Los Angeles multifamily market update

Downtown L.A. has seen nearly twenty cranes in the sky this year.

Downtown L.A. has seen nearly twenty cranes in the sky this year.

Now entering into the final quarter of 2015, L.A. has really seen the massive amount of development in the past few years reach new levels in terms of values and projects throughout the city. Needless to say, rising rents have followed right behind the new projects that have come on line.

How much runway exactly is left in this maturing cycle? Well, it depends on who you ask. Institutional buyers have become less inclined to trade out of larger portfolio assets in hopes of achieving higher income. This is mainly due in part to not only increasing rents, but the supply in the marketplace still behind the demand it needs to meet.

CoStar data shows that 225 transactions took place in the multifamily space in September, with the total number of sold units at 3,687. Cap rates are still trending downward, and with rents approaching condo property prices, there may just be enough demand throughout the rental market to start converting some would-be renters into possible home buyers. 

Downtown is seeing the lion's share of the new development currently in the city. With new high-rise construction slated to be developed in the coming months, we're poised to see some serious changes to the current DTLA skyline. With all this construction however, the need for public transportation and parking also point northward.

The purple line expansion continues to push westward down Wilshire in reaching the Fairfax district. Other areas have seen light rail expansion happening in core areas that will give way to more public transportation for future growth of neighborhoods and businesses. The state has also funded many public road projects to further improve the traffic flow that Angelenos currently suffer from in the form of L.A. road congestion.

Time will only tell as to what the demand and development correlation will be and how L.A. is able to handle the changes. Most investors see a lot of opportunity even at the prices properties are still trading for. Cash flow is still highly sought after by mom and pop investors, but some have also been aware of value-add opportunities and have charged ahead accordingly.