Rising rents spark buying frenzy among apartment investors

Paul Julian visited an Inland Empire apartment building on Sept. 28, looking to buy.

But when the Advanced Real Estate Services executive got there, he realized a host of other apartment shoppers were just as keen to add the 200-unit property to their portfolios.

“It’s going to be incredibly bid up. It’s going about 10% higher than we expected,” said Julian, a principal at his Irvine-based multifamily firm, which manages about 10,000 Southern California apartments. “They’re probably going to receive north of 10 offers. North of 15 offers, even. All the institutional (investors) are interested in this.”

Apartments are a hot commodity, and not just in the Inland Empire. Following a year in which the pandemic sent the industry into a tailspin, sales are rebounding throughout Southern California, pushing up prices.

“We haven’t seen this many deals on the market in a very long time,” Julian said.

Seventh Street Apartments, a 4,213 square-foot apartment building with six units at 405 7th St. in Huntington Beach, sold for $2,670,000 or $445,000 per unit, according to Greg Bassirpou, first vice president with the firm’s Bassirpou Group. (Courtesy of Bassirpou Group)

Demand for multifamily properties jumped 34% to 1,721 transactions in Los Angeles, Orange, Riverside and San Bernardino counties during the first nine months of 2021, figures from CoStar show. And with prices soaring, total dollars spent buying these complexes increased 69% to almost $9.8 billion this year so far.

“I’ve been doing this for 30-some years, and I will tell you that I’ve never seen it this hot, this crazy,” said Jeff Rowerdink, a multifamily broker and principal with Orange County-based Saltcreek Capital Advisors. “It’s very competitive for these buildings, but not just here in California. If you go across the United States, it’s everywhere.”

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With rent up and vacancies down, apartments are a safe investment, brokers and investors say. Low interest rates and the need to put pent-up capital to work also are motivating buyers.

Meanwhile, sellers are capitalizing on high prices, cashing out while it’s still possible to take advantage of tax benefits threatened by proposed Biden administration reforms.

Tenants in older buildings could feel the effects of this upswing as investors spruce up buildings and raise rents. Under AB 1482, the statewide rent cap limits rent hikes to 8.6% a year in Southern California, even if the ownership changes.

There’s been a lot of capital on the sidelines, and now investors are ready to pounce, said Nicholas Dunlap, senior vice president of acquisitions for low-income apartment investor Avanath Capital Management.

“It’s sort of a feeding frenzy for buyers,” Dunlap said. “We’re emerging from the pandemic. We’re not shut down. People aren’t sheltering in place. … People see us emerging from the tunnel. They don’t have the unknowns we had in 2020.”

Howard Avenue Apartments in Los Alamitos has been sold for $4,500,000 or $450,000 per unit, according to Marcus & Millichap. It was the first time the property has traded owners since it was built in 1985. The 10,639 square-foot complex at at 3962-3970 Howard Ave. has nine two-bedroom units and one three-bedroom unit. (Courtesy …read more

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Source:: Los Angeles Daily News

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