LOS ANGELES-The South Bay multifamily market is experiencing steep competition from private investors due to limited supply, according to Ron Harris and Greg Harris, EVPs at Institutional Property Advisors, a multifamily brokerage division of Marcus & Millichap. M West Holding's recently reported purchase of the Milano Apartments complex in the South Bay community of Torrance is a prime example of the tight multifamily supply. Ron and Greg advised the seller, 20900 Anza Avenue Apartments LLC, in the disposition of the property, along with IPA directors Kevin Green and Joseph Grabiec.

M West Holdings was one of 14 potential buyers to bid on the property. It eventually purchased the 248-unit complex for $60.75 million, or $245,000 per unit. "There were double digit offers on this property consisting of large private buyers or large private buyers that were partnering with institutional equity who saw this as a great opportunity," Ron tells GlobeSt.com. In recent years, the South Bay has had 2 million square feet of creative office space come online. Continental Corp. and Mar Ventures also recently launched a 15-builing, 210,000-square-foot speculative office building in El Segundo to accommodate the tremendous demand in the South Bay for creative office. However, only 1000 new apartment units have been built since the early 2000s. Ron adds that an institutional-sized apartment complex has not come online in the South Bay since 1989.

Due to the market's limited multifamily supply but immensely growing job base, there is an extremely high demand for high-end rental units. M West plans to renovate the property, building out the existing club house and common areas and adding high-end finishes to the interior units. "The thesis for the Milano really was to renovate the asset to appeal to a higher-end, young professional-type tenant base, and there is essentially no product to compete with it," Greg explains. "You have this strong demand for housing, and rental housing specifically, and no new supply to meet it."

The property, which has received $4.2 million in capital expenditures over the last five years, was renovated from 2007 to 2009. Greg explains that Fairfield Residential, the seller's representation, renovated the property to appeal to demand at that time. "What has emerged in the last 4-5 years is a tenant base who is looking for higher-end finishes and nicer, more common areas. M West's Game plan for the asset is really to deliver that," Greg explains.

Limited multifamily supply is the result of both scarcity of land and resident aversion to large-scale apartment complexes. "There are a lot of areas that have significant property development," says Ron, noting submarkets like Downtown Los Angeles, Hollywood and Glendale. "The South Bay has basically zero." As a result, competition for multifamily assets in the South Bay will continue to grow.