26 May Multifamily Minute: North Santa Monica 5-26-2020

Multifamily Now

The pandemic changed the way we do business in multifamily investing and management. Below are key pieces of information in effort to provide something of value during a challenging climate. Stay tuned for more information and feel free to call or email with questions and comments.

Thank you,

Eric von Bluecher
310-900-9505 cell
eric@sdmultifamily.com
DRE 01926201

Leasing During A Pandemic

Per CoStar, despite the rapid increase in market rents over the past decade, the rental market was already slowing down pre-pandemic, currently the average rent is $1940/month, with predicted rent losses of about 10% until a recovery in 2021 with losses of 20% on the more conservative reports. CoStar has a pretty good outlook and data too, considering they purchased apartments.com along with Westside Rentals, their multifamily rental data has been a solid source for the past couple years, measuring 60k in individual rental rates in Los Angeles each day. For Los Angeles 4 & 5 star properties, asking rents peaked at $3.28/ft on February 10th 2020 which fell to $3.20 / $0.08/ft two months later. On the 1, 2 and 3 star properties, the rental data isn’t as clear since the way the properties are managed rarely list and report the rental rates online, though CoStar states that on one hand, the rental rates are not experiencing heavy competition from new construction units hitting the market. However on the other hand, CoStar states that the Coronavirus economic and public health effects are being felt most by lower-income households.

California initiatives to protect renters as unemployment surges:
– evictions for any reason barred until 90 days after the Coronavirus state of emergency has been lifted, of note: more than 87% of renting households paid some portion of May 2020 rent by mid month, only 2% decrease from May 2019 per the National Multifamily Housing Council. Also, pre pandemic, rent growth was strongest in cheaper areas where the low rents were attracting renters combined with lack of supply where expensive markets like Santa Monica were seeing flat if not declining rents, including Mid Wilshire and DTLA where rents fell by 4% in Q1 of 2020.
-Assembly 1482 took into effect in 2020 which limits rent increase to 5% plus inflation for all of California for the next 10 years in addition to strengthening renters protection against evictions
– In September 2019, LA County voted to implement permanent rent control on buildings built prior to 1995 in unincorporated portions of Los Angeles, which ties max rent increases with CPI with an 8% cap plus requiring just cause for eviction.

Los Angeles Vacancy & Market Rent

Santa Monica Vacancy & Market Rent

Rent Payment Cancellations 

• Multiple efforts circulating at federal and state levels, each with varying approaches from subsidizing rent payments with rent going direct to the landlord and other versions with rent being completely canceled with no rent payments at all going to landlords
• An Allen Matkins attorney, LA based law firm, doesn’t think these efforts will hold up in court, you can read more here in the GlobeSt article. Plus, there are already eviction moratoriums that are already in place where you can’t evict for non-payment of rent
• Bill SB 939 – commercial rent moratorium eviction bill went to Senate committee Friday and was met w/ little opposition. Moratoriums on evictions starting March 4th and give tenants one year to repay up to 3 months of late rent; with additional pandemic relieve offered to bars, restaurants and hospitality. Senators will need to get two-thirds approvals along with hold up against opposition from multiple groups in addition to whether the bill aligns with the Contracts Clause of the US Constitution. Read more here.

Sales are Happening

Market rents, underwriting, valuations and lending can be challenging now, though sales are happening.

– 5/7/20 – 4 units @ 1124 24th St, 90403 – listed for $1.995M and sold for $1.895M, 5% under asking price – $617/ft
– 5/6/20 – 6 units @ 1620 Washington, 90403 – listed for $2.995M, sold $2.750M, 8.18% under asking price, $458k/unit, $467/ft, unit mix of (1)3+1.5; (1)2+1.5; (4)1+1; 2.67% cap rate; 21.77 GRM
– 4/10/20 – 48 units @ 2643 Centinela, 90405 – sold $12.1M, sold off market, $252k/unit, $427/ft, 3.69% cap, unit mix of (48) 1+1s
– 4/7/20 – 5 units @ 1009 10th St, 90403 – listed 1/23/20 for $3M and sold $2.98M, less than 1% under asking, $596k/unit, $810/ft, 4 vacant units at time of sale

Santa Monica Sales Volume & Price Per Unit

Loan Due in 6-12 months?

Experts suggest getting in front of your lender now to plan ahead. With tighter lending requirement and capital available, banks are looking at conservative market rents, increasing their vacancy underwriting, increasing their DCR, in some cases, lending only on stabilized deals. Bottom line, if you have a loan coming due, experts state to get in touch with your lender now, and get ahead of the curve on your loans. Additionally, if acquiring and have the reserves to offer and close cash, refinancing in the next 6-18 months may be the best strategy. Contact Eric at 310-900-9505 or email eric@sdmultifamily.com for lender referrals.

Investing Now

Investors looking for blood in the water may need to look outside of core markets to find massive discounts and distressed assets. As of right now, I have not seen any foreclosure sales for Multifamily in Santa Monica with the majority residents paying rent mostly due to the high quality tenant base found on the Westside combined with long-term and well-capitalized owners. Investing in multifamily is generally a long-term strategy, where quality location, tenants and construction still equate to solid investment fundamentals. If the numbers make sense, you like the location, the building and the tenants, the investment may be worth further analysis to see if it’s a good fit for your portfolio. Contact Eric at 310-900-9505 or email eric@sdmultifamily.com for on and off market opportunities.

Current Inventory For Sale

For current listings, off and on market opportunities contact Eric at 310-900-9505 for an analysis or email eric@sdmultifamily.com.

Partnerships

When tenants stop paying rent, your loan is coming due and reserves are running dry, how will you and your partners manage? Have the discussion now with you partners, make sure there is a plan in place and everyone knows where they stand with the ability to financially withstand a short-term or long-term period of a negative cash flow property. Give Eric a call for ideas or referrals for professional legal, tax or property management.

Eric von Bluecher
DRE 01926201