Which asset classes are lenders after? It is a toss-up between apartment product and industrial. In a market like Los Angeles, the decision is even tighter, because industrial product performs so well in this market. Institutional lenders particularly have become more vocal about looking for industrial deals and increasing their exposure to industrial product. As apartment product shows tighter yields, industrial may quickly become the preferred asset class in Los Angeles.

“The industrial market is definitely popular,” Bryan Shaffer, a principal and director at George Smith Partners, tells GlobeSt.com. “If you surveyed 20 institutional lenders and asked where they wanted to put their money, I think that industrial is the place where people want to put money into. Several of the big lenders have requested more industrial because it is so stable.”

Equity investors are also finding industrial product more attractive, and for similar reasons. Industrial offers healthy yields and continues to perform well in the Los Angeles market, but apartment yields have continued to tighten, offering less of an upside for equity capital. “The only area where we saw a pull back last year was with equity investors because they weren't seeing much upside. At a certain level, how much better can you make a property,” adds Shaffer. “If you think the best properties are $500,000 a unit, and you are buying at $450,000 a unit, there isn't a lot of movement to create value. That might be the one area where we see equity investors look at other asset classes or stay on the sidelines. I think that will be offset by family offices, but we will have to see.”