Multifamily Investors Flocking to Long Beach

CoStar Market Insights: Record-Setting Pricing, Sales Volume Driving Long Beach’s Red-Hot Apartment Market

The $132.85 million price tag for The Current (pictured, above) at 707 E. Ocean Blvd. was the largest of many multifamily sales recorded in Long Beach, CA during the past year.

As apartment prices continue to skyrocket in Los Angeles’ premiere Westside coastal submarkets, multifamily investors are turning their sights to the southern reaches of the metro.

In the 12-month period ending with the first quarter of 2018, Long Beach / Ports was the most heavily-traded apartment submarket in L.A. Nearly $1 billion in sales were recorded in that time, making it the busiest four quarters for apartment deals in Long Beach history.

A dramatic run-up in pricing and diminishing returns in L.A.’s premiere areas helps explain why investors are exploring the more peripheral communities.

In places like Santa Monica, West Hollywood, Beverly Hills and the Beach Communities, the average price per unit in recent multifamily trades is above $400,000 per unit. Average cap rates in these areas are below 4 percent and have dropped below 3.5 percent in Santa Monica and Venice Beach. By comparison, Long Beach apartments are trading at an average of about $260,000 per unit, and returns are more appealing here, with average cap rates around 4.5 percent.

When compared to L.A.’s other coastal submarkets, Long Beach is significantly more affordable. But “affordable” is a relative concept is L.A.’s booming residential market.

Unit pricing has more than doubled here since the beginning of 2014, and average cap rates fell by nearly 200 basis points during that period. While Long Beach multifamily assets may offer more appealing returns than some overheated submarkets to the north, pricing is still at a historic high, and cap rates at a historic low.

While a few major institutional deals helped contribute to the recent record-setting volume totals, small-scale, private investors are driving the bulk of activity. Nearly 450 multifamily trades occurred in Long Beach in 2017, meaning almost one out of every 10 communities in the submarket changed hands. Another 135 trades have occurred as of mid-May this year, and the steady, years-long trend of accelerating pricing shows little sign of slowing.

The largest sale during the recent record-setting, four-quarter stretch was Canadian-based MDC Property Services’ July 2017 acquisition of the 4-Star, 223-unit The Current for about $133 million, or roughly $596,000 per unit. Built in 2016, The Current was the newest multifamily asset in Long Beach at the time of the sale, although it had already reached 90 percent occupancy when it traded.

As of mid-May, this year’s largest trade took place in March, when Greystar purchased the 4-Star, 241-unit Avana on Pine for $84.2 million, or about $400,000 per unit. The asset was built in 1992 and renovated in 2016, though Greystar reportedly plans extensive further value-add improvements to the property.

The new owners cited Downtown Long Beach’s popularity with millennial renters and affordability relative to other Southern California coastal areas as motivating factors in the acquisition.