Who is buying multifamily buildings in LA right now? I got this question from a client the other day. My answer may catch you off guard: 1. Family Office: Think generational investing. With deep pockets and a long-term view, they're seizing what they see as once-in-a-lifetime opportunities. These folks tend to have large cash reserves with the ability to close quickly. They tell me that the property basis they are seeing is generational opportunities. When you can buy a building in Beverly Hills for $350K per door and $400 PSF of land in one of the most desirable cities in the world, you have an opportunity. 2. Mom & Pops: Local dynasties playing real estate Monopoly. These investors buy every 7-10 years. Usually near their existing buildings and are more interested in owning real estate over returns for their investors. These are the buyers buying 4% cap rate deals today. Far and few between, but they are out there. 3. International Money: The global elite are back, with a sharp eye on the U.S. market. Foreign money is back in LA. Asian investors are still looking for the tax benefits of buying US real estate, combined with the tough currency market in Japan has shifted foreign investors to hold their money in real assets of their home country currency. They have a specific buy box and they pay up for that buy box. 4. Syndicators: The cautious comeback kids. These are the investors I have seen be the slowest to return. The regulation concerns coupled with seller expectations still being in 2022, make it hard to hit your 15-17% IRR for your investors. Even harder is raising money. I have operators telling me they have deals tied up at 6.5-7% cap rates in LA and can't raise the money for them. 24 months ago they would have been oversubscribed in 30 minutes. They are buying still, but mostly off-market and with higher vacancies or new builds to be able to more easily realize their investment strategy. Overall I have seen a big uptick in activity compared to this time last year. YoY activity is up 30-40%. Now there is a long way to go before LA becomes a prominent investment location like it was from 2010-2022 but I don't see how the demand to live in Los Angeles and the weather in CA could stop the continued growth of the City of Angels.
@TAYVAY_ The syndicators telling you they have 7% caps tied up actually have 5% caps tied up
@TAYVAY_ If I’m reading this correctly, it seems all the demand is focused on Class A & B+ assets. Who is buying Class C or heavy value-add?
@TAYVAY_ Depreciation buyers are also very big players in this market Given the ability to cost seg & accelerate the depreciation schedule, many high income individuals are willing to dip below market cap rates to buy generational assets.
@TAYVAY_ Inflation historically makes 4% cap rate A assets big winners