5630 Fair Ave, North Hollywood

the successful closing of 5630 Fair Ave, a 15-unit newer construction multifamily property in North Hollywood, CA. The property also came with a tract map allowing the Buyer the option of selling these units off individually as condos in the future.

Recent Record Price per Unit

We were able to achieve more than $500,000 per unit for this property, which is the highest price/unit achieved in the San Fernando Valley for a 10+ unit apartment building in over 2 years - since back when interest rates were sub 4%.

Initial Buyer Objections

We listed this property in March as part of a 3-portfolio of newer construction buildings in the San Fernando Valley. We learned quickly that this was the least desirable of the three due to its location, or more specifically, due to the block it is on. This block of Fair Avenue, just north of Burbank Blvd, is much less developed than properties south of Burbank Blvd. The street does not have much charm to it. Another challenge was the unit mix. All 15 units are large 3 bedrooms which pushed our initial asking price to an astronomical $583,000 per unit. Although our price/sqft was attractive at around $300/sf (well below replacement cost), this sky-high price/unit scared off a lot of buyers. Also, our low price/sqft was slightly misleading. The property has about 6,000 square feet of non-rentable space - about 20% of the total building area - so our price/sf was much higher on a rentable-sqft basis. Another buyer concern about the unit mix was that these large 3 bedroom units can be more difficult to rent. Large 3 bedroom units generally take longer to find the right tenant compared to a 1 or 2 bedroom unit causing higher than average vacancy costs. Lastly, buyers were concerned that 2 of the 15 units were low-income restricted, leaving only 13 units that can be leased at market rates. For these reasons, we didn't get many reasonable offers in the first couple months compared to the other two listings we had for the same seller.

Price Adjustment

After 3 months on market, we were able to get this seller's other two properties in escrow, but we needed to make a change on Far Ave to get it sold. We dropped the price by $755,000, a major price reduction, to get our new asking price just under $8,000,000. This new price pushed our CAP rate closer 5%, which is an important mark to be at in today's high interest rate market. Even with this reduction and higher CAP rate, we still needed to find an all-cash buyer or an...