L.A. Developer Launches New Projects Despite Apartment Disruption

Los Angeles-based developer Trion Properties has acquired a double-parcel lot in the Pico-Robertson area of Los Angeles for $5.2 million. The developer plans to build a 29-unit luxury property on the land site.

Trion purchased the property in an off-market transaction. The land site is vacant and was unentitled at the time of the acquisition. However, Trion was able to secure entitlements during the escrow period to mitigate some risk and carry costs. “We were giving the unique opportunity to go under contract and release some money in order to have a long escrow to entitle the deal while being in escrow,” says David Moghavem, director of acquisitions at Trion Properties, tells GlobeSt.com. “That gave us a lot of power to buy an unentitled site and mitigated any entitlement risk while meeting our criteria with the intention of actually building the property, which we plan to do in the second quarter.”

The property is located in a class-A market adjacent to Beverly Hills and Century City. The property will feature two- and three-bedroom units averaging 1,090 square feet. Trion is scheduled to break ground in the second quarter.

The Los Angeles apartment market has struggled through the pandemic. Recent data shows apartment rents have decreased nearly 8% since the beginning of the year and the vacancy rate is increasing. Still, Trion is bullish on the immediate Pico-Robertson area because it is low density. “We have been avoiding high supply areas for development, like Downtown Los Angeles and Koreatown. We think that Pico-Robertson is more insulated in terms of the supply pipeline. Within a one-mile radius, there is 500 units being developed of which 100 are so are the same product type as ours,” says Moghavem. “We feel really good about what we are building and where we are building.”

In addition, Pico-Robertson has seen less rent loss through the pandemic than other Los Angeles markets, supporting Trion’s bullish outlook. “L.A. has had some submarkets with double-digit rent declines,” says Moghavem. “Pico-Robertson since the beginning of the pandemic has declines only 3%. That speaks to the resiliency of this submarket during the pandemic.”

The long escrow period had helped to mitigate risk during the pandemic, but also underwrote the deal conservatively with plans to lease the property in a concession-friendly market. “We are looking at deals from an un-trended return-on-cost basis. We are not banking rent growth, which there is no rent growth on new product in L.A. The long escrow also allows us to de-risk this deal even further,” says Moghavem.

The long escrow period was the major benefit in the deal. Trion has yet to see a significant discount on land prices. “The bid-ask spread is still pretty wide. Going into 2021, everyone is expecting a larger discount in land prices. It isn’t only about COVID. Lumber prices are currently at an all-time high, and they are not coming down, and labor is still very expensive,” says Moghavem. “Those costs coupled with declining rents and leasing in a concession market is taking a toll on land prices. We are waiting for land prices to come down even further.”