Institutional Capital Sources, in Contrast, Show Notable Restraint
By Ryan Patap
CoStar Analytics
February 14, 2024 | 9:17 AM
Private buyers have long dominated multifamily sales activity in greater Los Angeles, but last year saw the buyer category take a larger share of transaction activity than any in recent history.
Private buyers accounted for just over 90% of dollar volumes last year, the highest percentage in decades. From 2010 to 2019 — the decade preceding the COVID-19 pandemic — private buyers represented, on average, around 70% of annual buyer activity.
In contrast, institutional buyers trailed with just over 3% of dollar volumes in 2023. From 2010 to 2019, they accounted for around 12% of activity.
But two headwinds have hit transactions in the Los Angeles apartment market. Elevated debt costs have lowered sales volumes and impacted asset pricing. Average market pricing, $360,000 per unit, is down between 15% and 20% from a recent high of around $430,000 per unit.
Additionally, since April 1, 2023, sellers in the city of Los Angeles have faced a 4% transfer tax for any sale above $5 million and 5.5% tax for any sale above $10 million. The new levies sit on top of the city's existing 0.45% transfer tax.
As institutional buyers typically acquire larger assets than private buyers, the transfer tax likely impacted that buyer type more than private investors. In the last quarter of 2023, there were around 260 multifamily transactions under $5 million, above the roughly 185 transactions in the first quarter of the year. In contrast, fourth-quarter sales above $5 million in Los Angeles County hovered around 50, well below the near 95 recorded in the first quarter.
Given the additional cost, the transfer tax could continue suppressing transactions above $5 million this year.