Why We Like Los Angeles Multifamily

Los Angeles is a strong, diverse and economy, with a growing population. It is currently experiencing a severe undersupply of rental housing, as renters become an increasing portion of that population due to the prohibitive cost of single family homes. Rising interest rates are only putting homeownership further out of reach for most residents.

For the next 10 years, the Los Angeles economy is projected to add 60,000 jobs annually, yet only 10,000 housing units. This is due to the lack of available land, and the the city’s complicated permitting process and regulatory environment make it a notoriously difficult place to build.  The gap between supply and demand, already a problem, will only grow.

Most real estate boom cycles are killed by overbuilding.  That seems unlikely in Los Angeles.               

This is contributing to rising real estate values. An additional factor is foreign investment, which has increased dramatically in the past 5 years as the rest of the world (China and India, for example) becomes more affluent.  Despite its political challenges, the U.S. remains the world’s most stable currency, political system, and strongest economy, and is where the rest of the world parks its wealth.  As a result, real estate investment in the U.S. from overseas reached a record $351 billion in 2017. Coastal, “gateway” cities, like Los Angeles, Miami and New York received the vast majority of this investment. 

As demand for Los Angeles multifamily grows, new units being built are primarily high-end luxury units -- the only unit-type that pencils out for builders after the permitting costs are factored in. As a result, affordable, “B-class” apartments are in high demand severe shortage.

This is what we invest in.

These are the most affordable real estate assets per square foot in Los Angeles, also the most stable. And, we believe, the most valuable.

Our returns bear this out. During the 2008 real estate crash and recession -- the most severe in the last 50 years -- our investors tripled their money. The buildings we owned saw increased demand, due to renters fleeing expensive, high-end apartments, and many homeowners turning into renters.      

REASONS TO LOVE MULTIFAMILY                           

  • In good times and bad, people need a place to live.

  • It is perhaps the most stable asset class, and a hedge against economic volatility

  • Revenue can be increased through value-add renovations and reducing expenses, thus “forcing” appreciation — independent of the overall economy.

  • It is perhaps the most tax-favored asset class

  • Apartments are inflation fighters

  • Investment growth is fueled from multiple sources simultaneously: rent growth, appreciation, loan paydown, depreciation tax benefit, value-add improvements.

  • Intelligent use of leverage allows for magnified investment growth.

FORBES, 9/17/18:

Six Fundamentals of Supply and Demand That Multifamily Investors Should Know

“The Urban Institute declared, "We are not prepared for the growth in rental demand." The research indicated that from 2010 to 2030 for every three new homeowners, there would be five new renters. And in 2017, the National Multifamily Housing Council (NMHC) and the National Apartment Association (NAA) weighed in: 325,000 new units, on average, are needed each year through 2030, yet an average of only 244,000 new units came online annually from 2012-2016.”

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