Highlights: BISNOW Los Angeles Multifamily Conference
Thursday, February 23rd, 2023
Discussing 2023 Challenges & Opportunities in Multifamily
- It’s been a tale of two cities. The 1st three quarters of 2022 showed the best rent growth performance which then soften in the fourth quarter.
- We’ve seen a destruction of value given the rise in interest rates, however, our key fundamentals which are job & demographic growth are still good.
- The DTLA office market is the worst it’s ever been with 30% vacancy, and the ongoing increasing homeless is affecting the market too.
- People are coming back to the office 2-3 days a week and the “back to office” trend is expected to continue.
- There will still be demand in LA as we are still #1 for transportation, trade, and construction.
- We are still seeing a 1% monthly increase in construction costs.
- The upcoming challenge is the political risk the capital markets see in Measure ULA. Measure ULA is the straw that broke the camel’s back & is creating a redlining of LA.
- Nationwide we aim to see a replacement of 3% of existing multifamily products, with Seattle and Denver doing close to 4%, and LA is currently doing 0.6% which means we have a lot of work to do here on our homefront.
FINANCE & INVESTMENT LANDSCAPE:
Getting Pipelines Funded, Aggregating Capital & Moving The Needle
- We are seeing the growing popularity of using cost segregation to help make deals pencil.
- LADBS Fast-Track Program rollout will be helpful to create more deal flow for capital to be deployed into.
- Measure ULA, going into effect on April 1st, needs to be factored into underwriting and could cause a slow-down in multi-family lending.
- The growing popularity of ADUs, and splitting up parcels, is a different way to approach housing development as we get through the challenges of multi-family. ADUs have also become a way to add value when density is maxed out on parcels.
- Lenders are seeing office to multi-family conversions, however, the value that it has to be acquired at needs to be well below basis. What could help would be tax incentives in order to help make these deals pencil.
- One-year crystal ball on multi-family is “it’s never really a bad time to invest in real estate, as people always need a place to live, and developers are resilient.” Developers are always going to build, and there’s a need, and real estate always appreciates over time. Things will continue to look better over the next year.
ADDRESSING THE NEED FOR AFFORDABLE HOUSING:
Solving the housing crisis by bringing in more resources & making low-income a high priority
- We are running out of volume cap which means looking for ways aside from traditional tax credits to do these projects.
- It took one year and 43 days to construct the Empire State Building versus how long it would take today as a means to show how slow it is to get a building built today.
- Modular is a great opportunity to build more affordable housing.
- We produce 1.4M housing units as a nation and the largest production of housing was in the 70s with federal subsidies.
- We may see 2-4% in costs anticipated for later this year.
INNOVATIONS IN CONSTRUCTION & DESIGN:
Addressing Technology, Affordability & Sustainability Issues to Build and Deliver Housing Faster and More Efficiently
- Some developments are being designed using real-time data to incorporate more 1 bed + dens to accommodate people working from home a couple of times a week.
- Using Virtual builds is leading the way to actual development.
- Prefab provides more predictability to a development, however, plan early for these types of projects.
DEVELOPING, DESIGNING, AND DELIVERING IN A COMPETITIVE MARKET:
Meeting the Demand for Tenants & Driving True Leasing Impact
- We continue to see a growing shift of focus for our tenants on what there is to gain outside of their unit, ie. Building amenities, versus what there is to gain within the unit.
- Greater and growing attention to design features of having a balcony, storage & better in-unit lighting (which during the pandemic showed to enhance a tenant’s wellness and overall well-being from spending so much time in their living space).
- Hospitality is driving housing design.
- New trends are happening within the lighting space, inside cabinet lighting, and digital door locks.