Small Apartment Buildings Attract Big Interest From Investors
Mega projects and multimillion-dollar multifamily sales may make headlines, but a large portion of the real estate market in Los Angeles is comprised of small apartment buildings. Roughly 96% of apartment buildings in L.A. have fewer than 50 units. The average apartment building in L.A has 16 units.
In 2020, 764 apartment buildings traded hands in the city of Los Angeles, for a total of more than $3.1 billion. The average multifamily building changing hands had 15 units, and the average sales price was $4.1 million. More investors are interested in small apartment buildings.
With a big influx of private capital coming into the marketplace, a run-up in inflation, and an unpredictable “flip-of-the-coin” stock market, we are seeing people moving out of stocks and into more tangible assets. According to CBRE, interest in small apartment buildings is “at all-time highs”.
There aren’t a lot of people building smaller multifamily properties. The B- and C-class workforce housing properties are in a safe asset class because one is buying them below replacement value; they are not building enough of them to keep up with demand, and they are good, stable assets.
Despite high demand, there’s not a lot of availability. There’s a lack of inventory, the interest rates are historically low, and people want to buy right now. There are a lot of buyers and not enough sellers. New investors are entering the multifamily market. Some are individuals growing a portfolio to retire on, while others are retail and office investors who have moved into multifamily.