The Apartment Dealer Show is back with the Q3 market update for Los Angeles and San Bernardino County apartment owners. Host Kris German looks past headlines and explains what the data actually means for values, rents, and returns.
Bottom line: demand is strong, vacancy stays tight, and rent growth has begun to tick up again. The Federal Reserve cut interest rates by 0.25%—good news for financing and cash-on-cash—but it may take time before property values bounce back from their recent decline.
1) The Rate Cut: Good for Cash Flow, Slow For Pricing
- The Fed made its first rate cut of 2025 (-0.25%). That helps underwriting: lower debt costs can improve cash-on-cash returns and, in some cases, reduce down-payment needs.
- History says pricing doesn’t jump overnight. Research cited in the update shows it can take 18–24 months from the start of a rate-cut cycle to see a meaningful change in property values.
- Expect a psychology lag: buyers need time to accept higher asking prices after months of lower comps. The reverse took time, too—when rates surged above 7% in late 2023, most markets saw values fall 15–20%, and sellers needed months to adjust.
Takeaway: Underwriting should feel better now; pricing tends to follow later.
2) Risk & Policy: What Owners Need to Watch
- California SB 1465 (now law): if a city cites serious deferred maintenance and an owner fails to correct it, tenants or tenant groups can seek receivership to take control until repairs are complete.
- Organized tenant action is growing nationwide (a multi-state tenant union effort is underway), adding pressure for more rights and enforcement.
- 2025 also brought a wave of new tenant-protection laws; owners who “set and forget” may face higher compliance risk.
Takeaway: The asset class is still strong, but hands-on, compliant management matters more than ever.
3) Demand, Vacancy, and Rents
- Vacancy remains very low in Southern California. Many properties stay full, and new vacancies often have waiting lists.
- Structural demand is durable: a recent report noted ~2 million more Americans are now lifelong renters, and local homeownership costs have jumped ~26% in five years, pushing many would-be buyers to rent longer.
- After a soft patch, rents are up ~2.5% year-over-year in recent data. In cities with stricter Rent Control, owners must rely more on unit quality, amenities, and legal strategies to grow income.
Takeaway: Tight supply + sticky demand support income stability; growth depends on city rules and asset condition.
4) How to Act Now (Simple, Repeatable)
- Operate for today: push lawful rent increases to the allowable ceiling when justified and compliant; in many files rents are still below market.
- Stay proactive: keep maintenance current to avoid SB 1465 risk; document, schedule, and close repairs.
- Be patient on price: finance terms can improve faster than sale comps move.
FAQs
What is a CAP rate?
The CAP rate is annual net operating income ÷ purchase price. A higher CAP rate means more return on price based on current income.
What is GRM?
GRM (Gross Rent Multiplier) is purchase price ÷ annual gross scheduled rent. A lower GRM means you pay less per dollar of rent—often better for day-one cash flow.
How fast will values rise after the rate cut?
Historically, pricing tends to move 18–24 months after rates begin to decline, not immediately. Expect underwriting to improve first; sale comps typically follow later.
What is SB 1465 and why should I care?
If serious repairs go unfixed after city action, tenants or tenant groups can seek receivership of the property until it’s brought up to standard. Keep maintenance proactive and well-documented.
Are rents rising again?
Recent data in the update shows ~2.5% year-over-year rent growth after a pullback, with many buildings still full and wait-listed. Results vary by city and condition.
Let’s Plan Your Next Move
Whether you want to optimize and hold, trade via 1031, or evaluate an exit, we’ll benchmark your building against today’s comps, rules, and financing.
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Educational only; not legal, financial, or tax advice. Consult your advisors.