3 CRE Q&A: Private Client Capital Drives LA MF Market

By Dennis Kaiser

Greysteel’s John Mullen will be speaking at Connect Apartments on September 15 in Los Angeles.

Connect Media asked Mullen to explain what trends and common denominators are found in the L.A. multifamily market in our latest installment of 3 CRE Q&A. He notes that private client capital shapes the L.A. multifamily investment market, especially in the $3- to $10-million asset segment.

Investors range from generational wealth that plays for the long-term, foreign wealth looking for shelter from volatility and tech money with a propensity for high-risk, high reward to local families who have been in L.A. for generations. Each bucket of money active in the market has its own drive for placing that capital and achieving its goals.

Q: How does the Los Angeles multifamily market compare to other markets nationally in terms of differences and challenges?

A: Other primary markets compared to LA tend to be driven by institutional capital that purchases assets with hurdles for returns reinforced by cash flow models and exit strategies. Due to the average property size and predominant private client owner demographic throughout L.A., operating, acquiring, and disposing of multifamily properties does not require as much complex forethought.

L.A. also differs dramatically in its landscape. It sprawls for miles in every direction, with no reduction in density and has more pockets of core and value add real estate than not. Most primary markets have a CBD,, and density decreases the further you get from the center. Therefore, L.A. has more opportunity for owners, investors and service providers, with more buildings and unique ownership enterprises.

Q: What are some of the major drivers of the private client multifamily investment market in L.A.?

A: Most sources of private capital like to see a combination of the following economic drivers nearby their investments: job growth or employment centers, infrastructure development and investment (mostly in the form of transportation), universities and education centers, and retail and entertainment amenities. The aforementioned cause renters to choose one community or submarket over another. When the demand for that community exceeds supply, then prices go up. One renter leaves, another arrives; but not before the owner renovates the unit and increases the rent. This is called value-add. It is what many investors seek, especially the private client investor.

Q: What do investment brokers working in the L.A. private client space need to bring to the table today?

A: They need an understanding of the changing economic landscape, as well as where the L.A. multifamily market fits into the investment constellation. It is considered a safe haven compared to alternative investments and markets. Given L.A.’s vast geographic size, it requires a team’s hard work and hustle to maximize coverage and exposure of listings. The broker must always strive to learn and remain coachable to adjust to the market and act as a true CRE investment advisor in real-time. That encompasses staying in front of micro-economics, macro-economics, seller and buyer expectations, capital markets, infrastructure, technology, consumer demand and needs.

For comments, questions or concerns, please contact Dennis Kaiser