Legacy Partners' newest property doesn't need a fancy name. The apartment developer lets the address say it all: 7950 W. Sunset.
The mixed-use development features 183 apartments and ground-level retail on the famed Sunset Strip. “It's a stellar location,” says Tim O'Brien, a partner and senior managing director at Legacy, citing the property's proximity to the Hollywood Hills and views of the city.
The location will be one way that the property tries to distinguish itself from its competition this year as the overall Los Angeles apartment market softens. Still, the area is expected to remain one of the stronger performers in 2009.
Legacy achieved a long-term ground lease agreement with the Director's Guild of America in 2005 to replace a parking lot with a new five-story development.
The new property features 28 studio, 81 one-bedroom, and 74 two-bedroom apartments. There is an elevated infinity edge swimming pool with a spa and a sundeck and four rooftop sky terraces, one with a lounge featuring billiards, a private bar, and intimate seating.
The community, which was completed at the end of 2008, was about 40 percent leased at the beginning of February, with monthly rents starting around $2,000 and going up to $4,600.
In addition to the apartments, the property has a little more than 13,000 square feet of retail space, and all but one spot had been filled by Wells Fargo Bank and several restaurants.
Legacy's equity partner is AIG Global Real Estate. The project also used a conventional loan from Guaranty Bank.
The firm is also scheduled to complete 1600 Vine, a 375-unit apartment community in the city, by the end of the year.
The large mixed-use development also includes a 305-room W Hotel, 143 W residences, and about 50,000 square feet of retail space and transit plaza improvements.
There will only be about 1,500 new units delivered in Los Angeles this year, compared to about 3,500 in 2008, which will help the overall health of the market, according to Marcus & Millichap Real Estate Investment Services.
As it will be for so many apartment markets, job losses will be a critical factor in Los Angeles in 2009. The unemployment rate in Los Angeles County was moving toward double digits this year after hitting 9.5 percent at the end of 2008, according to the latest state figures. Statewide, the rate was 9.1 percent.
The job cuts may mean more turnover in units. And, as more people lose their jobs, there will be more pressure for affordable housing, which is in short supply, says Kitty Wallace, senior vice president at Sperry Van Ness Real Estate Services, noting that much of the recent housing that has been built has been high-end apartments.
Many expect Southern California rents, which have been among the highest in the nation, to stay flat or decline this year.
Depending on the market, owners are offering rent concessions from four weeks to 10 weeks, according to Mike Dow, executive vice president of the Western region for Riverstone Residential, a CAS Partners company. The firm manages 70,000 units throughout the West, including 15,000 in the L.A. area. Concessions have been increasing for the past year. The last time the region saw very light concessions was the fall of 2007, according to Dow.
Like many firms, Riverstone is putting increased focus on controlling expenses this year. For example, the firm has a national platform and will work hard to negotiate the best deals with its various contractors, says Dow.
Wallace expects to see an increase in sales volume in 2009 as the pipeline for available properties grows. “The good news is that many sellers have figured out where the prices are,” she says. Many have reduced their prices, and the gap between their expectations and what buyers are willing to pay has narrowed.
She says the best buyers have been long-term holders who see that prices are down and can see the value of a property over the long haul. The biggest group, however, is made up of people looking for distressed properties. Although a small percentage of this group is making unrealistic offers, many are qualified buyers. Those with experience and a game plan are finding deals.
The Monem Corp. is a company that looks for properties “with a story,” says Danny Monempour, president. The property itself might not be distressed, he says, but the owner might need money or have another reason to want to sell.
His Los Angeles-based firm purchased several multifamily properties in 2008, including three in December. The recent transactions included a 15-unit community in the Koreatown submarket for $2.3 million, a six-unit property in Venice for $1.8 million, and another 14-unit property in Koreatown for an undisclosed price. The company also sold four properties at the end of last year.
Monempour expects to remain active in 2009, noting that borrowers with a good track record and a good property can still get good loans. He estimates cap rates to be about 6.5 percent on average.
He stresses that the market is changing quickly, and conditions could be dramatically different in three months. Although the market is in a downward trend, Monempour is an owner who sees opportunities.
“This is the first time in a long time that people have to sell,” Monempour says.