Laguna Point Properties Secures $329M to Buy DTLA Apartment Portfolio

Laguna Point Properties has secured $329 million in acquisition financing to acquire a five-property, 1,036-unit multifamily portfolio in Downtown Los Angeles. MF1 Capital provided the three-year, floating-rate acquisition loan with two 12-month extension options. All of the apartment units in the portfolio have been converted from office properties.

Laguna Point purchased the 184-unit Lofts building, the 214-unit Main property, the 198-unit Manhattan property, the 178-unit Spring property and the 263-unit Tower property. The name of the seller was not disclosed, but all of the assets underwent conversions from office properties into apartment units from 2007 to 2010.

Before the pandemic, the Downtown Los Angeles apartment market was growing rapidly. In 2019, 4,447 new units delivered in the Downtown Los Angeles market, a 35% increase over the previous year and a new record for the submarket, according to a report from the DCBID. With the new deliveries, the apartment vacancy rate increased 2.9%; however, rents remained flat at $3.22 per square foot and effective rents increased 1.4%.

The pandemic stalled apartment demand temporarily, but by the end of 2021, fundamentals had improved, with occupancy growing to 93.5%, an 8.7% increase year over year and average rental rates growing to $3.29 per square foot, a 13.1% increase year-over-year. Effective rents reached $2,772, an increase of 11.7% increase year over year. There continues to be an active construction pipeline. Figueroa Apartment Tower and Mitsui Fudosan’s 41-story apartment tower are both nearing completion, according to data from the DCBID.

The submarket echoed the recovery throughout the Greater L.A. area. In Los Angeles, apartment leasing is at a 15-year high, illustrating the strong renter demand, according to research from Marcus & Millichap. Demand has been so healthy that vacancy has fallen to 4% and rents are up 3% for the year. Job growth is behind the market’s swift recovery. In the second quarter, 89,000 jobs were added to the employment market. At the same time, 9,700 units were leased and the county added 37,000 new households to Los Angeles County. Marcus & Millichap expects equally strong job growth in the second half of the year, ultimately predicting that 250,000 jobs will be added to the market this year.

But, the deal doesn’t only illustrate the rebound in the DTLA market. Interest rates are fueling an uptick in debt resizing, according to Miles Pratt, managing director of real estate at Archer, a market expert unrelated to the Laguna deal. “The debt quotes used to underwrite a property 30 days ago are long gone,” he tells GlobeSt.com. “It’s forcing buyers to either adjust the price or adjust their return expectations. We’ve started to see investors circle back around on deals that had assumable debt – as those rates are starting to look relatively more attractive today.”

It’s also an example of buyers securing short-term debt to wait out remaining market uncertainty. ”To ride out near-term turbulence, more and more sponsors have turned to short-term financing solutions as a bridge until the property can be refinanced, sold or recapitalized,” Marc Gordon, principal, co-president and CFO at Investors Management Group and a market expert, tells GlobeSt.com. “Having a sophisticated debt team at the table is essential to getting a large transaction done today. Multifamily assets are a proven hedge against inflation, which is one reason they are in such demand by investors and lenders. We’re confident that multifamily in particular represents attractive opportunities over the long-term. ”

A JLL Capital Markets Debt Advisory team led by senior managing director Charles Halladay, director Jamie Kline and associate Charlie Vorsheck represented the Laguna Point in the deal.