Not too long ago, the standard renovation package for upgrading a unit in a rent-controlled apartment building (one that was built on or before October 1, 1978) in Los Angeles was $5,000 to $10,000 per unit. Slap on some linoleum flooring, a coat of paint and some new cabinet door knobs and call it a day.
Stepp Commercial’s Mark Ventre observes that while some owners may still be able to get away with this in certain buildings, many buyers are now budgeting upwards of $50,000 per unit in interior renovations and upwards of $15,000 per unit in exterior and common area upgrades on their rent-controlled apartment assets. Ventre shares insights into the trend of improving rent-controlled apartment properties in Los Angeles to maximize value for investors in Connect Media’s latest 3 CRE Q&A.
Q: If the property is in a prime market like Brentwood or Santa Monica, it seems to make sense to invest in significant improvements, but what about secondary markets?
A: With a tight rental market throughout the county, even in emerging LA markets like Boyle Heights and MacArthur Park, owners renovating to institutional specs are able to achieve at least a 20% return on cost upon stabilization. There are plenty of tenants seeking out high-end repositioned product, and they are prepared to pay premium rents.
Q: Can you provide numbers on how upgraded versus non-upgraded rents differ?
A: The average in-place monthly rent for a one-bedroom in Hollywood in a rent-controlled building is $1,350. The average asking rent for a one-bedroom in a similar building that has been completely repositioned is $2,195. That is over a 60% increase, and is still drafting considerably under newer non-rent controlled units that go for $2,650 … and that is light years under the recently built luxury one-bedroom projects that start at $2,850 and can go as high as $3,500.
Q: What are the long-term benefits for owners who make significant capital improvements in their rent-control assets?
A: While the tenant profile for newer versus older buildings might be different today, the economic future is never certain. These older renovated units are well-positioned to hold long-term value and snag a slice of the high-end market share from tenants wanting to continue living in the same quality units, while saving upwards of a thousand dollars a month.
Dennis Kaiser is Vice President of Content and Public Relations for Connect Commercial Real Estate. Dennis is a communications leader with more than 30 years of experience including as a journalist and in corporate and agency marketing communications roles. He is responsible for Connect’s client content operations and is involved in a range of initiatives ranging from content strategy, message development, copywriting, media relations, social media and content marketing services.
In his most recent corporate communications roles, he led a regional public relations effort across Southern California for CBRE, played a key marketing role on JLL’s national retail team, and was responsible for directing the global public relations effort at ValleyCrest, the nation’s largest commercial landscape services company.
In addition to his vast commercial real estate experience, Dennis has worked on communications and launch strategies for a number of residential projects such as Disney’s Celebration in Florida, Ritter Ranch in Palmdale California (7,200 homes, 22,000 acres), WaterColor in Florida and PremierGarage in Phoenix.
Dennis’s agency background included firms such as Idea Hall and Macy + Associates. He has earned an outstanding reputation with organization leaders as a trusted advisor, strategic program implementer, consensus builder and exceptional collaborator.
Dennis has developed and managed national communications programs for Fortune 500 companies to start-ups, both public and private. He’s successfully worked with journalists across the globe representing clients involved in major-breaking news stories, product launches, media tours, and company news announcements.
Dennis has been involved in a host of charitable and community organizations including the American Cancer Society, Easter Seals, BoyScouts, Chrysalis Foundation, Freedom For Life, HOLA, L.A.’s BEST, Reach Out and Read, Super Bowl Host Committee, and Thunderbirds Charities.