REAL ESTATE NEWS

California’s multifamily market is showing signs of stabilization following several years of disruption driven by construction cost inflation, high interest rates and regulatory uncertainty, according to Zachary Streit, founder and president, Priority Capital Advisory.

While new supply has been constrained, he told GlobeSt.com that the so-called “supply cliff” is not expected to last indefinitely.

Mark Grace, senior managing director of capital markets for Walker & Dunlop, told GlobeSt.com that Southern California’s multifamily market is entering a smarter phase of the cycle.

“We’re seeing capital pivot toward basis-driven opportunities in many submarkets across Greater Los Angeles, the Inland Empire, and San Diego, where rent fundamentals remain resilient and new supply is limited,” Grace said.

Both men are scheduled to be part of a five-person panel to discuss “An Examination of Capital Markets,” at GlobeSt.'s Multifamily Fall Conference in Los Angeles on Monday.

While many regions face headwinds, opportunities are presenting themselves more frequently as sellers meet the market, according to Grace.

“Nimble investment groups are finding opportunity, creating liquidity, and uncovering real value. It’s a market being defined not by momentum, but by discipline — and that’s precisely what sustainable growth looks like,” he said.

From a capital markets perspective, liquidity has remained healthy; it’s the cost of capital that’s been the hurdle, Grace said.

But over the past two quarters, rates have begun to ease, and the outlook points to them even going lower.

Grace said that agency lenders have remained strong, offering favorable credit terms, including extended interest-only periods, 35-year amortizations and DSCRs at 1.20x in specific scenarios to achieve housing goals.

“It’s been a tough rate but accommodating credit environment for some time, and with spreads holding steady or even compressing, we’re positioned for a meaningful pickup in activity,” he said.

Developers Positioned for Rebound

Streit believes that developers are already positioning for a rebound, with new construction activity anticipated to pick up by late next year as interest rate cuts begin to take effect and banks reintroduce more affordable financing.

“The combination of cheaper debt and pent-up demand for rental housing will likely reinvigorate development pipelines across key metros, particularly in markets where fundamentals remain strong,” Streit said.

Los Angeles, however, continues to face headwinds stemming from the city’s Measure ULA transfer tax, which has slowed investment activity and made the market less attractive for some developers and institutional buyers.

In contrast, other major California markets are performing much better. San Diego’s multifamily sector is strong, Streit said, fueled by robust job growth, limited new supply and high renter demand.

Plus, the Bay Area is also regaining momentum as tech employment stabilizes and investor sentiment improves.

“Overall, while short-term challenges persist, California’s multifamily landscape is poised for renewed growth as capital loosens, and long-term housing demand remains exceptionally strong.”

On the affordable housing front, Priority Capital Advisory this week announced that it has arranged a $31.3 million loan on behalf of Six Peak Capital, a Los Angeles-based developer and investment firm.

The senior debt financing will help to develop a 116-unit community at 9033 Ramsgate in Los Angeles’ Westchester neighborhood.

Source: GlobeSt/ALM