Why SoCal Apartment Prices Haven’t Fallen During the Pandemic

Southern California apartment investors have not seen a pandemic discount. Investor Advanced Real Estate has been an active buyer in the market this year, and while some sellers have made adjustments for declines in rent collections, low interest rates have kept prices stable.

“Throughout the pandemic, there remained consistent competition and barely a change in pricing,” Paul Julian, principal at Advanced Real Estate Services, tells GlobeSt.com. “You received a small discount for COVID collection losses but nothing significant like we saw in past recessions. The combination of strong rent collections in the suburban markets, and record low financing rates, kept capital chasing So Cal apartments.”

The firm closed 2020 with the acquisition of two-property apartment portfolio for $72 million. The two properties include the Edward, a 128-unit property, and the Lincoln on Grand, a 117-unit property. “This opportunity was attractive because of the location of the properties in dense, in-fill, Orange County markets, so close to many of our other properties,” says Julian. “Very few OC properties over 100 units trade each year. We were happy to have been able to purchase these 2 as well as another in Santa Ana in November. Also, both properties were built in the early 1970’s and in original condition so they should greatly benefit from our renovation program.”

In 2020, Advanced acquired 1,166 units in a total of six properties for $350 million. The strong acquisition activity underscores the firm’s bullishness on the SoCal market. “If you look at the disruption to multifamily, the worst of it has been isolated to the urban cores and areas like Hollywood where an entire industry has been on pause,” says Julian. “The suburban and coastal markets have seen some issues with collections, off from 2%-7%, but have maintained solid occupancy and rents have been stable.”

By comparison, other asset classes have seen a more significant decrease in pricing and demand. Office, retail and hotels have been the most impacted in the last year. “Apartments have fared well, especially considering what the economy has endured. We are long-term holders, so even though we feel these were great buys today, hopefully as the vaccine is rolled out and the economy stabilizes, they will improve even more,” says Julian.

This year, Advanced will remain an active buyer in Southern California, including the launch of a second fund. “We think there could be more acquisition opportunities in 2021 as sellers who were fearful to sell during the height of the pandemic, begin to bring properties to market,” says Julian. “It is hard to predict how much economic normalcy we’ll experience until late 2021 or if we’ll have to wait for that until early 2022 when most of the population is vaccinated. But in the meantime, we will continue to manage our properties effectively, support our residents and search for new acquisition opportunities.”