Employers  and landlords will have and use new tools to help alleviate parking problems at Los Angeles offices.  Here are some of the new tools in 2016.

Valets: Valet parking companies are getting more innovative in finding parking spaces, moving cars around, and parking cars farther away. One company called Luxe Valet will meet you at a location identified on an app on your phone and park your car for you. They now will do it daily for a flat fee monthly fee.

The Expo line, the light rail from Downtown to Santa Monica, is expected to begin operations in June 2016. Commencement of service will create big buzz. Over time as office and residential fill in near Expo Stations, more people will take the Expo to work. Eventually, Expo will connect with Pasadena thru the Regional Connector.

Uber is already shifting living patterns and how people get to work. Some people are moving to residences that are walking distance to work and abondoning their cars for Uber. Others are using Uber and Uber Pool to get to work. Many couples are now finding that they can abandon one of their cars and easily live with just one car.

Finally, autonomous cars are seriously being talked about in the near future of transportation.

Green Street Advisors believes real estate values have already reached its peak and are in the ninth inning.  In fact,  Green Street is forecasting a 5% decline in values in 2016. Green Street bases its call on the narrowing spread between non investment grade corporate bond yields and cap rates.  The spread is historically low and signals a decline in property values.  Along with this signal, REITS currently sell at a discount versus a premium to net asset value–a second historical signal of a correction.    However,  Green Street Advisors still sees operating fundamentals as strong with further potential rent growth and stable occupancies.  You can read more below.

Commercial real estate investors are receiving ominous signals from the bond market:

Source: Credit-Market Swoon Sends Somber Message to Property Investors – Bloomberg Business

Apartment building prices are rising; renovation costs are rising, and rent growth may be slowing.  For example,  rents in Echo Park and  Silver Lake are rising to the point that many of the YUPs  (young creative professionals) may  longer be able afford the rents.  Other markets may start to experience affordability ceilings.  One way to offer more affordable rents is by moving the boundaries of the neighborhood to adjacent areas where apartment building prices are lower.  Gentrification is fanning out from West Adams to Los Felix/Silver Lake and from West Hollywood to Highland Park and adjacent areas..  Gentrification depends on the growth of higher paying jobs that are now occurring in tech and media and the service firms that support these industries.  It may be time to start scaling back rent growth projections for the coming years.

PMI Completes Another Creative Multifamily Apartment at 632 N. Occidental Blvd in Silver Lake

We are pleased to announce our completion of the renovation of a four unit apartment building, nestled in Northeast Los Angeles. The neighborhood is located in Silver Lake, and is known for its hip atmosphere and as an up-and-coming destination for millennials. This property demonstrates PMI’s Creative Multifamily Strategy. The property is located just two blocks from Sunset Blvd and Silver Lake Blvd and provides easy access to farmers markets, gourmet restaurants, wine bars, boutiques, specialty food stores, and much more!

Creative Multifamily is a new line of small, low-rise apartments that are stylish, contemporary, and playful, yet still affordable. The complex retains the flavor of its era, but incorporates a totally redesigned interior. Residents at properties like this are typically young and well-educated, and appreciate being located within walking distance of several diverse cultural amenities. In this area, a thrift shop with character is as popular as a high end boutique.

The property was completely renovated, allowing us to build this older apartment from most of the existing configurations. The townhouse units have bright and clean streamlined features, modern appliances, amenities, and lovely patios. Energy efficient stained and polished concrete floors in the living room and kitchen, hardwood floors in the hallways and bedrooms, and pristine marble flooring in the bathroom were added with the tenant’s comfort and style in mind. Below, see some of our updates. Here is the before picture of the older popcorn ceilings and carpeted stairs.

BEFORE

AFTER

We scraped the ceiling, replaced the carpeted threads with hardwood s, and polished the concrete slab to create an industrial, creative look to the living room.

The living room, dining, and kitchen were opened up into one great room.

Los Angeles Non Rent Controlled Apartments reached a milestone gross rent multiplier (GRM) of 15 times rental at the end of the second half of 2015, according to the Hanes Company. Cap rates for all apartments fell to 4.66% at the end of the second half of the year. Since the reported expenses for most small apartments are unreliable, I have used the GRM as a more accurate index. GRMs on the Westside are reported at 17 to 21 times rental. My own comps that track Echo Park and Silver Lake show GRMs at between 14 to 15 times rental. This is up from 10 to 12 times rental a few years ago.  My research can find no GRMs this high or cap rates this low going back to the 1920s. A Los Angeles Times article from 1998 reports a Grubb Ellis Survey showing 1998 GRMs at 5.75 times rental.  The previous peak occurred in the second half of 2006 when GRMs reached 14 times rental, according to Hanes Company data.

We are at the apex of the perfect storm driving these yields. First, interest rates are at historic lows. Investors are starving for yield. Second, we are witnessing the move of highly educated young people and tech/media/biomed companies to certain urban cores. “Unlike previous generations, today’s college graduates younger than 40 — the nation’s largest demographic — are moving in droves to neighborhoods in San Francisco, Seattle or New York,” Portland economist Joe Cortright said. According to Cortright, companies are also increasingly setting up in or near city centers, offering well-paid jobs to those graduates. As more people move to urban cores, they’re competing for a limited number of rentals. Housing construction is still lagging behind pre-recession levels, data show. (Los Angeles Times, November 15, 2015).

However, despite these trends, one has to reflect whether to buy at these levels reflects value investing or shrewd market timing.

At our November LACRA meeting, we discussed the tenant demand moving to Hollywood and Playa Vista. Hollywood is capturing the entertainment and media companies, while Playa Vista is attracting entertainment, advertising and technology. Both markets had a lot of brand new creative office space available and are attractive locations for Millennials to live. Firms like Netflix, Viacom, Chainsaw and Buzzfeed expanded or located to Hollywood, while Honest Company, Imax, and Yahoo are moving to Playa. Downtown has started to see some successful creative office developments but has not yet attracted large creative office users. Many still think it is just a matter of time. Many large tenants moved from Santa Monica due to the lack of available space and steep price tags. Santa Monica landlords will need to get their deal making hats on to fill 1.3 million of available space. Landlords continue to push the face rate and keep free rent concessions.  El Segundo has also reinvented itself as a creative office location and attracts Manhattan Beach denizens.  Los Angeles has a number of hot sub markets: Hollywood, Playa, Downtown, El Segundo.     Therefore, companies are more willing than ever to pack their bags and move to find the right space at the right price if necessary in one of these new sub-markets.

From Vornado’s annual report:

“I am beginning to get a little wary.  It looks like the easy money has been made for this cycle.  Asset prices today are high, well past the 2007 peak, and acquisitions are getting dicey.  Our sense is that this may be a better time to harvest than to invest…and that this is the time in the cycle when the smart guys start to build cash.  At Vornado, we will continue to build cash reserves for opportunities that will undoubtedly present themselves in the future.”

We are pleased to announce our completion of the renovation of a five unit apartment building, nestled in Northeast Los Angeles. The neighborhood is located in Highland Park, and is known for its beautiful views and as an up-and-coming destination for millennials. This property demonstrates PMI’s Creative Multifamily Strategy.  The location is easy walking distance to the Goldline Metro Station and retail amenities on Figueroa.

Creative Multifamily is a new line of small, low-rise apartments that are stylish, contemporary, and playful, but yet; still affordable. The complex retains the flavor of its era, but incorporates a totally redesigned interior. Residents at properties like this are typically young and well-educated, and appreciate being located within walking distance of several diverse cultural amenities. In this area, a thrift shop with character is as popular as a high end boutique.

We completely gutted the property, allowing us to build this older apartment from the ground up into a contemporary modern gem. The townhouse units have bright and clean streamlined features, modern appliances, amenities, and lovely patios. Energy efficient stained and polished concrete floors in the living room and kitchen, hardwood floors in the hallways and bedrooms, and pristine marble flooring in the bathroom were added with the tenant’s comfort and style in mind. Below, see some of our updates.  Here is the before picture of the older popcorn ceilings, wall heater, and carpeted 1970s apartment.

We scraped the ceiling, removed the carpet, and polished the concrete slab to create an industrial, creative look to the living.

Before bedroom is below:

After bedroom is below

Here is your old galley kitchen below

The new kitchen features a modern stainless steel hood, new appliances, cabinets, and polished concrete floors. and now a sliding glass door leading to the patio.

We took a 1920s low income apartment complex and removed the plaster to expose the joists and wood ceiling. With other modern features, the apartment is transformed into a creative look:

After

Before

Before

The Los Angeles City Council passed the first reading of the new law requiring soft story apartments to be seismically upgraded. Soft stories are wood frame apartments, usually built between 1950 and 1978, and have open parking on the ground floor level. A structural engineer must determine if the building has a soft story. The LA Times estimated that the retrofit will cost approximately $5,000 per unit. The City Council is working on methods to help small landlords finance the retrofit but at this point, there is no such financing. The Governor just vetoed a bill that the California State Legislature passed providing a 30% tax credit for earthquake retrofit expenditures. Currently, a landlord may be permitted to raise a rent controlled tenant’s rent up to $75 per month (or 10% of the monthly rent, whichever is less) for capital improvements until they are paid. The increase is subject to review and approval by the City. It is not easily obtained. Further, tenant groups are pressuring to have the maximum rent increase limited to 50% of the retrofit cost with the maximum increase of $38 per month.

In about a month, the Los Angeles Department of Building and Safety will begin issuing courtesy letters to the owners of 13,500 wood apartment buildings warning of an upcoming order from the city to do a seismic retrofit. City officials have spent the last year canvassing the city to compile a list of quake-vulnerable apartments.

The official order letters will be sent on a rolling basis, with building officials focusing on the largest apartment buildings first.

Landlords have one year from the notice to either have an engineer provide proof that the building is not a soft story or to have an engineer complete retrofit plans. The Landlord will have an additional year to obtain a building permit. All improvements must be completed seven years from receipt of the official order. The Landlord must inform all tenants that the building is a soft story after the building is so determined to be a soft story.

If the Landlord does not comply, he shall be guilty of a misdemeanor, and shall be subject to prosecution and/or administrative enforcement under the Los Angeles Municipal Code.