X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

LOS ANGELES-Rents are projected to slide and vacancies to inch upward in the Los Angeles apartment market, but the L.A. multifamily market remains one of the healthiest sectors of commercial real estate despite weakened fundamentals, according to a new report. The survey of conditions in the second quarter thus far by Marcus & Millichap shows that renters are doubling up–in other words, taking in roommates to ease expenses as job losses reduce incomes. The report notes that the estimated year-over-year elimination of more than 30,000 manufacturing jobs marketwide “has weighed on vacancy in the South Bay/Long Beach market, which will likely result in the area’s first annual rent reductionsince 1993.”

Couuntywide, vacancy is forecast to increase 160 basis points to 6.1% by year-end 2009, following a rise of 90 basis points last year. “As vacancy creeps higher and soft economic conditions restrict demand, owners will offer greater concessions,” the forecast says. Asking rents countywide are projected to finish the year at $1,425 per month, a slide of 2.6%, while effective rents will drop 3.4% to $1,362 per month.

The impact of the weakening fundamentals on investment is that sales activity is expected to remain sluggish, but “Experienced local buyers may be preparing to return to the market in search of bargains,” the forecast states. It notes that a handful of sales involving assets under threat of foreclosure have taken place recently, a trend that may accelerate as loans come due.

Cap rates have risen roughly 30 basis points over the last year to an average in the high-5% range. With fewer buyers in the market, sales velocity has declined 25% over the past 12 months. The recession has intensified investors’ concerns, as transaction activity over the last six months is down more than 20 from levels of the previous six-months.

As in other property sectors, the bid-ask gap between buyers and sellers remains one of the obstacles to closing deals. “Many bargain-seekers are anticipating an increase in multifamily defaults and troubled assets in areas such as the San Fernando Valley,” the Marcus & Millichap report notes.

The forecast includes a commentary by William E. Hughes, SVP of Marcus & Millichap Capital Corp., who notes that despite ongoing uncertainty in the financial markets and among some of the country’s largest banks, debt financing remains available, and the apartment sector has benefited from the presence of Fannie Mae and Freddie Mac, which continue to fund multifamily loans. Standards have tightened considerably, however, with lenders requiring loan-to-value ratios of 55% to 75% and debt-service coverage ratios are in therange of 1.25 to 1.30, “higher than in recent years, but closer to historical norms,” Hughes points out.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?

GlobeSt. APARTMENTS SPRING 2021Event

Join 1000+ of the industry's top owners, investors, developers, brokers & financiers at THE MULTIFAMILY EVENT OF THE YEAR!

Get More Information
 

GlobeSt

Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.