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.
Interviewed on the Best Real Estate Investing Advice Ever podcast, Founder & CEO Edward Ring discussed the difference between a value-add and repositioning business plan, how he cautiously approaches repositioning apartment buildings, and which apartment interior updates have led to the most success for his business.
When discussing if there is a difference between a value-add business plan versus a repositioning business plan, Ring said: “I do think there is a difference. I believe you can have a value-add apartment project and understand you can make some upgrades like [renovate or add] a fitness center, but that’s the extent of it. However, you can also find a project in a B class position and there are no other B+ or A- luxury properties in the submarket, so in those circumstances, there is a true repositioning play. It’s a rebranding – taking your community previously be known as X and creating a new space for it as Y.”
Founder & CEO Edward Ring joined How to Scale Commercial Real Estate podcast to discuss market dynamics for Class A and Class B assets in the multifamily sector. Ring covered a range of topics including why there is value and opportunity on the west coast, how rent control is a major issue for the California multifamily industry, the dynamics of pricing in different markets, and more.
Listen to the full episode here.
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Now that the dust has settled on the first half of 2022, it is important to take a moment to consider the climate surrounding commercial real estate, specifically multifamily. The record-breaking transactions and high rates of returns of 2021 have given way to a much less steady investing environment, which resulted in a slower, but not stalled, rate of capital movement.
Honoring her late husband’s cystic fibrosis journey by assisting others, COO Julie Blank has joined the Board of Directors with Claire’s Place Foundation, a non-profit organization providing support to children and families affected by cystic fibrosis (CF).
“In 2007, my husband passed away from CF, our twin boys were just three years old,” Julie said. “I am now in a place in my journey where I am ready to devote my time to a cause that honors my husband and other CF warriors. In my research, I found Claire’s Place Foundation. After reading Claire’s story and learning about her foundation, I did not have to search any further. Her energy, selflessness and love of life mirrored my husband.”
“It was a clear and unanimous decision to elect Julie to our board,” commented Claire’s Place Foundation Executive Director Melissa Yeager. “Not only does she bring her personal experience, but also a wealth of professional experience. We are honored to have her join us in fulfilling Claire’s mission here at Claire’s Place.”
Claire’s Place Foundation is a 501(c)(3) non-profit organization providing support to children and families affected by cystic fibrosis. The foundation is named in honor of Claire Wineland who lived with CF her entire life and died at the age of 21. She was an activist, author, TEDx Speaker, social media star and received numerous awards. Claire’s foundation was a way for her to assure that others living with CF enjoyed the same hope, strength and joy that she enjoyed. Recipient of Los Angeles Business Journal’s “Small Nonprofit of the Year” and “Fundraiser of the Year” for its annual Glow Ride, the foundation provides grants to families affected by CF, offering both emotional and financial support. Learn more: www.clairesplacefoundation.org.
There was a substantial dislocation on the institutional equity side of our industry as players continue to seek equilibrium regarding asset pricing and interest rate exposure. While still ongoing, consensus on whether or not the aggressive interest rate increases will cause a recession over the next twelve months is still a matter of debate. New Standard Equities is monitoring the debt and equity markets, yet remains bullish in the sector. While the effects of rising interest rates have had a significant impact on cash flow, rents across our entire portfolio have been rising at an unprecedented rate. Of course, rent is a part of the inflation metrics that the Fed is trying to control, but inflation is not the sole culprit behind the tremendous revenue bumps in NSE’s rent rolls. The firm’s investment thesis has always been to work in markets with a sustained imbalance in the supply and demand for housing. Further, the Acquisitions team has carefully selected markets that exhibit high education levels and cater to the knowledge economy. There have certainly been inflationary pressures in NSE’s markets on wages, but that’s also helped tell the story of why many properties are reacting well to leasing programs, often producing lease trade-outs ranging from 15% to 40%. Operationally, the firm is perhaps the strongest it has been since the beginning of 2020.
New Standard Equities COO Julie Blank joined IMN’s 5th annual Middle-Market Multifamily Forum: West as a moderator for the panel “Revenue Management, ROI Best Practices and The Amenities That Unit Owners Are Looking For In This Market”, or what Blank calls a little “R&R”. Panelists discussed ROI, NOI and technology, what works for smaller landlords, buildings and units, as well as how work from home has changed and what Gen Z is looking for.
Held September 8-9, 2022 in Santa Monica, CA, the Forum brought together hundreds of small and mid-sized multifamily owners for networking and business development opportunities.
Learn more here.