Beverly Hills CA apartments attract wealthy investors

The Platinum Triangle

Beverly Hills, the California City in a City (Los Angeles) Is known for Rodeo Drive, and celebrity residents is attracting wealthy individuals seeking real estate investments, and driving up prices for its Trophy apartment buildings.

This March a 24 Unit multifamily complex, located one block from the Four Seasons Hotel Los Angeles at Beverly Hills, sold for US$7.5M, giving its buyer a lower return than similar buildings in the USA.

High net worth buyers are accepting lower and lower cap rates, a measure of yield in the real estate industry, for rental apartments in the Los Angeles area’s wealthiest neighborhoods. The cap rate is a property’s annual income divided by the purchase price.

The Beverly Hills investor accepted an annual cap rate of 4.5%, more than 2 percentage points below the national average, said a Managing Director at Los Angeles-based real estate firm Charles Dunn.

Nationwide, the average cap rate for apartment buildings slipped to 6.6% in 2-H of Y 2010 from 6.9% in the 1-H of the year, according to New York-based research company Real Capital Analytics Inc.

A 29 Unit apartment building in Bel Air, part of the Platinum Triangle of wealthy neighborhoods along with Beverly Hills and Holmby Hills, sold in March for US$7.2M.

Giving it a cap rate of 4.6%, the average rate in the Los Angeles area’s richest neighborhoods slipped to about 4% during Q-1 Y 2011 from 5% in mid-Y 2010.

Multifamily property prices have risen as much as 30% in the most affluent parts of Los Angeles over the past 18 months. Values have risen even as California’s jobless rate stood at 12% in March, higher than the US average of 8.8%. The state’s credit rating from Standard & Poor’s is the lowest in the USA, and Governor Jerry Brown is working hard to close a US$15B budget deficit.

Values in Highend neighborhoods are being driven by demand for multifamily properties priced at US$20M or more. The USD volume of such transactions rose 202% last year in Los Angeles County, more than the nationwide increase of 179%.

Building tenants in wealthy neighborhoods “are the so- called echo boomers, the children of rich baby boomers, combine them with a affluent growing immigrant population, and you have set the stage for a tremendous run in the apartment business.

US apartment vacancies declined to the lowest in almost 3 yrs in Q-1 Y 2011, as the weak home buying market fueled rental demand.

Cap rates for apartment buildings also are dropping in Manhattan and Connecticut, including such wealthy areas as Greenwich. In those areas, they declined to 6.7% in Q-1 from 6.9% in Q-2 2010.

In Southern California, the search for safe investments is driving wealthy individuals to buy multifamily properties in upscale neighborhoods. The interest in these areas is less driven by the valuations, which in fact are high, but investors are excited by the yields relative to fixed income, and they are focused on the tax advantages. Plus they can walk down the street and point at it

Buying apartment buildings in affluent neighborhoods is a great investment strategy for those that have patient capital.

A rebound in the real estate market may boost buyer confidence and inspire investors to focus less on wealthy neighborhoods and more on “class B assets or mid-tier areas, as the economic recovery will lead to price appreciation due to diminishing demand.

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster’s Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.

www.livetradingnews.com

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Posted by Shayne Heffernan on May 15th, 2011and filed underEquities, Latest News, Markets, USA.You can follow any responses to this entry through theRSS 2.0You can leave a response by filling following comment form or trackback to this entry from your site