Los Angeles Multifamily Investment Finds Its Footing as Activity Grows
The Los Angeles multifamily market has had a challenging five years. During COVID, the city placed significant restrictions on multifamily owners, eliminating rent increases and allowing for rent deferrals for tenants directly impacted. Then, almost immediately after those restrictions were lifted, two historic fires damaged thousands of homes and commercial buildings across the city.
There is no shortage of challenges in the market, and yet, Los Angeles investment activity is finally gaining momentum, according to Nabil Awada, VP and associate director at Matthews Real Estate Investment Services, who has seen the dynamic first hand. According to Awada, pricing and finding opportunity from these challenges are fueling interest from investors.
Los Angeles Multifamily Investment Gains Momentum
The market has been going through a transitionary period. For the last several years, multifamily investors have struggled through a wide bid-ask spread on pricing. This year, pricing has started to normalize in alignment with interest rates, and it has helped to fuel investment activity.
“Pricing is starting to become a bit more realistic,” says Awada. “There is now an acceptance of what the new reality is. Buyers are starting to transact more, and sellers are more willing to meet the market.” While the momentum is building, Awada says that it isn’t necessarily showing up in the data quite yet. So far, year-to-date, transaction volume is still trending down; however, Awada says, “It just feels different.”
Fires Catalyze New Demand
The historic fires in Los Angeles this year helped to transform the investment market. In 2024, 8,600 new units were delivered in the market. This year—in part due to the fires—absorption has outpaced demand, bringing the multifamily vacancy rate down to 4.8%, according to research from Matthews Real Estate Investment Services.
The fires didn’t only boost rental demand, but it drove activity into new markets. The Palisades Fire drove people into the South Bay, while the Altadena area saw more rental demand in the San Gabirel Valley. “That activity has translated into compressed cap rates in areas that are less in the fire risk zone,” says Awada.
While the fires helped to drive interest in the market, they have also driven up operational costs, specifically for property insurance. Many owners in Los Angeles struggle to pay insurance costs. “Owners may be seeing higher rents today, but they are also seeing higher expenses that have evened out a little bit,” adds Awada. Insurance costs are offsetting any market gains in the current environment.
Owners Are Still Recovering From COVID-Era Rent Freezes
During COVID, the city of Los Angeles enacted strict rental guidelines to ensure that people could stay in their homes through the pandemic. Those several years of blocked rent increases have made it difficult for some owners to remain in the state. In fact, as financing renewals come to term, investors are taking the opportunity to review their investment in the market, or other investors simply don’t have the option to pay higher debt service costs following years of stagnant rent growth.
While the actions of each investor are unique, many sellers are looking for opportunities either for a 1031 exchange into another asset class or sell. Owners are looking to sell for different reasons, but as Awada says, “It will definitely be interesting to see how it all plays out.”
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Source: GlobeSt/ALM