Even the Worst Multifamily Projects Will Fill Up

Mark Tarczynski is an EVP at Colliers International.

LOS ANGELES—Multifamily projects will continue to lease up quickly at rents above expectation, according to Mark Tarczynski , EVP at Colliers International . He says that the dearth of supply and increasing demand has lead to success at every multifamily project to deliver in the Los Angeles market in recent years. As a result, rental rates are sky high, and until there is more supply, her expects them to keep climbing. “Everyone that puts up a multifamily project enjoys huge demand for their project because there is just no place to live,” Tarczynski tells GlobeSt.com. “Unless you want to live in Santa Clarita and commute into Downtown Los Angeles, which is a hell that no one wants to go through, you need a place to live in the city and there is just not enough supply to meet demand.” Developers aren’t only leasing buildings quickly, they are being leased prior to opening and at rental rates that are well above the current market rates, according to Tarczynski, who says that this is a trend across the market. “Every developer has leased up projects at rates that have been surprising,” he adds. “It is amazing to meet that when a project opens, it is immediately 30% to 40% leased and the developer overachieves velocity numbers by 20% and overachieves rental rates by 10%. It is amazing how fast these things fill up.” One Santa Fe in the Arts District of Downtown Los Angeles is the latest example of this effect. It leased up within a year after opening at shocking rental rates for the market, starting at $1500 for a studio and climbing to $4,500 for a two bedroom. The property had received criticism during construction from residents that said the design was unfitting for the market, but in the end, it didn’t seem to make a difference to renters. Tarczynski uses this as a prime example of the very strong demand in the market. The trend raises the question of how far rental rates can climb. Tarczynski says that apartment complexes that were once considered luxury are now workforce housing because of the trajectory in the market. “When it opened, Geoffrey Palmer’s The Medici was a high-end project when it opened,” he says. “The rents were far above the average rents in Downtown Los Angeles, and everyone thought of it as an expensive place to live. Today, at 10-12 years old, those rates are considered workforce housing. That is typical of what is happening across the market. The brand new projects are always going to lead the market, and older projects are always going to be a lower cost alternative.”