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Saturday, May 25, 2024

Unlocking The Valley: The Master-Planned Multifamily Solution

The Los Angeles housing market has historically struggled to meet demand. However, the rising interest rates and escalating development costs have created significant hurdles for investors and developers, hindering the much-needed supply in the market leading to intensified housing challenges that require innovative solutions.

THE MULTIFAMILY SOLUTION

In the face of challenges, the Los Angeles multi-family market has emerged as a crucial player in tackling the city’s housing issues. With limited land availability, multi-family properties provide a practical solution to meet the growing demand. This living option not only accommodates a larger number of residents but also diversifies the supply to cater to various consumer preferences and budgets, ranging from affordable housing to luxury options.

OPPORTUNITY IN THE VALLEYS

The future living sector will offer residents a comprehensive ecosystem right at their doorstep. This holistic approach will encompass not only living spaces but also work, leisure, and access to transportation within a micro-precinct. The San Fernando Valley and San Gabriel Valley emerge as prime locations for such developments with ample available land, existing job centers, lifestyle amenities, and affordability. CBRE facilitated the sale of a 2.9-acre site in Arcadia, situated next to the Gold Line light-rail station and intended for construction of a seven-story, 319-unit multifamily development. This endeavor showcases the immense potential the Valleys hold in meeting the ever-growing demand for housing while creating vibrant neighborhoods.

INVESTMENT INSIGHTS

Los Angeles’ multi-family market continues to display resilience, even in the face of moderate rent gains and increased vacancy rates. According to CBRE research, parts of the San Fernando Valley and San Gabriel Valley have experienced some of the highest year-over-year rent growth, further highlighting the overall potential of the multi-family sector in the Valleys.

CBRE’s recent report shows that going-in cap rates, exit cap rates, and unlevered internal rate of return (IRR) targets for prime multifamily assets have improved for the first time since early 2022. These positive shifts hint at a possible peak in key underwriting metrics, anticipating rate cuts later this year.

In Q4 2023, the local multifamily market revealed that a 10-basis-point increase quarter-over-quarter brought the vacancy rate to 4.8%. This reflects the pandemic’s challenges but also underscores the need for more housing options.

FUTURE FOUNDATIONS

Investing in multifamily housing in Los Angeles isn’t just about financial returns; it’s about shaping the city’s future. As we navigate economic shifts and housing demand, multifamily properties will continue to offer housing solutions, community, and a chance for new Angelenos to call this vibrant city home.

Dean Hunt is executive managing director for CBRE, Los Angeles North Region. Learn more at CBRE.com.

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