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September 01, 2017

OC Multifamily Investment Trends On The Horizon

ALM GlobeSt

Carrie Rossenfeld

Historic apartment fundamentals, consistent rent growth and value appreciation should continue throughout the year, but we are also beginning to see a tempering of this growth, Kidder Mathews executives tell GlobeSt.com.

IRVINE, CA- Historic apartment fundamentals, consistent rent growth and value appreciation should continue throughout the year, but we are also beginning to see a tempering of this growth, Kidder Mathews executives SVP Steven Brombal and associate VP Joshua Rhee tell GlobeSt.com. The two have joined the firm's Orange County office here, where they bring 36 years of combined multifamily brokerage and advisory experience. Prior to joining Kidder Mathews, Brombal and Rhee were with Berkadia Real Estate Advisors in Orange County; they will continue their partnership, specializing in multifamily investment properties in the Greater Orange County area.

We spoke with Brombal and Rhee about their new role with the firm and how they view multifamily investment for the remainder of the year.

GlobeSt.com: What are you looking forward to most in your new roles with the firm?

Brombal: With the continued expansion of Kidder Mathews' presence in Southern California, we were excited to be identified to help the company further its growth in the Orange County multifamily space. The Irvine office of Kidder Mathews is fairly new, and our ability to penetrate the multifamily market with the Kidder Mathews brand is an exciting challenge. We anticipate the market to continue responding favorably to our array of professional advisory and brokerage services through Kidder Mathews.

Rhee: Earlier this year, Kidder Mathews recruited a prominent and well-established multifamily team in San Diego, and we are looking to duplicate their success in the Orange County market. From senior management down to our supportive local and regional staff, everyone has been extremely welcoming, and we are very proud to be associated with such a professional organization servicing the needs of our clients.

GlobeSt.com: How do you see the outlook for multifamily investment for the rest of the year?

Brombal: The year 2017 has trended in the same fashion as the previous several years, with historic apartment fundamentals, consistent rent growth and value appreciation. We do see this continuing throughout the rest of the year, but we are also beginning to see a tempering of this growth.

Rhee: There continues to be an abundance of cash in the market seeking apartment inventory, which has been scarce of late. In a recent assignment, we received eight offers, seven of which were all cash, and that activity resulted in a closing above the asking price in a 15-day escrow. Buyers continue to be bullish in pursuing prized apartment assets in desirable submarkets, evidenced by our recent closing of just over $10 million, which had a brief 10-day due diligence.

GlobeSt.com: Looking ahead to 2018, what are your predictions for multifamily investment and finance?

Brombal: On the finance side, we expect to see challenges in obtaining acceptable investor-loan proceeds due to the widening gap in current and market rents. It has been very challenging for private capital owners to keep pace with the rapid rental increases in Southern California. This has impacted the net operating income of buildings, and we frequently see loan-to-value ratios in the 50%-to-low-60% range. | Rhee: With the amount of uncertainty in national and global affairs, we do not anticipate interest rates fluctuating dramatically. We are in an environment of historically compressed cap rates, which we do not see changing in the near future unless this wide gap between current and market rents dissipates. In 2018, should the expectations of buyers and sellers on pricing become less aligned, this could influence the historically low multifamily cap rates.

GlobeSt.com: What else should our readers know about the multifamily market as we move further into the second half of the year?

Brombal: We are seeing an unprecedented amount of new class-A multifamily development, along with smaller infill sites throughout Orange County. Older industrial, commercial and office property sites are being rezoned and redeveloped into infill-multifamily projects.

Rhee: This sheer number of units coming on line in the next 12 to 24 months could lead to class-A buildings continuing to offer concessions for absorption. Smaller class-B and class-C buildings throughout Orange County stand to benefit by providing an "affordable" housing alternative to the new class-A product.

For the full story, visit: GlobeSt.com

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