Poll Ranks L.A. No. 1 Place for Apartment Investing : Real Estate: Overbuilt commercial properties and overpriced residential sites have pushed more and more investors toward apartments.
Investing in apartments is reviving, and Los Angeles is the most attractive market for it, according to a new survey released Friday.
Los Angeles, closely followed by Washington, San Francisco, San Jose and Orange County, topped the list of the nation’s 20 best places for apartment investing based on supply and demand, economic health and investment returns, said Grubb & Ellis, a leading real estate brokerage firm based in San Francisco. New York ranked a lowly 18th on the survey.
The survey comes at a time when investing in apartments is becoming increasingly attractive, according to industry experts. Previously, many investors preferred to put their money in commercial office space or single-family housing, where returns have been substantial over the past two years.
However, the single-family housing market--particularly in California--has cooled lately. And most commercial office markets are overbuilt, leaving investors with high risks and scant returns.
Yet, because fewer and fewer families are able to afford a single-family residence, apartments are gaining in popularity. Meanwhile, quality apartment houses are in relatively short supply, increasing their comparative value, said John B. Allen, senior vice president and director of investment marketing at Grubb & Ellis.
“Apartments are enjoying a real renaissance,” added Barbara Pivnicka, spokeswoman for the Roulac real estate division of Deloitte & Touche in San Francisco. “They are becoming much more popular with institutional investors.”
Part of the reason for the apartment revival stems from the rising cost of housing. According to recent statistics, buying a single-family residence has become difficult for most Californians. The statistics are not as dramatic in other states, but detached housing is still out of reach for nearly half of the nation’s residents.
Apartment living, consequently, has gained popularity, particularly for young families. Additionally, developers have been adding numerous amenities to apartment houses, such as gymnasiums, swimming pools and tennis courts, to make them more livable.
“You think about the average young couple today, and you realize that they have to both work for several years just to get a down payment on a home. When they finally do, they find they’re still going to be scraping by to make the mortgage payment every month,” said Jack S. Cooper, managing director of Bank of America’s Investment Real Estate Group. “So they are looking at it, and saying: ‘Why should we do this? What’s the matter with staying in an apartment?’ ”
Still, investing in apartment buildings is not for everybody, said Stan Ross, co-managing partner of the accounting firm of Kenneth Leventhal & Co. in Los Angeles.
“Apartments require a great deal of management,” he said. “And there is very little liquidity.”
Investors are able to buy and sell stocks and bonds at a moment’s notice, but selling an apartment can take months. And an investor in a hurry can lose money if the market slumps.
But individuals can reduce the risks by investing in real estate investment trusts or mortgage-backed securities, Ross said. Those who want to take on greater risks but not deal with the upkeep of a building can buy stock in real estate firms, he added. And others might form investment groups with friends and real estate experts to buy into the market, he said.
BEST MARKETS FOR APARTMENTS
Risk adjusted City return* 1. Los Angeles 14.1% 2. Washington 13.9 3. San Francisco 13.6 4. San Jose 13.6 5. Orange County 13.1 6. Chicago 13.0 San Francisco/ 7. East Bay 12.9 8. Boston 12.7 9. Philadelphia 12.7 10. Minneapolis 12.6 11. San Diego 12.5 12. Seattle 12.5 13. Cleveland 12.1 14. Bergen, N.J. 12.1 15. Middlesex, N.J. 12.0 16. Sacramento 11.9 17. Portland, Ore. 11.8 18. New York City 11.8 19. Morris, N.J. 11.7 20. Baltimore 11.6
*Risk-adjusted return is derived by factoring a market’s current and forecast supply and demand, its economic diversity and its investment returns.
Source: Grubb & Ellis
