Team Lustig Bower CB Richard Ellis Los Angeles Multi-Housing Experts 310.550.2600
Multi-Housing Overview by Team Lustig-Bower Apartments: Sales Volume Cap Rates Price Per Unit Employment Growth Apartment Absorption New Supply Forecast Apartment Occupancy Apartment Rent What are we seeing? Buyers Sellers Land
Multi-Housing Sales Volume Past 12 months Garden Mid/Highrise Los Angeles US Total chng* chng* chng* chng* Volume ($ mil) $736-84% $372-78% $1,108-82% $37,613-62% properties sold 73-63% 15-68% 88-64% 2,095-48% LA 2008 sales were down 82% from 2007! US sales down 62% WOW!!!
Sales Volume in Billion LA peaked in 4Q07. Steep drop in 2008!
Market Comparison Volume ($bi Even though LA volume is down 82%, we are still in second place as compared to the above cities.
Cap Ra Apartment prices peaked in summer 2006 2008 average cap rate 5.2% Low Cap Rate caused from: 2007 Carry Over Trophy/Special Properties
2008 Cap Rate By Pric $15-$50m - Buyers (i.e. Institutional) pulled back in 2008 thus highest cap rate $50m plus Buyers paid lowest cap rate, probably due to trophy/special asset
2008 Cap Rate By Ag Going forward newer buildings susceptible to rent weakness thus higher cap rates 1980 s + 1990 s May have potential upside with rehab Older properties typically trade for lower cap rates due to
Market Comparison Cap Rate Within California, LA ranked second lowest cap rate to San Francisco
Price $k/unit Los Angeles following US quarterly average. On downward slide now Interesting LA is about twice the value of the US average.
$k/unit By Pric As the price goes up, the quality of the asset appears to go up too.
$k/unit By Ag As expected, the newer assets trade for a higher price per unit.
Market Comparison $k/unit Los Angeles falls in the mid-range compared to the above cities, probably due to the high composition of rent controlled properties.
Employment Growth Annual Change by Quart Jobs Employment growth peaked in 2006 Interestingly this is the same time that apartment prices peake
Area Employment Decline Annual Change in Non-Agricultural Wage & Salary Job Total 4Q 2007-900 1Q2008-14,700 2Q2008-6,800 3Q2008-16,800 Total Jobs Lost -39,200 Metro LA s unemployment rate rose to 8.1% as of August 2008. Highest level since June of 1996
Apartment Absorptio Down 22,000 Units 3Q08 Due to: Job Loss Shadow market - 40,100 homes foreclosed in 3Q0 Forecasting 3Q09 to absorb half the loss
Apartment Completions See drop off in 3Q09 1Q09 and 2Q09 Already Committed
Forecast New Supply Ranked Ongoing Construction as of October 2008 Submarket Units Hollywood San Fernando Valley Intown Los Angeles East Los Angeles West Los Angeles South Bay Cities Santa Clarita Valley Tri Cities Antelope Valley Long Beach San Gabriel Valley 2,006 1,546 1,487 598 526 405 49 48 0 0 0 takes the lead!
Apartment Occupancy 3Q08 is lowest occupancy level for LA Metro in past decade Projects built since 2000, occupancy is at just 84.1%, as of Sept. 08 (Especially in downtown LA and Westside)
Highest occupancy projected East Los Angeles Lowest occupancy projected Intown Los Angeles
Even though the overall average is negative, Tri Cities and East Los Angeles posted impressive rent growth at 3.9% each.
Annual Same-Store Rent Change Los Angeles Are Rent growth peaked in 4Q05 3Q08 is the first time in the past decade for negative rent growt
Rent Inflation % 12 Los Angeles All Markets 10 8 6 4 2 0-2 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 From 2009-2013 rent growth is projected between 0.8-2.1%.
In Summary -22,260 94.1% -12,000 92.4% We suspect that this 3 rd Quarter 2009 Forecast will be revised to show weaker absorption and occupancy due to the unforesee severity of the economic downturn.
What are we seeing?
Buyers Most Buyers want Distressed Deals Very few 1031 Buyers Many buyers on the sidelines waiting
Sellers Starting to see lender foreclosure sales Some sellers in distress, must sell Some sellers monetizing assets who have significant equity Many sellers on the sidelines
Land Very difficult to transact today No construction financing available for condos Virtually no construction financing available for Apt. Consequently land prices have fallen 25-50%
Thank you to our sources Real Capital Analytics 866.732.5328 Torto Wheaton Research 617.912.5239
Team Lustig Bower CB Richard Ellis Los Angeles Multi-Housing Experts 310.550.2600