The West Coast Multifamily Market is Red Hot. Here's Why.
With homeownership still declining, the fundamentals for apartments are soaring above other sectors, and the West is best—home to more than half of the nation's Top 10 multifamily markets. That's why we're thrilled to host the top players in this thriving market at Bisnow's national multifamily conference tomorrow, an all-day event starting at 8:15am at the JW Marriott at LA LIVE. (Register here.)
Among our panelists will be Berkadia senior managing director Dean Zander (here whispering to Warren Buffett at a client appreciation event in Omaha), who tells us that while SoCal has long been a favored market nationally for multifamily investors, with LA ranked second only to New York in terms of new job creation, he’s experiencing heightened demand in an already competitive environment. In order to remain competitive nowadays, he says, investors are finding they often need to offer non-contingent money from day one, especially if it's a newer asset. Of the six deals Dean and his team closed since June, four of them fit this trend.
Most recently, Dean and Berkadia colleagues Vince Norris and Margie Molloy sold the 256-unit Broadstone Overlook in Moreno Valley for $44M cash. The deal closed at a sub-five cap for nearly $172k/unit, which he says is a level that hadn't been tested yet for Moreno Valley in this cycle. Dean notes the property generated nearly a dozen qualified offers from local, regional and national investors, a handful of which were willing to go nonrefundable with their deposit from the very first day.
Another panelist will be TruAmerica Multifamily CEO Bob Hart (snapped at a previous Bisnow multifamily summit), who launched the TruAmerica Multifamily JV with Guardian Life two years ago. We chatted with TruAmerica chief administrative officer Mark Enfield, who tells us the company just closed a flurry of acquisitions, during which it entered three new markets, including Las Vegas and Utah. In addition, the firm continued its Pacific Northwest expansion with the purchase of its first community in Portland, OR.
TruAmerica is now in seven Western states, focused on value-add Class-B or better product in the major metros. Mark notes the Western US has the lowest homeownership rates in the country as well as some of the best economic and market fundamentals in the country. "Those two combined make the workforce housing or value-add multifamily business model pretty attractive, especially to institutional investors," he says. As of June, TruAmerica was the No. 6 apartment buyer in the US and No. 11 in the world based on transaction volume over the past year, according to Real Capital Analytics.
And they're not letting a little thing like California's drought stop them—TruAmerica recently launched a TruAmerica Green initiative that it will begin implementing soon. The program doesn't focus only on water conservation; one of the things it calls for is converting new acquisitions and existing properties to xeriscapes, shaping its renovation plans from the get-go in arid climates.
Another panelist will be Laramar Group VP Matt Levy (with wife Stacy and daughter Eleanor in Cabo). He tells us that over the past two years, the company has focused on growing its urban neighborhood platform through the acquisition of existing apartment buildings in 10 of the most dynamic and emerging urban areas in the country. The company's goal is to build a critical mass of buildings in these core infill neighborhoods and corridors, he says. In LA, where the company has acquired 27 buildings under this strategy, he cites Hollywood, Koreatown, North Hollywood and East Hollywood as examples.
Turn left or right off a street like Sunset Boulevard, and you'll hit the kind of area Matt is talking about—an established neighborhood that's surging with retail and restaurant opportunities. "For us, the No. 1 amenity is the building's neighborhood and location." This includes a 24/7 vibe, walking distance to activities, proximity to job centers and access to public transit.
Matt says the company looks for smaller (15 to 100 units) value-add buildings with great character that it can renovate and reposition through Laramar's institutional-level management. Outside of LA, Laramar has acquired nearly 20 buildings under this strategy in San Francisco and a dozen in Denver, plus 33 buildings in Chicago.
We also chatted with Universe Holdings CEO Henry Manoucheri, who will moderate a panel on lending. It's a topic that's apropos, because Henry tells us Universe is in the middle of refinancing a number of its properties, including a $26.5M loan that's set to close next month on one of its largest assets, a 300-unit property. The firm's also raising $50M in its first real estate value-add fund, which will target multifamily investments in California and other West Coast markets.
Last fall, Universe acquired The Sycamores, a 50-unit apartment community in Inglewood, with plans for a series of property upgrades and improvements. The result is the firm has been able to turn 80% of the units and exceeded its projected rents, Henry says. The deal, which followed a portfolio recap, also marked a renewed interest in the LA market for Universe, which is in an expansion mode and looking to significantly increase its portfolio in the next year or two. Come hear more from Henry and an all-star cast tomorrow at Bisnow's BMAC West at the JW Marriott at LA LIVE, beginning at 8:15am. Sign up here!