MF Market Benefiting From High Home Prices

Mogharebi: “We are preparing owners to have a good understanding of how they can maintain rent growth once this upward trend in interest rates starts.”

NEWPORT BEACH, CA— Homeownership is not an option for most renters in some highly desired markets such as Los Angeles and Orange County, making these markets prime areas for rental growth, the Mogharebi Group ‘s principal Alex Mogharebi tells GlobeSt.com. We sat down with Mogharebi recently for an exclusive interview about multifamily rent growth in Southern California and the multifamily sector here in general. GlobeSt.com: What is your outlook on multifamily rent growth through 2016 in Southern California? Mogharebi: In general, rental demand will continue to be strong and outpace supply. Although job formation continues to grow at a stable rate, overall household income growth has lagged behind rental growth, which has resulted in some interesting trends. Rent growth will continue at a tempered pace through 2016. Specifically, rents in the Inland Empire will outpace both Los Angeles and Orange County as renters are lured away by the comparatively affordable housing that is available there. Since December 2014, Riverside and San Bernardino counties have experienced approximately 6.8% growth, whereas Los Angeles and Orange County are pacing between 4.3% and 5.7% growth. GlobeSt.com: What is the impact that rents will have on renters living in Orange County, Los Angeles or the Inland Empire? Mogharebi: Rent growth will impact the various regions of Southern California in different ways. In this cycle, the percentage of household income being put towards rent is significantly higher than it was in the last cycle. In highly desired markets, such as Los Angeles or Orange County, that amount is nearing 30%. In addition, homeownership is not an option for most renters due to record-high median home prices. These market conditions are causing renters in areas such as Los Angeles and Orange County to seek alternative areas for renting to offset the increasing burden of higher rents. Submarkets that have direct access to major markets and reasonable commutes are experiencing strong rental growth and high occupancies. Select areas within the Inland Empire market are benefiting from this trend as tenants continue to seek more affordable options. GlobeSt.com: How does this trend in rents translate to property values? Mogharebi: It is understood that rent growth enhances property values, as long as interest rates remain stable. However, there is growing concern that interest rates will begin moving up from recent historic lows. Once we are in a rising-interest-rate environment, property values will be negatively impacted unless there is adequate rent growth that can offset the higher interest rates. GlobeSt.com: Do you foresee any new multifamily development opportunities in the area? Mogharebi: There is potential for new development opportunities along major corridors linking reasonably priced areas to major employment markets. For example, the West Inland Empire is a candidate for new development because it is in the path of projected growth, has strong demographics and continues to improve as home prices near-record highs. GlobeSt.com: Is there anything else that you’d like to share with our readers about rent trends in multifamily? Mogharebi: There is increasing consensus that the downward trend in interest rates will—at some point—start increasing and revert back to the mean. To avoid possible value erosion caused by rising interest rates, we are advising our clients to reposition their assets. We are preparing owners to have a good understanding of how they can maintain rent growth once this upward trend starts. By staying ahead of the curve, owners will be in a better position to preserve rent growth and increase their equity and wealth.