March 19, 2018 Joseph Pimentel, Bisnow Los Angeles
The multifamily landscape across Los Angeles is in a critical period. The multifamily industry is facing several issues from affordability, rent control, influence of technology, catering to millennials to the cost of development, no one is quite certain what is going to happen in the coming years in the Los Angeles market.
Bisnow spoke with RealtyMogul Chief Investment Officer Chris Fraley to gather his thoughts on the state of the multifamily market in Los Angeles.
Bisnow: What is the current state of the multifamily market in Los Angeles city and county?
Fraley: The market has experienced more supply than demand over the past few years, which has made rent growth stagnant in some markets (including downtown). ... The market overall is quite stable and experiencing stronger rent growth in some pockets, which are undergoing a transformation.
Bisnow: What are some of the biggest trends driving the multifamily industry? What is tech's role in the industry?
Fraley: Technology is constantly changing the way we live. The multifamily industry has been slow to adapt, but I predict there will be widespread use of innovations in the near term. Innovations in sustainability, cognitive living [and] building management will become more commonplace and there will be a wider gap between well-amenitized communities and more standard [communities] as well as property management differentiation.
Bisnow: We are hearing so much talk about rent control. What are your thoughts on rent control and what kind of impact do you see it having down the line?
Fraley: I am a firm believer [in] rent regulation, so long as the rules don’t change to negatively impact existing owners. I started my career at the NYC Department of Housing Preservation and Development. Rents need to be able to adapt in order to meet market expense conditions as well. Whole neighborhoods were abandoned and burned in NYC in the '70s and '80s as property ownership became infeasible.
Bisnow: What are you foreseeing in the multifamily industry in the next three to five years?
Fraley: I think Los Angeles will experience significant rental growth in the next three to five years due to continued strong household formation. The complex entitlement process and high cost of construction will keep the development pipeline from getting too robust this cycle. Los Angeles is still a relative bargain compared to higher-cost regions like NYC and San Francisco.
Bisnow: Are there any other issues that are important but have not gained any traction in the multifamily industry?
Fraley: In most of the top urban areas, the development community cannot deliver workforce housing without government assistance. Developers are responding by creating micro-units and macro-units and co-living spaces to accommodate the needs of the millennials and others who wish to live in the urban core neighborhoods at a more affordable price point. There are still significant zoning challenges in many areas preventing this. Planning commissions need to adapt in order to allow for the innovations and demands of this housing type.
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