Los Angeles Multifamily Owners Are Getting Creative In Slower Market
With transactions down and new developments largely put on the back burner for now, even the big names in multifamily are getting creative to keep busy and generate revenue.
“What we've been really pushing hard on and trying to engage in quickly are [accessory dwelling units],” AvalonBay Communities Vice President of Development William Lee told an audience at Bisnow’s Los Angeles Multifamily event at the Sheraton Grand Los Angeles.
AvalonBay has the advantage of a large number of existing properties and therefore having a lot of potential space to choose from. It owns about 60 communities and 18,000 units in Southern California alone.
Finding underutilized amenity spaces and surface plots at their existing properties to convert into ADUs has proven fruitful, Lee said. The company has created 25 ADUs so far and has identified more than 200 potential sites for either conversions or detached ADUs. And while that may seem very small-scale, Lee says, if they tap into all those potential sites, it would really have an impact.
“You add it all up, that's more or less another community that we're able to build out over time, but at no basis,” Lee said.
Others were also looking at ADUs but seemed less confident that the scale was there.
CGI & Real Estate Investments Executive Vice President of Acquisitions and Development Andre Soroudi said his company was creating about 13 units at a 170-unit property in Oxnard.
"It's marginal, but it helps definitely," Soroudhi said.
The use of accessory dwelling units in multifamily units has been a slow but steady trickle since 2020 when state legislation was introduced to make it easier for apartment owners to add these to their properties, either detached or conversions of amenity space such as recreation rooms or tuck-under parking.
Speakers across many of the event’s four panels touched on the benefits of being an owner in the current market.
“It's probably a pretty good time to actually own assets, especially if you're going to own them long-term,” Soroudi said. “You're basically going to have no new deliveries for a period of time, which will be very strong for rent growth. That will definitely be positive for anyone that's taking advantage of current valuations and can kind of see a little bit down the road.”
Some lamented their difficulty finding partners who want to invest in long-term hold strategies.
Cypress Equity Investments Managing Director of Acquisitions Adrian Berger said he was looking for a "unicorn" who was interested in building in the LA area now simply because there is a striking demand.
“To find someone who wants to be long-term in nature, who can say, ‘Hey, there is a massive undersupply issue in LA, Santa Monica, West Hollywood,’ and build to just own that thing for cash flow — there should be more of that money,” Berger said. “But somehow, it's just not how the deals or the investors from overseas or the pension funds think about it.”
Lee also said AvalonBay is still looking at new development projects, but they are mostly looking at those that will take a long time to get to the construction phase. As an example, Lee said that AvalonBay had recently partnered with a retail owner-operator to reposition assets and convert them into mixed-use projects.
“We know in most of these cases, we have to go through the [California Environmental Quality Act] process,” Lee said. “It's going to take 18 to 24 months, but it allows us to generate some developer and entitlement fee income along the way, plus give ourselves the first right of option to actually purchase the site when we're through the entitlement process.”
