How Will Brexit Affect the L.A. Market?

Paul Zeger is a partner at Polaris Pacific.

LOS ANGELES—Will Brexit, Great Britain’s exit from the European Union, have an impact on the local Los Angeles market? Paul Zeger , a partner at Polaris Pacific , says that the condo market here may be impacted—in a positive way. He says that many British investors may look to the Los Angele market as a flight to safety, and with foreign investors already looking in the condo market it is a perfect match. To find out more about how this global upset may affect Angelenos, we sat down with Zeger for an exclusive interview. GlobeSt.com: Brexit is clearly having a major global impact. How will it impact the Los Angeles condo market? Paul Zeger: At the end of the day, only time will tell the true impact of Brexit on Los Angeles. That said, there are several factors that already point to a positive market influence. Historically, capital exits to safe havens. If England’s future is uncertain, investors will look to US projects to safeguard their portfolios. Just this week we have had a surge in calls from Asian capital sources looking for unentitled US properties where they can park money until the next cycle. In addition, the uncertainty in Europe will likely motivate the Feds to keep interest rates low. The typical Gateway markets like New York and Miami are at a different stage in their cycles – the picture looks much rosier on the West Coast and Los Angeles will see an increase in investor capital. GlobeSt.com: Has Brexit affected your five-year outlook? Tell me how the two compare before and after Brexit. Zeger: Brexit has bought us more time and will result in an extended cycle. If public sentiment encourages the Federal Government to keep interest rates low, this expands our current cycle another two years while we wait for Brexit to actually materialize. In that time, that means additional capital coming into the market, with more opportunity to build. GlobeSt.com: Los Angeles locals are already competing with foreign investors for condo product. Do you expect this to competition to increase, and prices to increase as a result? What is your advice to consumers looking for a condo? Zeger: There’s no doubt that Brexit will continue to attract foreign investors to Los Angeles. The best advice for someone looking to buy a condo is to do it now will interest rates are low and product built at today’s costs are available.  The continued increase in the cost of construction leads us to believe that even when more product is delivered, the cost of building that will have risen so the sales prices will continue to climb. Real estate is a strong long-term investment. Purchasing a condo, especially in an active neighborhood like Downtown Los Angeles at today’s rates locks in a basis and a monthly cost that over time has proven to provide strong returns. GlobeSt.com: What response have you gotten from your development and investment clients? Have you started or do you expect to start getting more foreign clients? Zeger: We predict that Brexit will boost an interest from foreign buyers. While there has been significant investment from Chinese and Asian investors in Los Angeles during this cycle, we expect that interest will be extended and we may start to see investors from other parts of the world getting more active. GlobeSt.com: Do you think that condo development will increase in the coming years as a result of Brexit?  Zeger: There is certainly a strong pipeline that we’ll see come into the market over the next few years. The LA conversation is undoubtedly one that centers on location, location, location. The lion’s share of what is planned and approved is in Downtown Los Angeles, and I anticipate that this trend will continue.  While the infill projects on the west side and at the beach will continue to sell at for very high values the biggest opportunity will be in downtown and the surrounding areas where the infrastructure can support thousands of new residents. GlobeSt.com: There has been some talk of an oncoming recession that might affect new condo delivers. Has Brexit had any impact here? Zeger: There are a lot of uncertainties impacting public and investor perception that could contribute to a potential slowdown of the market – the November election, employment rates, and now Brexit. The reality is that right now Los Angeles continues to have an undersupply of inventory, but demand is strong. With 500,000 daily workers coming downtown there is an ongoing demand that will likely continue right through any short-term inflection in the economy. If demand is strong and supply is limited there will be enough price inflation to continue to support new development.