SFV Sees High Investor Demand

LOS ANGELES—Berkadia's Los Angeles office has closed on four multifamily sales in the San Fernando Valley totaling $57 million. Investors are heading to the San Fernando Valley submarket to take advantage the high demand and limited construction, and these sales show than investor interest continues to grow.

“Throughout nearly all the San Fernando Valley submarkets, it will be a decade before new construction catches up with demand as there were virtually zero new deliveries from 2009-2013,” Dean Zander, a senior managing director at Berkadia who worked on these transactions, tells GlobeSt.com. “I believe projected demographic and economic trends will drive significant growth in the renting population, and the rental rates themselves, for the next two decades.” Zander represented the sellers in the four transactions along with Berkadia managing director Vince Norris, who adds that the submarket is the first alternative to much higher-priced markets like Santa Monica and West Los Angeles. “Cap rates in the valley are generally 50 to 75 basis points higher, so the stronger yields along with rising rents are driving investor interest to the valley,” he tells GlobeSt.com.

Zander and Norris sold the South Seas Apartments, Mountainback Apartment Homes, Valleyheart Gardens and Sylmar Gardens for a total of $57 million. The 124-unit Mountainback community garnered the highest individual sales price of $24.25 million. The property has two eight story buildings and sits on 5.5 acres. A private investment group purchased the property from Jackson Square Properties, and plans to invest additional capital on property improvements. Royal Oak Apartments and Pall Mall Properties acquired the 54-unit Valleyheart Gardens and Sylmar Gardens communities from the original developer for a combined $29 million, while Essential Management purchased the South Seas Apartments for $4.3 million from a private seller. “Each of the properties generated multiple property tours with an overwhelming number of offers,” says Norris. “All of the properties sold at or above 98% of their expected selling prices.”  

While the sales team received high interest from investors, the sellers all had different reasons for bringing the properties to market. However, Zander says that it was the historically low cap rates and interest rates that helped encourage the sellers to go to market. “Each of our seller's motivations were different, but generally investor's appetite for multifamily product in strong submarkets is at an all-time high.  Each seller was able to take advantage of extremely strong investor demand, rising rents and near 100% occupancy,” he says. “Since 2014, the value-add operators have proven that tenants have the ability and desire to pay more for renovated and upgraded interiors.”

Outside of this specific market, these sales also show that investor demand for multifamily product is continuing to grow as well. “Investors were drawn to these properties and in general are drawn to the multifamily sector in part because of the quicker revenue life-cycle,” adds Norris. “A good operator can significantly increase net income in 12 months; a commercial property encumbered by a long or mid-term lease generally has fixed or CPI increases. With the broader multifamily market seeing 8% or more revenue growth, the “hot” money continues to chase multifamily.”

But, it isn't only multifamily investors flooding into the market. The San Fernando Valley has one of the lowest industrial vacancy rates in Southern California. As a result, competition for industrial product in the submarket is steep. In a recent interview, industrial investors Rexford Industrial said that the market has the best fundamentals in Southern California.