New legislation and rising land and construction costs in L.A. are making developers think twice on new apartment starts, according to Steve Fifield, co-founder and principal at Century West Partners. Since Measure JJJ passed in November 2016, Century West Partners has not purchased a land site since the ordinance passed, and next year, it expects development will continue to slow. We sat down with Fifield to ask him about apartment development in L.A., his outlook for next year and why new legislation meant to encourage development is actually impeding it.
GlobeSt.com: Do you expect apartment construction to slow down next year?
Steve Fifield: Apartment construction started slowing down this year. It isn't something that is going to happen in the future. It has already started. It is slowing down for several reasons. First, the banks are being more selective. They aren't lending as aggressively as they were before. If you don't have an A location, they will usually pass, and today, loans are more like 55% to 60% loan to value on construction deals. That means that you have to put in more equity. Secondly, land and construction costs in the last year have sky rocketed. Land prices have doubled in virtually all L.A. submarkets. As a result, you see some developers with land sites with entitlements that have appreciated so much that it was a better deal to sell without building the property.
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