2900 Griffith Park Blvd, Los Angeles

the successful closing of 2900 Griffith Park Blvd, a 3-unit multifamily property situated in prime Los Feliz, one of the most sought-after neighborhoods of Los Angeles. This is the first time the subject property has been sold in more than 20 years.

State of the Los Angeles Multifamily Market

We've all read the headlines as of late, so we won't waste time repeating that, but we did want to share our thoughts on the current market from the viewpoint of one of the most active multifamily brokers in Los Angeles.

With interest rates in the mid-to-high 5% range, and Seller's price expectations still lagging behind buyers' willingness to pay, most deals offered on the market are still priced below a 5.0% CAP rate. That means buyers are forced to consider buying apartment buildings with negative leverage (interest rate higher than the CAP rate). Negative leverage kills the buyer's cash-on-cash return which is why there are far fewer deals being sold this year.

To demonstrate how much these interest rates have killed buyers' cash on cash returns, here is the difference in cash flow for a buyer on a property being sold at a 4.0% CAP rate and the buyer gets a 50% loan-to-value:

4.0% CAP Rate in 2021

3.5% interest rate

4.5% cash-on-cash

4.0% CAP Rate in 2023

5.5% interest rate

2.5% cash-on-cash

In order for a buyer to receive the same 4.5% return with today's interest rates, that same property that would have sold at a 4.0% CAP rate would now need to sell at a 5.0% CAP rate. To put this example in dollar amounts, a property that has a net income of $200,000 per year would have sold for $5.0M in 2021, but that same property with the same $200,000 NOI would be worth $4.0M today. That equates to a 20% drop in value over the past couple years.

During a market downturn, sellers are always slow to change their price expectations because they know what their property was worth just a short 12 or 18 months ago. On the other hand, buyers are extremely fast to react to decreasing values, and this creates a large gap between sellers' expectations and buyers' willingness to pay in a downward trending market. Because of this pricing gap, we've seen a historic drop in total commercial property transactions in the USA this year. In fact, we read a statistic from CoStar that shows a 70% decrease in number of commercial property transactions throughout the country through the first 10 days of March. See below from CoStar.

March 2021: 8,227 transactions

March 2022:...