Concern about interest rate increases may also be overstated because only short-term rates are rising. Long-term rates, on the other hand have remained flat. “In today's environment, there are gradual interest rate increases; however, the long-term rates aren't increasing, they are flat. Even if long-term rates do increase, Southern California's strong rent growth will offset the increase.”

Los Angeles real estate investors need not worry about the Fed's expected routine rate hikes—at least not more than anyone else. Industry professionals frequently say that gateway cities like Los Angeles are more affected by interest rate hikes than other markets, but Christopher Macke, managing director of research and strategy at American Realty Advisors, says that the significant rental rate increases in Los Angeles will offset the potential rise in interest rates.

“Everyone argues that rate increases are going to hurt the gateway cities more because their cap rates are so low. You have to look at the income and the capital markets effects,” Macke tells GlobeSt.com. “The Southern California market in general will have stronger rent growth and property fundamentals because of supply constraints. As a result, there will be less of an impact because rental rate increases will offset the interest rate increases.”

While Macke doesn't believe that gateway cities suffer more from rate hikes, he says that purchasing the right asset with strong rent growth is always important. “Everyone says that the gateway markets are going to get hurt the most by rising interest rates, but I think that is too broad of a generalization,” says Macke. “As long as you are in an asset that has strong rent growth, your income should offset your cost of capital. Increases in interest rates don't equate to a one-to-one increase in cap rates. In a market like Southern California, you have a lot more liquidity than you do in a smaller market. That means that you have stronger downward pressure on cap rates.”

While Los Angeles' rent growth will cushion the blow, Macke says that markets without rent growth are the places that will see a greater impact. “You get hurt when you are in a market that acts like a fixed income instrument and the rents or income on your property don't move,” he explains. “Then when your cost of capital goes up, you lose out. People overlook that. This all comes down to the race between your income growth and your cost of capital. I would rather be in an asset with rising income than one without rising income.”

Concern about interest rate increases may also be overstated because only short-term rates are rising. Long-term rates, on the other hand have remained flat. “In today's environment, there are gradual interest rate increases; however, the long-term rates aren't increasing, they are flat. Even if long-term rates do increase, Southern California's strong rent growth will offset the increase.”