Why Prices Are Surging Above Market Rate for Some LA County Apartment Properties
Recent Multifamily Deals Near Record Levels in LA County CityIn a span of several days this month, a pair of apartment complexes in Pomona, California, fetched relatively high prices from new owners intent on converting them to workforce housing, mirroring increased spending recently across the state.
The Pomona sales, at $317,000 and $372,000 per unit, were above the market average of $188,282 per unit for multifamily complexes in the city of about 150,000 roughly 30 miles east of downtown Los Angeles, and were among the highest prices ever paid in that market, according to CoStar data.
While multifamily projects in suburbs across the nation have seen valuations rise with increased renter demand and higher rents, a new California law encouraging the conversion of market-rate complexes to become affordable as workforce housing — designed for households led by middle-wage workers such as nurses, rst responders, military personnel, teachers and social workers — has also contributed to rising prices.
Assembly Bill 787, which became law in September, allows these types of conversions to count toward a city's or county's state-mandated quota to create more affordable housing. By offering property tax breaks, usually a large expense, that result in higher net operating income for a buyer, the law in some cases may also lead to a higher sales price because of the tax savings, said Dean Zander, an executive vice president at CBRE.
"They're not necessarily re ective of market rate valuations," Zander said.
Zander was involved in one of the two Pomona deals, the Dec. 9 sale of the 349-unit Monterey Station at 180 E. Monterey Ave. The complex sold for $130 million, or $372,000 a unit, to Los Angeles real estate investor Standard Communities and West Hollywood's Faring, according to a statement. The seller of the 7-acre property was Reno,
Nevada-based Clear Capital. Faring and Standard Communities in August unveiled a $2 billion joint venture to build or convert residential properties into workforce housing in California, according to a statement.
The rush to take advantage of the new state incentives has been seen up and down the state. Among the other recent deals in the Los Angeles area, the 230-unit Millennium South Bay apartments at 12540 Crenshaw Blvd. in Hawthorne sold earlier this month for $144 million, or about $626,000 per unit, in a record-breaking deal in the city southwest of downtown Los Angeles. That property also is being converted into workforce housing.
Pomona is in Los Angeles County's San Gabriel Valley, where the apartment market's average vacancy is 1.7%, lower than the greater Los Angeles average of 3.7%, according to CoStar data. In addition, the market's average monthly asking rent is $1,775 per unit, which is below the greater Los Angeles average of $2,083.
By Jack Witthaus CoStar
News
November Luxury Sales Report