By Dan Blackwell, Executive Vice President, CBRE
Demand for multifamily properties in Orange County continues to show great strength. This is driven by steady rent collections and favorable interest rates as apartments in the region have performed well during the pandemic. As investors look to buy stable, income-producing assets in Southern California, the focus on the multifamily sector in our region has intensified.
We have witnessed increasing interest from first-time buyers over the past few weeks, in addition to continued interest from 1031 exchange investors and those who sat on the sidelines during much of 2020. This demand is buoyed by willing lenders offering favorable interest rates in the low 3 percent range due to the area’s excellent rent collection track record.
Dan Blackwell, Executive Vice President, CBRE
Most buyers are looking for 50 percent to 60 percent leverage, with in-place capitalization rates typically ranging between 3.75 percent and 4.25 percent, depending on location. However, given the limited supply, we are seeing buyers bid pricing higher and cap rates compressing for many assets.
Private investors continue to be the predominate buyers, mainly driven by the need for diversification and a stable cash flow. We are receiving more requests from LA County investors that may have sold a multifamily asset there but are now looking to expand elsewhere in Southern California.
Much of this demand is focused on garden-style, low-density apartment communities, along with coastal multifamily assets. We are seeing an increased level of buyer interest and offer activity on properties that have been renovated with rents at or near market level. For those types of assets, we have seen offer activity at or near records.
On the seller side, many investors who had considered divesting their properties sometime in the future have decided to sell now, driven by increased demand.
Geographically speaking, multifamily assets have been in demand across the county, with coastal properties seeing the highest demand along with Costa Mesa, Tustin, Orange and Anaheim. Rents have risen substantially in the past 12 months in these markets. Yet, given the shortage of available opportunities in these cities, investors have considered the Orange County market on the whole. Some investors have started to look out of state to execute 1031 exchanges, typically due to California-wide rent control laws and more stringent restrictions on landlords.
A couple of recent transactions we helped facilitate include a $13.7 million acquisition of Islandia Apartments in Westminster to a private family partnership as part of a 1031 exchange. In conjunction with the transaction, we sold the buyer’s downleg (relinquished property) mixed-use property in Laguna Beach. Another deal involved a property at 129 S. Olive Street in the prime area of downtown Anaheim, just steps from the Anaheim Packing District. The building traded at $332,143 per unit, one of the highest prices per unit for a multifamily property in Anaheim.
Based on our client conversations, market experience and deals we have transacted in the first half of 2021, we expect strong demand to continue throughout the remainder of this year and into 2022.