LOS ANGELES 2010 - MULTIUNIT REAL ESTATE PREDICTIONS

Edited by Jodi Summers

The sun is shining again in Los Angeles. After two years of job cuts, payrolls are predicted to expand payrolls minimally in Los Angeles County in 2010, according to the 2010 National Apartment Index Report by Marcus & Millichap.

The perceived strength of the multiunit investment Los Angeles moves up two places this year to No. 13, thanks to perceived strengths in our marketplace. The hot spot is our sister city, San Diego, which rose four spots to No. 2 on the index due to expectations for resumed employment and household growth. (Washington, D.C., retained the top spot in the NAI for the second consecutive year, as ongoing government spending will fuel metrowide hiring and apartment demand.) New York City, which is the tightest apartment market in the country, finished in the No 3 spot.

Following are some of the most significant aspects of the Los Angeles Apartment Research Report:

* The local employment market is expected to stabilize in the second half. Following a loss of 115,000 jobs in 2009, payrolls are forecast to expand by 0.3 percent this year, with the addition of 13,000 positions.

* Rental completions will slow to 1,550 units in 2010, a 0.2 percent addition to inventory. Approximately 800 apartments are expected to come online in the San Fernando Valley due to continued job losses in the retail and construction sectors.

* Vacancy is forecast to tick up 20 basis points this year to 6 percent in response to ongoing stock additions.

* Lingering high unemployment will continue to pressure owners to lower rents. Asking rents are expected to fall to $1,335 per month in 2010, while effective rents will slip to $1,263 per month, respective declines of 2.8 percent and 3.6 percent annually.

Investors realize the current value of the Los Angeles, and there is a trend of cash-rich buyers shifting money out of the stock market and buying multiunit property with the intent of holding it for future generations.

“After watching the Los Angeles apartment market for years I have decided to move monies out of my stock portfolio and buy apartment buildings for my children,” noted one savvy investor.

A bolster for the multiunit market place is that Government-Sponsored Enterprise financing will remain available due to the GSE’s ongoing commitment to the asset class. (GSEs hold or pool approximately $5 trillion worth of mortgages.)

In conclusion, Marcus & Millichap expects, “Long-term rates to remain low this year, mortgage rates to stay relatively stable and lenders increasingly opting to work out extensions or modifications for loans rather than taking near-term losses. Seller financing, or assumable debt, will also become a big factor in transactions this year.”

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http://www.marcusmillichap.com/aboutus/News/Current/020510_los_mm.asp

http://www.globest.com/news/1580_1580/insider/183133-1.html

http://www.uli-la.org/node/382

http://en.wikipedia.org/wiki/Government-sponsored_enterprise#See_also