas in the past, quite a few investors have opted to trade out of multifamily and get into out-of-state retail.”
In addition, owners are trading out of existing California assets into properties outside of the state. “COVID has fast-forwarded some investors’ exit strategy. We’ve seen an uptick in quality assets under long-term ownership come to market,” says Blackwell. “Certain investors are staying put in California. They understand future headwinds and are looking for assets they could improve on in submarkets that have good fundamentals. It might be an owner of a property in Los Angeles looking for something to exchange into in a less restrictive market in Orange County, for example.”
However, there are fewer buyers for these opportunities. “While the buyer pool has probably dropped in half, the pricing isn’t that far off because of good rent collection and favorable interest rates. We have closed 17 transactions this year so far, which illustrates the continuing activity in the multifamily space,” says Blackwell.
That doesn’t mean that there is no demand for multifamily in Orange County. In fact, some recent legislation has helped to fuel investment. “Many of those looking to invest in multifamily properties are seeking new ways to value add. That’s why accessory dwelling unit properties have become increasingly attractive to many of our clients,” says Blackwell. “This designation, which was introduced in California earlier this year, provides more flexibility in how you can alter a property. For example, convert garages, common areas and rec-rooms into dwellings.”
Looking ahead, investors are focused on real estate-related ballot measures that could continue to impact investment viability in the market. “What is on people’s minds now are less the presidential elections but the local propositions and ballots,” says Blackwell. “As we get closer to November, these topics are moving to the forefront of investors’ minds. A good portion of them are taking a wait-and-see approach while others are fine to act now, taking a longer-term view.”