Los Angeles’ multifamily market is already experiencing uncertainty from rising rents and dropping vacancy, but high interest rates and the city’s looming tax on real estate transactions are adding to it. Bisnow spoke with New Standard Equities Founder & CEO Edward Ring on how this could impact L.A. multifamily investment in 2023.
During a recent attempt to acquire a property in North Hollywood, Ring saw firsthand some sellers attempt to exit the market before Measure ULA goes into effect and how this compares against an uncertain market and a buyer pool that expects to get an urgency discount.
“Everyone swarmed on this one property thinking it was going to be a deal, but instead, we came up pretty short in terms of where we thought value would be,” Ring commented. “Ultimately, the seller found out where the market believes the values to be and has elected not to sell,” he added.
The rising cost of borrowing is also putting pressure on the market but from a historical perspective, interest rates are “not too terrible,” adds Ring.
Read the full Bisnow article here.
Despite historically staunch opposition from the multifamily industry, rent control is unquestionably gaining traction in municipalities around the country. Multi-Housing News interviewed New Standard Equities Founder & CEO Edward Ring on the silver lining of rent control in California but how poorly written laws could have adverse consequences in other jurisdictions.
“Rent regulation and the COVID moratoria helped keep rents from soaring out of control in California in recent years. This has forced cap rates down to unprecedented levels in the trendier markets,” commented Ring. “It may help the state stabilize through the next recession and a faster pace given the nature of tech employment and a persistent lack of housing supply. California doesn’t have that far to fall and recovery won’t take long.”
If cap rates compress by 250 points in the Sun Belt, it may cause pain for those who bought at peak pricing. California investors who bought similar product—but at a cap rate that compressed by 100 points, as the evidence suggests—may be rewarded for their investment in the Golden State, especially as wages are higher than average in California and supply tends to be constrained.
Despite these potential results, operators in cities that are implementing new rent control laws or make their laws too strict, may struggle to work under these constraints, explains Ring.
Read the full story “How Rent Control Ballot Measures Are Mounting,” here.
With increasing interest rates, rising unemployment and other factors, real estate investors may have to settle for less profit in the long run, Founder & CEO Edward Ring told KNX News Radio in an interview.
“The days of buying property with near zero interest rate loans and expecting big profits could be over for a while,” Ring said. “You might need to be satisfied with a 10-12% annualized return with your appreciation.”
Although, he noted that even with a lower profit rate, when compared to the volatility or downsides of stocks or other investments, real estate will remain a preferred investment vehicle.
Listen to the interview here.
2022 was a challenging year for real estate. Record-breaking rent growth and sizable deals were the norm a year ago, but they have since been supplanted by historically high interest rates, investor hesitation, and a pall cast by turbulent international markets. In times such as these, it could seem impossible to focus on the long run and not let fear cloud one’s judgment. But being myopic rarely pays off. Though we cannot control most factors that exert influence over the market, we can depend on strong submarket fundamentals across the portfolio and reasonable investment horizons. The holding period for a typical New Standard Equities property, which is usually between five and seven years, is long enough to outlast a typical recession and emerge on the other side without deviating from the overall business plan.