Hollywood Proves Itself in the MF Sector

HOLLYWOOD, CA-Like many submarkets throughout Los Angeles, for-sale multifamily inventory in Hollywood remains tight. In the 90028 zip code, which is the heart of Hollywood and the new “downtown,” there are currently only seven multifamily properties with more than five units to be found for sale, per Loopnet and the MLS. Long-term and mid-term owners have seen the market make large strides following the downturn five years ago.  Average rental rates have grown steadily with an increase of 2.1% ending the third quarter of 2013 from the same time last year. Additionally, vacancy remains low and the third quarter of 2013 marked the ninth consecutive quarter of vacancy below 4% for the greater Los Angeles County market. As a result of these positive market signals, many owners find themselves in a holding pattern anticipating continued growth in the market.

Hollywood multifamily deals continue to make headlines with the recent acquisition by BRE Properties, a public REIT, of the Jefferson at Hollywood. BRE reportedly paid $120.5 million for the 270-unit, class-A community built in 2010 that is located across from the Metro Red Line's Highland station.

The Jefferson at Hollywood sale follows on the heels of the sale of the Sunset and Vine tower, a property consisting of 64 luxury residences over retail space. This is another institutional transaction that is reported to have sold for a jaw-dropping price of $71.75 million. With the demand and pricing for today's deals in this submarket, it is now an understatement to say that Hollywood real estate is on fire!

Cap rates have steadily compressed to an average of 5.3% on middle-market deals ranging in price from $2 million and $10 million. This is down about 50 basis points in the first three quarters of 2013 compared to the same period last year, according to a Costar survey. 

The success of Hollywood is rooted in its entertainment heritage and is propelled by the transformations of the last decade. During this time frame, Hollywood has been open to new development and has allowed shovels in the ground. New projects have sprouted up along Hollywood and Sunset Boulevards, making their way east of the 101 Freeway. The area has created an environment that integrates urban living, walkability and access to public transportation with a strong employment, entertainment, and lifestyle center.

With a large pipeline of development projects currently underway, don't expect to see the cranes going away any time soon. In fact, some of Hollywood's landmarks are at the heart of the redevelopment, with high-rise development projects planned for the Capital Records property and the Hollywood Paladium, as well as a mid-rise, mixed-use project at Selma and Vine, to name a few.

On the commercial front, Hollywood shows the same signs of vitality as in multifamily properties creating a symbiotic relationship and ideal environment for growth. Projects such as Columbia Square at Sunset and Gower are reported to include the development of two new office buildings totaling 330,000 square feet. 1601 Vine is a planned eight-story office building over retail. Emerson College Hollywood Center is nearing completion and will be a 10-story architectural statement at Sunset and Gordon.  These projects exemplify the optimism for office space in Hollywood, which should be well positioned to capture highly sought after entertainment, media and tech tenants.

This historic entertainment capital is well on its way to evolving into a creative melting pot of entertainment, media and technology with a strong residential base that is second to none.

Bryan Glenn, senior director with Charles Dunn Co., specializes in the sale of multifamily and commercial-investment properties with a focus on the Hollywood and mid-Wilshire markets.